If you’re finding it challenging to navigate this internet culture that’s focused on investing in the stock market, you’re not alone.
What are stonks?
“Stonks” is the hilarious term affectionately bestowed upon the unbridled, risk-seeking optimism and inexplicable but short-lived success of inexperienced traders.
The term “stonks” first appeared in a 2017 meme depicting a human-like figure posing next to a stock chart. The misspelling of stocks as “stonks” appears below an upward trending arrow. This meme was shared on reddit and Twitter through 2018 and 2019 but surged in popularity when r/WallStreetBets and GameStop hit the news in late 2020. Elon Musk used it to refer to the GameStop events specifically by calling the stock “GameStonk.”
Now the term stonk is used to poke fun at everything from losing money in the markets to over-inflated gains on meme stocks to Boomer bewilderment at the mayhem of it all. Stonks is ironic, gleeful, and ominous all at once.
How did we arrive in the Stonk Age?
The Stonk Age is the product of technological advances. It’s easier than ever to access the stock market, and it’s also easier than ever to communicate your trades to a large audience.
The result is a perfect storm of rapid-fire trades happening at equal bidding from overzealous young investors and artificial intelligence.
We’ve never seen anything like it, and it is unlikely things will ever go back to the way things were before.
The stock market is in the palm of your hand
In the past, investing in the stock market was a tedious process. You had to fill out forms directly at a financial institution and indicate which stock market securities you wanted to buy and at what prices. Your trade requests were then passed on to a broker who would execute them for you. When the telephone became the primary way to place stock market trades, it was revolutionary. Now you could tell your broker what to buy or sell with a simple phone call. More people could invest in the market, and more trades could happen. But that was nothing compared to how the internet transformed investing.
Online trading is nearly as old as the internet itself, with E*Trade coming onto the scene in 1992 as the first online brokerage. By the early 2000s, virtually all banks and brokerages offered digital platforms to traders. As technology became faster and more sophisticated, many of these providers launched their platforms as apps on mobile devices. You can now place trades anytime from anywhere.
Investing is cheaper than ever
This easy access to the stock market was amplified further when discount brokerages entered the scene. One of the reasons stock market investments remained assets of the wealthy was because trading fees were prohibitively high. It wasn’t unusual for a single trade to cost $30 in commissions, which discouraged frequent and active trading, as well as trading small amounts.
Discount brokers like Questrade and Wealthsimple Trade now offer free ETF purchases and low- or even no-commission trading. Lower trading costs make it easier for new investors to build their portfolios, even if they can only afford to buy a few shares at a time.
The affordability of modern stock trading has attracted the attention of tech-savvy Millennial and GenZ investors, who were practically born with a smartphone in hand. Furthermore, it doesn’t matter if they don’t have much money to throw around: most discount brokers have $0 account minimums. You can begin trading with as little as $20, and you can make as many trades as you want.
AI fuels stock market volatility
One of the reasons we seem to be experiencing more extreme stock market volatility in recent years is because of the amount of trading activity that is done automatically by computers. Both experienced and inexperienced traders alike rely on computer algorithms for their portfolios: from an expert receiving an alert on a security’s trading activity to a novice using a robo-advisor to manage their investments.
Computer algorithms are designed to respond to trends and events. When so many index funds and robo-advisors rely on artificial intelligence to manage their allocations and their trades the result is that activities tend to compound until they become big events. A down day in the market could begin with a mild sell-off, which triggers algorithms to recognize the downward pressure and sell more securities to reduce further losses, which further pushes prices down, and so on.
Investor sentiment is no longer the big stock market driver it was in the past because now our emotions lag so far behind artificial intelligence. A computer can analyze what’s happening in a stock market chart and decide in milliseconds, while you’ll still be trying to draw your support and resistance lines on your stock chart. By the time you get an inkling of what’s going to happen next with a trade, the moment has already passed.
Now one of the ways to predict the next move of a stock is to take part in forcing it to happen—just as it did with the GameStop debacle. Indeed, celebs and social media socialites are triggering the next big thing in the stock market, rather than Wall Street financial experts.
Celebrity and social media stock market manipulation
Stock market manipulation isn’t anything new, but it’s no less illegal now than it was in the past. But now manipulation is harder to appropriately characterize because it’s less often from calculated financial experts and more often from celebrity influence, or even a group of overly enthusiastic amateur traders.
In 2018, Kylie Jenner tweeted that she didn’t like the latest Snapchat update and the stock fell nearly 7%, costing the company $1.3 billion in market value in a single day. Elon Musk has a reputation for sinking or soaring the price of Tesla with his tweets, but he catapulted GameStop into the public eye with his tweets in February 2021, then did the same for Dogecoin a few weeks later. Celebrity influence on the financial markets is real and powerful.
Thanks to social media, it’s easy to get thousands or (even tens of hundreds of thousands!) of people to rally behind a single cause. Communication happens instantaneously, and events unfold live within the mobile trading apps on screens across the globe.
These events aren’t technically illegal, but only because the SEC has never had to deal with stock price manipulation via social media before. Regulators are trying to keep up with rapid developments in technology and internet culture, but it will take some time before we make sense of how to manage the power of social media and celebrity in the financial markets.
Blame it on the young?
On the one hand, we now have an entire group of investors who think gambling is investing, and get all their stock tips from their social media friends. Many young Millennials and Gen Z members have only experienced the stock market as free-to-access, extremely volatile, and at the mercy of celebrities and reddit subgroups. On the other hand, older Millennials may have experience with more stable and traditional investments, but still want the convenience of technology.
Those who want to be part of the chaos can rely on commission-free trading apps to buy meme stocks, while those who want to build wealth steadily can sign up for robo-advisors. The nice thing is there is something for every investing style and every appetite for risk. And you can even do a little bit of both!
This is the age of memes and stonks. It looks like chaos, but therein lies the opportunity. Fortune favours the bold, those with the stomach for volatility, and anyone that can have a good laugh—even when they’re not sure what’s going on. The only advice I can give for investing or trading stonks is to enjoy it. Investing has never been this profitable or this fun.