April
3, New York (Reuters Breaking views) - Do you recall the meme-stock mania?
Shareholders do, in fact, open new tabs at GameStop (GME.N). The retailer of
video games was, in the words of its former manager Matt Furlong, "brink
of bankruptcy." However, it managed to raise money in 2021 through the
sale of shares after day traders, inspired by the Reddit message board
(RDDT.N), opened a new tab, concluded that it was unethical to bet against the
company. After two years, a new CEO, and a substantial financial investment,
the company is essentially back where it was. That's bad news for both the
business and the mob that attempted to save it. But it demonstrates that
markets are operating as they ought to.
Naturally,
it is unsettling that retail traders will have to pay for this lesson. As
lockdowns kept consumers in front of computers and away from employers'
scrutiny, GameStop was caught up in a wave of newly discovered popularity for
trading at home.
Runs
in AMC Entertainment (AMC.N), opens new tab, and Bed, Bath and Beyond were
propelled by momentum, in addition to a number of initial public offerings of
businesses that turned a loss.
One
goal of the day-trading community was accomplished: they gave GameStop a
chance. The retailer's cash hoard, which was at the end of 2021 almost
one-third the size of its market value, had almost tripled. The corner office
was taken over by activist investor Ryan Cohen, who also created the pet store
Chewy (CHWY.N), opens new tab.
However, the business reported yet another
quarter of decline last week, which one analyst labeled as unsustainable. Since
the euphoric days of the meme-stock boom, its stock price has fallen
significantly: If an investor had purchased shares at the peak for $1,000,
their stock would currently be valued at roughly $185. Perhaps in a previous
existence, GameStop would have utilized its financial reserves to reimagine its
stores—perhaps turning them into gaming hotspots. However, it didn't.
The
Reddit community enjoyed blaming short sellers for GameStop's problems,
claiming that these financial players were lowering the company's value. Yet,
investors in the market's remaining speculative areas, such as Trump Media
& Technology (DJT.O), opens new tab, the $6.8 billion owner of the nascent
social networking app founded by the late US President Donald Trump, have
something to learn. Those who wager against stocks are frequently despised,
whether it be by Chinese regulators who have outlawed the activity or American
institutions. A good transaction, however, has a winner and a loser since one
point of view will win out after a thesis is put to the test. As it turned out,
"shorts" were correct. That implies a lesson for people whose bank
accounts are getting smaller. Though the meme army may have lost, maybe they
will have better eyes next time.
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