Faithful readers should by now be familiar with my fondness for tropes involving classic comedies and rock and roll, and a quote from the movie that best combines both themes is resonating with me today. That today is April Fools Day is merely a coincidence.
In the “rockumentary” This is Spinal Tap, the documentary’s director asks the band’s manager if Spinal Tap’s appeal is waning because they are now playing much smaller arenas then on prior tours. The manager refutes the idea by saying that the band isn’t less popular, it’s that their appeal is becoming more selective. (Watch the clip, it’s much funnier than this retelling)
We don’t often see stocks double in a week without some overwhelming fundamental news, but that is what we have seen in GameStop (GME) recently. The precipitating event for the jump was a masterfully timed purchase of 100,000 shares by the company’s chairman, seemingly executed in a manner designed to get the stock moving. The GME faithful were re-energized, as were the AMC “apes” who pushed that stock to a similar percentage gain as that company’s chairman teased the idea of more meme-powered deals. AMC shares have since given back about half their recent gains, but GME received a fresh boost today after announcing plans for a stock split. GME shares were up about 15% in the pre-market and early trading, but have since pared those gains to about 5%. Perhaps investors have wised up to the idea that while stock splits may make a stock more appealing to some traders, they are not fundamentally meaningful.
Yet I found something very different about the recent meme stock surge. Prior surges were organic, led by exuberant individual investors gathering on social media to defend and later promote the stocks of companies for which 20-somethings would be nostalgic. Those included not only GME and AMC, but also Build-a-Bear (BBW), Nokia (NOK), KOSS and Blackberry (BB). None of the others had the lasting appeal of GME or AMC, but these stocks and others tended to follow in the wake in bouts of meme stock mania. Over the past few weeks, most so-called “meme stocks” had only minor bounces, if any.
That is because the recent jumps were anything buy organic, at least in their genesis. It is unclear exactly how the enthusiastic musings of investors on Reddit forums coalesced into a movement and a mania. It was quite obvious that these moves were anything but organic, as we noted above. They were deliberately spurred by company managements in order to push their stocks higher. There was undoubtedly sufficient follow-through from traders quite willing to leap on an uptrend, but the quick fade in AMC and the secondary measures employed by GME are a testament to a lack of organic follow-through from investors.
Stock splits notwithstanding, at this point it is hard to imagine that GME and AMC management are convincing new investors to buy their stocks. It strikes me that their recent activities are more designed to keep their existing fans enthused and engaged. At best, the companies can utilize their special status to shore up their balance sheets, but at worst it can be a cynical move that smacks of a pump and dump. Either way, the appeal of meme stocks is becoming more selective, if not less popular overall.
Disclosure: Interactive Brokers
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