How meme lords fuelled a boom in the ‘stonk market’

In 1944, two psychologists showed their students a simple film depicting a big triangle, a small triangle and a little ball bouncing around what looked like a schematic layout of a house. The results were fascinating — and relevant to markets today.

Overwhelmingly, Fritz Heider and Marianne Simmel’s students felt the big triangle was bullying the other shapes, imagining their emotions and even constructing a plot around what was going on. The experiment illustrates how humans can find narratives pretty much everywhere, no matter how tortuously constructed. 

Narratives matter and have always mattered enormously to markets. Nobel laureate Robert Schiller has even written a book on how the stories we tell ourselves can shape economic ebbs and flows. But over the past year, a condensed, modern form of narrative — the internet meme — has grown deep roots in markets and evolved from attempting to capture reality to actually helping distort it. 

Memes are easily-digestible and shareable images or videos, often in the form of a snapshot from popular culture, tweaked with custom captions to send myriad messages, from amusing self-deprecation to arch political commentary. 

It may seem ludicrous, but financial memes can arguably shape perceptions just like verbose investment bank reports or newspaper opinion pieces. Arguably more so among younger generations with less patience for long-winded, staid traditional news and analysis. If a meme spreads, it can have a sizeable impact at a time when retail trading is a rising force in markets. 

“Individually, a meme from one small account probably won’t do much, but if it’s a concerted effort and it goes viral, then there is the possibility to drive the share price,” says a prominent finance “meme lord” known as Litquidity on Instagram where he has over half a million followers. He has declined to give his real name. 

Memes have long been central to the rise of various cryptocurrencies, but their impact is starting to be felt in mainstream markets as well. This is most vividly highlighted by the mayhem surrounding a bunch of meme-friendly stocks adopted by a horde of online retail traders this year.

Shares in video game retailer GameStop and cinema chain AMC have climbed over 1,000 per cent and 2,600 per cent respectively this year, giving them a combined market value of $46bn, overwhelmingly thanks to meme-inspired trading by young retail investors loosely organised on social media sites. 

For now, this is primarily a factor in niche corners of markets. But it is a broader phenomenon than just the classic “meme stonks”. Memes have also fuelled the boom in so-called special purpose acquisition vehicles and, arguably in a modest way, even affected the wider stock market, exemplified by Tesla’s market-rattling run. Almost half of 1,500 individual investors polled by advisory group Betterment said they invest in stocks based on social media buzz.

Kyla Scanlon, a young former industry insider who now creates TikTok videos explaining finance to younger generations, is among those both fascinated and alarmed by the “memefication” of markets. She observes the sense of community it engenders but also how it displaces reality from valuations. “We have this short-form content to help us process larger narratives,” she says. “And I think that is going to keep showing up in the stock market.”

Another pseudonymous finance memer known as Dr Parik Patel — who has garnered over 300,000 followers on Twitter in less than a year — sees them mostly as fleeting entertainment at a tough time for many people. That said, he has noticed how they have spread far beyond the confines of his world. “I have friends working in completely unrelated fields to finance who had no interest in the industry pre-pandemic now trading their own portfolios and following the hottest finance meme pages,” he says.

How durable is this phenomenon? It seems unequivocally linked to how maniacal markets have been in the post-Covid era. Scanlon and Patel reckon that it will therefore likely fade once the ebullience eventually evaporates. 

Litquidity, however, worries that the growing appreciation for how social media can be harnessed to make money means that market memefication might prove more resilient than many expect. “I don’t think it’s a good thing, but I don’t think it’s going anywhere unless some sort of regulations are put in place,” he says.

Email: robin.wigglesworth@ft.com

Twitter: @robinwigg

What do you think about the proliferation of financial memes and the impact they are — or aren’t — having on markets? Let us know in the comments below.