The stock market seems complicated to maneuver, and you need to be careful with your money. But some options won’t cost you as much as some of the pricier investments. But how can you know which ones you should get?
Would you go to social media for stock tips? In 2021, Reddit became an unlikely stock trading hub, with thousands of people participating.
In this article, we’ll cover:
- How Reddit became a trading hub;
- What these investments are;
- How to invest in them;
- The 4 Reddit penny stocks trending right now;
- Whether you should make these investments;
- How to invest in your future.
How Did Reddit Become a Trading Hub?
First, let’s start with a short, exciting story of how Reddit became an unlikely trading hub. In January of 2021, the subreddit wallstreetbets started buzzing with conversations about GameStop and its position on the stock market.
The rise of modern technology led GameStop to lose money over the years. Gamers preferred to buy games online than go to the mall to make purchases. This just kept getting worse.
However, the Reddit traders at wallstreetbets like to target short-sellers. This means that they would essentially bed against some of the most heavily shorted stocks. Although, some claim that GameStop Corp doesn’t deserve to lose money because video games became a staple for many during the pandemic. GameStop’s revenue peaked in 2002, after which this underlying business had negative growth.
The Reddit community started massively buying the GameStop stock and other heavily shorted stocks, which led to their prices rising and even triggered temporary trading restrictions to protect them from volatility. Some even claimed this endeavor helped them pay off thousands of student debt.
This, like other memes, was short-lived. However, the GameStop stock made a comeback in March when the chairman Ryan Cohen purchased 100,000 shares, after which the company announced a new stock split proposal. New stock splits mean more shares, so there are more stock picks with lower inherent value.
GameStop isn’t the only stock this happened to. Some of the most popular meme stocks also include AMC, Macy’s, and Blackberry. People ran to Reddit, a social media platform, and other free options rather than paying an analyst to tell them what to invest in. This made many old hedge fund investors mad, but it was essentially what they usually do, just on a public forum.
With the latest Reddit stocks generating funds and helping young people gain net income, they essentially made the whole process very transparent for those not in the investing world.
But what are penny stocks exactly? And are they a good investing option?
What Is a Meme Penny Stock?
To put it simply, a penny stock is a stock that trades for under $5 per share. These are usually investment vehicles of small companies with a lower net income, primarily those valued at less than $300 million.
It’s usual to trade on big exchanges like New York Stock exchange, but that’s not always the case with these investments. They’re mostly traded via over-the-counter transactions through electronic boards or privately-owned groups, but primarily electronically.
They tend to have low liquidity, which might be harder to sell. This is why it’s often hard for investors to price them correctly.
They’re also considered very risky. They’re shares from small companies and could be where investors lose their investment.
Although not every stock can be a high-flying story stock, these investments are a good option for those with a high tolerance for risk.
As mentioned before, meme investments are essentially those investments that blew up seemingly overnight because of online communities, like when Reddit became an unlikely stock trading hub with GameStop Corp. Other than GameStop Corp, a wallstreetbets meme stock favorite, there’s also AMC Entertainment Holdings Inc. After the company announced a significant loss of funds due to the pandemic, Reddit traders started targeting the stock’s short sellers. This led to stocks soaring.
Some of the eight latest Reddit stocks include companies like the chipmaker Advanced Micro Devices Inc. (AMD stock), despite the fact that the company announced supply chain disruptions, and Tilray Brands Inc. (TLRY stock). Reddit investors think that AMD will gain market share in the foreseeable future from Intel Corp, which is primarily based on the company’s booming sales growth in the past.
Tilray Brands is one of the eight latest Reddit stocks generating income for its holders, and it’s also a great example of a meme stock. It’s the world’s largest cannabis company, originating from Canada. The stock became a meme in February of 2021 when Reddit investors impacted stocks soaring from $20 per share to more than $60. Because it’s a meme stock, the Reddit traders buzzing calmed down after a while. Still, one of the most popular meme stocks surged a little when the company reported an unexpected quarterly profit in the fourth quarter and a deal with Whole Foods to sell hemp powders produced by the subsidiary Manitoba Harvest.
Some other meme investments that caught Reddit’s interest include BlackBerry Inc, a company that went from a legacy smartphone business to selling non-core patent assets to raise money for new multiple business model pivots. The years of negative growth and missing analyst estimates prompted the stock to plummet, but it’s still one of the investments Reddit traders seemingly approve of.
Some other stocks we can add to this list of seemingly perpetually trending Reddit meme stocks include companies like Nvidia Corp, Apple Inc., and Tesla Inc. Tesla especially trends a lot on social media and it’s one of the more consistent tech stocks. Its shares have doubled since the previous stock split in 2020. Also, the upcoming annual meeting should host a vote for another stock split by Tesla shareholders, which is the stock’s big move.
Not all of these favorite meme stocks were penny stocks since they would have to have a lower price per share and a lower company value, but they’re an excellent example of a meme stock with a lower price.
How to Invest in Penny Stocks
Penny stocks are cheap and can be a good starting point for new investors that don’t have that hedge fund money. However, they’re risky because you never know how they’ll turn out.
We have some advice to help you out if you choose to invest in penny stocks. Here’s what you should do.
Do Your Research
The most crucial step you need to take before investing in penny stocks is to do your research. Investing in penny stocks comes with lower chances of success, but research can help you maximize the possibilities.
Nevertheless, it might be hard to find helpful information about companies with penny stocks because they’re primarily small and new companies. Most of the time, you won’t have enough information to base your investment on.
Finally, you can look for big companies experiencing hard times, which makes penny stocks. Just take note of whether they have the possibility of coming back.
Determine Your Budget
Next, you need to determine how much funds you are ready to spend on this stock or how much money you can lose. Penny stocks are cheap so that you can buy more shares, but they also have a low chance of prices surging.
Their volatile, so don’t put your whole savings into them. However, you also can’t think about money too much regarding penny memes. They’re very volatile, but you can use their volatility and gain funds if you buy and sell at the proper time.
Stick to Major Exchanges
The one primary reason why you should stick to significant exchanges when trading penny stocks is the possibility of fraud. They’re just safer.
Even though they’re rare, places like NYSE or NASDAQ still have investments that sell for less than $5 per share with greater liquidity than on other markets. However, the modern age also came with the surge of apps like Robinhood that can help you invest quickly and safely. The takeaway is always to know the place you’re trading at.
Choose a Platform With No Fees
Penny stocks are very cheap, even when you buy more shares. However, they’re volatile, so you can’t be sure whether they will surge or not.
That’s why it’s best not to make them a considerable investment and choose a platform that will cost you little to no fees. Why would you pay more in fees than investing in the stock?
4 Reddit Penny Stocks Trending Right Now
Subreddits like wallstreetbets and pennystocks are the place to go right now if you want to see what you can invest in. Following the Reddit community is one of the more significant ways to determine the best option, but always beware of bubbles.
Alterian (code ATER) is one of the top ten trending Reddit stocks right now, and it’s a penny stock with a current price of $4.23 as of the 22nd of April.
Alterian is created as a consumer product platform to refine technologies. Tech companies are usually a good investment, and this stock has its ups and downs so that the cycle might repeat.
With the code UP, Wheels Up is another penny stock mentioned on Reddit a lot. It currently has a closing price of $3.04.
Wheels Up Experience is a company that provides private aviation services, and it’s stationed primarily in the US. Its graph varies, although it’s currently almost stagnant with many cyclical downturns and upturns.
Next up is ContextLogic Inc, with the code WISH. The last closing price for this penny stock is $1.70.
ContextLogic is a company that runs an internet retail business mostly known for the website wish.com. The stock has been steadily drifting lower, and most people recommend it’s time to sell, but WISH has also had some cyclical upturns and downturns.
With the code OG, Onion Global Limited is a software-application business that incubates, markets, and distributes brands internationally. The last closing price on their stock was $1.62, and it’s been slowly going up. Most recommend buying shares now but also closely following the situation in case the stock starts steadily drifting lower.
Should You Invest in Penny Stocks?
Now that you know the basics about Reddit stocks, how to invest in them, and which ones are trending, it’s time to answer the most important questions – should you invest in them on the stock market?
There are reasons for and against these investments, and we listed them here. Let’s see why you should invest in meme investments and why it might be better to avoid them.
Penny Stocks Pros
First off, let’s start with the pros of Reddit stocks. There are not many of them, though.
You Can Invest Less Money
The most significant advantage of penny stocks is that they don’t cost a lot, so unless you buy a lot of shares, you won’t experience a consequential loss. This makes it very easy for new investors to try out their hand in investing and research without losing a lot of money, but they still need to be careful.
The low numbers come with limited risk unless you invest too much. That being said, if the stock price goes down from $5 to $2.5, that’s a 50% decrease. Even though it’s a small scale, you need to take care.
Penny Stocks Cons
To put it mildly, there are more disadvantages to investing in this than advantages.
Memes Have Lower Chances of Paying Off
Most penny stocks fail. That’s just the truth. The rare ones that make it, especially those that start as meme investments on Reddit, are generally a bubble that’s bound to burst.
You can use the hype while it’s ongoing, but always be careful and follow the progress.
Pump and Dump Schemes
Penny stocks, especially memes, can be a breeding ground for targeted buying campaigns, also known as pump and dump schemes. These targeted buying campaigns involve many people investing at the same time, telling others to invest too, and just as the stock keeps rising and you think you’re going to get rich, everyone sells. Suddenly, you’re left with a loss.
Low Trading Volume
Penny stocks have a low trading volume, meaning that there are not a lot of buyers for them. So even if you can sell your shares, it doesn’t mean anyone will buy them. These companies are also unlikely to come up with a new stock split proposal.
Even though some penny stocks might be big companies in bad times, most of them are smaller businesses with no track record. This is why it might be hard to do research on them and analyze their stock accordingly.
Invest in Your Future
Everyone wants to reach their financial goals and become financially free. There are different ways to invest in your future, whether through stocks, retirement, savings, etc. different levels of risk, but we’re here to introduce you to the concept of the Infinite Banking.
The one thing you need to make this concept work is a Whole Life insurance policy.
To put it simply, you can create an endless baking system by overfunding your cash life insurance. The Infinite Banking Concept is a strategic method that helps you become your banker.
An overfunded life insurance has a specific cash value, which you can borrow as a loan and pay back later. But here’s the thing – that money is yours anyway, so you’re essentially borrowing from yourself and repaying it with the rate of return.
Here’s a step-by-step process.
The first thing you need to do is overfund your Whole Life insurance policy. That’s how you create the cash value, which culminates over time. It’s also tax-free since it’s made with after-tax dollars. Finally, you can take out tax-free loans from the overfunded cash value.
All of his culminated in your bank. You can borrow funds from yourself and then pay them back with an interest rate, but with no usual fees that you would have to pay in a traditional bank. You can spend money while your insurance still earns dividends.
Becoming your bank is just one of the steps you can take to get financial freedom and build wealth.
Investing is a serious business that you should be ready for and not just jump in blindly. Depending on the risks, you could lose a lot.
Penny stocks might seem like the right way to go. They’re cheap, so you can buy many shares if you’re just starting investing, but they also don’t have a lot of chances to surge. Unless they’re meme investments and you’re lucky enough to join the trend at the right time.