Skip to content
Matt Levine

Meme Stocks Will Come With a Warning

Also Reddit’s raise, corporate Bitcoins, buzz ETF, rap videos and geese.

In the last few weeks some stocks went up a lot for weird reasons. People on Reddit liked them, there were short squeezes, there was buying pressure driven by call-option hedging, Elon Musk was tweeting, stuff like that; they went up for reasons unrelated to any changes in the business prospects of the underlying companies. Often these were somewhat beaten-down companies: A lot of people had shorted their stocks because they were in bad shape, and the Reddit crowds buying them were moved by nostalgia or irony or a desire to defend the underdog or take revenge on evil short-selling hedge funds. 

One obvious reaction to this would be for those companies to raise money by selling stock. That is corporate finance 101. You need money. Your stock price is going up because people are clamoring to buy your stock. The market is sending a signal that you should sell stock, at the high prices, to raise the money, to make your company better, to justify the high prices.