If you happen to spend a while on social media, you may have heard there was this great investment on the market. It’s the stock of Bed Bath & Beyond, the bankrupt home furnishings company.
Well after it announced plans to liquidate over the summer, it was said the legendary Carl Icahn saw value within the stock that was set to vanish from the face of the earth. Its remaining parts were already sold to Overstock, shares delisted and about to go terminal in late September, meaning they might not exist even in a bucket shop broker’s trading account. And yet, Ryan Cohen, the billionaire activist investor who sold his stake last yr, was allegedly able to make one other go of a business that had just been evaporated.
If you happen to believed any of that, you may also consider in the most recent Elvis sighting, after all. And yet, many individuals, taken by the armchair stock research of Reddit and X Spaces, threw money at a stock just before it was totally “eliminated” from the face of the investing planet.
That’s bad. What’s even worse is there are people who find themselves alleged to be policing these things on the Securities and Exchange Commission they usually’re not. As an alternative, Wall Street’s top cop, Gary Gensler, keeps tilting at windmills as if he’s Don Quixote, spinning the SEC’s wheels on useless initiatives like climate disclosures for public firms and fixing the plumbing of the stock market that doesn’t need fixing.
The madness of crowds, after all, has been eroding clear investment evaluation for the reason that starting of time: the South Sea Bubble of 1720, the dot-com collapse of 2000 and the 2008 banking meltdown were amongst essentially the most damaging in history, where small investors lost generational wealth on investing gimmicks, fads and frauds.
Ditto for the meme-stock craze of 2020 and 2021. Meme stocks were shares of troubled, often money-losing firms that caught fire when the Fed was printing money, the general public was flush with stimmy checks, and markets only saw one direction and that was up.
Retail investors, utilizing their no-fee Robinhood accounts, thought they found the equivalent of gold — with free money and leverage, they might drive up shares of a few of the most speculative stocks ever.
They might even create “short squeezes” on hedge funds that were betting against these firms, forcing them to cover their positions and drive up shares further. All of it had the additional benefit of putting at the very least one hedge fund, Melvin Capital, out of business and causing massive losses for others.
That little game worked for some time, but those days at the moment are long gone. The hedge funds got smart and discovered they might trade across the madness of the meme crowd and strategically short the shares of those firms.
They made a fortune while meme investors soon got crushed.
What now we have now’s something much more dangerous since the irrational exuberance is on one other level. Bed Bath & Beyond could never have made one other penny for its shareholders for all the explanations listed above.
And sadly there are other wacko trades bouncing across the stock-touting circuit that might also explode within the face of individuals gullible enough to consider the social-media hype.
Mullen Automotive, a highly speculative EV maker trading at 19 cents, has a crazed Twitter/Reddit cheerleading squad that is sort of energetic. One other troubled EV maker, Nikola, has a stock that’s trading just above a buck, yet it too gets numerous traction with the delusional investing class.
Then there’s AMC, certainly one of the OG’s of the social-media-led irrational exuberance. The struggling theater chain barely makes any money but its loyal investors, who call themselves the “Apes,” still love the stock. They think it’s only a matter of time before one other short squeeze occurs and the stock heads “to the moon.”
Sorry, there would should be a Taylor Swift “Eras Tour” movie blockbuster every week to dig AMC safely out of its balance-sheet mess. The smart money knows this: Shares are down 99% since hitting $72 in 2021. They closed Friday trading at $7.43, which translates to around 74 cents after you consider the alchemy of a 1-for-10 reverse stock split.
That is all dangerous stuff brought on by the cultism present in today’s stock market.
Small investors are getting hosed by their very own insanity, while some dubious stock pumpers who stoked the irrational exuberance made a fast buck.
Fortunately, there are real and straightforward solutions on the SEC’s disposal. Within the case of Bed Bath & Beyond, Gensler could have ceased all trading within the stock the minute the corporate, over the summer, announced equity could be worn out in its liquidation. He must be ready to do this when the subsequent one appears.
With AMC and the others, Gensler could put management and stock pumpers on notice they can be held accountable for giving any false hope in regards to the stocks’ prospects.
That’s if Gensler stops tilting at windmills and starts doing his job.