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Alex Gilbeaux for Vox

A joke with a literal cost

It turns out investing based on hype and vibes doesn’t really pay off.

This is not a thing anymore.

That’s how Josh Brown, market commentator and CEO of Ritholtz Wealth Management, responded when I told him I was writing about meme stocks in the fall of 2022, his tone one generally reserved for a parent who isn’t mad, just disappointed. “It was fascinating at the time, but it’s way past,” he said, likening covering GameStop today to writing about Soulja Boy and the Macarena.

You see, at the start of 2021, a handful of stocks gained a cult-like following online. An army of retail traders — people who invest with their own money instead of on behalf of a group or institution — who gathered largely on the Reddit forum r/WallStreetBets were able to drive up the share prices of video game retailer GameStop, movie theater chain AMC, and some other relatively small companies. Part of their strategy involved orchestrating a “short squeeze” against big funds that were betting against the stocks by shorting them.

When someone shorts a stock, they borrow shares of it, sell those shares, and then — if all goes according to plan — buy the shares back at a lower price, pocketing the difference. If the stock’s price starts to go up (as opposed to down, which is what those taking the short position are counting on), the shorts betting against it will start to buy the stock back at a higher price to try to stem their losses should the price climb even higher. But that buying activity is itself a factor that pushes up the stock price, which is where the squeeze comes in.

It will soon mark two years since the meme stock — so called for their joke-laden, internet-specific virality — craze swept the markets and the media. The episode was characterized by the typical rash of stories of triumph on the way up, with tales of retail investors making life-changing money on stocks that shot up seemingly overnight. And then came the tales of ruin on the way down, harrowing stories of people who had bought in at the highs and seen bets they’d made with money they couldn’t afford to lose crater.

It had a rather atypical set of heroes and villains, though as these things always go, the real story of who was on what side was more complicated. It was, you have to admit, kind of funny — it’s not every day you watch markets be roiled by something coming completely out of left field, driven by a group of largely normie traders who traffic in crass humor and celebrate other people’s losses more than they do their own wins.

The dust has since largely settled, with the influence of retail investors fading as markets have faltered. Many traders whose attention was piqued in the earlier days of the pandemic have moved on. Still, there remains a small, ferocious, and sometimes conspiratorial base of investors around stocks like GameStop and AMC who refuse to let the whole thing go, whether they believe in the businesses’ prospects or just think there will be another big run — the Mother of All Short Squeezes, or MOASS, if you will.

The companies at the center of the saga haven’t been able to let go either. Instead, they’ve been tasked with navigating a landscape where much of the interest in them is based not on fundamentals or financials but instead on inside jokes, winks and nods, and internet vibes. It’s allowed some of them to raise capital and buy time to turn their businesses around. Success, however, is not guaranteed.

“The jury is still out about whether they’ll be able to achieve something that is viable long term,” said Nick Colas, co-founder of the markets insight firm DataTrek Research. “Giving companies another shot at fixing their problems is always useful, but at what price to the individual investor?” Jokes aside, real people’s money is on the line.

People don’t like to talk about losing money. It makes sense. Finances are so personal, and society tells us losses of any kind are deeply embarrassing. Loss aversion is what makes us feel the pain of losing more than the joy of our wins. And losing money because of a Reddit joke? Not something many people want to put out there publicly — on Reddit, the people posting about their Ls are generally anonymous. While I heard from some investors and their family members about experiencing big losses during the meme stock saga, none wanted to talk on the record.

I did speak with Dan Cherneski, who works in IT in Denver and estimates he made a decent profit of about $2,200 on his GameStop and AMC bets, using the proceeds to take his family out to dinner and cover some travel expenses. He described the experience of watching the Reddit conversation around the stocks going from funny to depressing as the winter and spring of 2021 unfolded. “The tone changed,” he said. “People were like, ‘I’m not telling my wife I’m throwing all my life savings into this.’ That’s the point where it’s getting rough and sad to watch.”

One New Jersey actor told me he’d tried to hold onto his GameStop shares before it reached a point he was going to lose money on them. “I was like, ‘No, I gotta leave here with something,’” he said. A standup comic in Brooklyn said he’d made some $40,000 on the meme craze in early 2021; he was smart to cash out early, though at the time he regretted it, worrying he could have made more (an unlikely scenario). “It was a fun ride, but I’m not better off than I was before,” he said. “I have a bunch of tattoos I paid for.”

Jason Windsor, a strategist for a software company in North Carolina, put $200 into AMC in May of 2021 on his brother’s advice, “out of curiosity” mainly. If he sold now, he would take a loss, “but it’s just not important for me to recover the money.” He’s at least partially bought into some of the theories online on places like Reddit, the Webull trading app, and Twitter — that the system is set up to fail retail investors, that there are “backroom dealings” involving the SEC — though he repeatedly notes he’s not clear on the details. “I don’t have any evidence of that,” he told me. “That’s more of a gut feeling.”

The companies at the center of the meme stock phenomenon are now navigating an existence where many of their investors, like Windsor, are operating on a more “gut feeling” level than market fundamentals. GameStop and AMC have taken distinct approaches to their respective meme statuses, and their business prospects differ significantly as well — though opinions on that vary, depending who you ask.

Before GameStop became a meme stock in 2021, there had already been plenty of rumblings about it. Michael Burry, a name you might recognize from The Big Short, revealed a position in the company in 2018. Among retail traders, interest in the company began to grow, with some noting the high level of short interest in the company and others simply believing it was a good investment. For years, a Massachusetts-based man named Keith Gill who went by Roaring Kitty on YouTube and DeepFuckingValue on Reddit beat the drum of a comedy-laced case for the stock. Ryan Cohen, co-founder of the pet e-commerce company Chewy, revealed a major stake in GameStop in August 2020, igniting further excitement about GameStop’s future. By January 2021, the stock really took off as a short squeeze sent GameStop prices soaring.

The meme mania around GameStop has settled down, but the company, of course, still exists. Cohen took over efforts to revive the retailer, eventually becoming chairman of its board and bringing in new management to oversee the company’s turnaround efforts. He’s set out to try to turn GameStop into the Amazon of gaming, parlaying his e-commerce expertise into a new space. Under his watch, GameStop has also undertaken efforts to branch out into the NFT space in the second half of 2022 — a decision that, while perhaps sensible for GameStop, has also been awkwardly timed given the arrival of yet another crypto winter.

Michael Pachter, an analyst at Wedbush Securities who covers GameStop (one of the handful of analysts who still does), concedes that GameStop’s meme status has done quite a bit in helping the company stay afloat and giving space to Cohen to try out his turnaround strategy. “They issued a whole bunch of stock and they raised more than $1.5 billion. They paid down the rest of their debt,” he said. It has allowed them to stave off the risk of bankruptcy in the near future.

Still, Pachter, who at multiple times in our conversation referred to Cohen as a “blithering idiot,” does not have much faith in the turnaround strategy. “They’ve been burning $200 million a quarter because Ryan Cohen has no fucking clue what he’s doing, nor does his management team,” he said. He scoffed at the NFT play. “Hosting an NFT exchange is not a bad idea, but it’s sort of like you and me saying, ‘Hey, fast food’s a really good idea, why don’t we come up with a burger chain?’” he said. “It’s like, fuck, we’ve been there.”

GameStop, which didn’t respond to repeated requests for interviews or comment, hasn’t taken a single question from analysts on its earnings calls since the craze unfolded around it in early 2021. It’s done an awkward dance to keep its retail investor base engaged but from a distance. It underwent a four-to-one stock split in the summer of 2022 (meaning, if you owned one share for, say, $100, you would then have four shares worth $25 each) to make more shares available and to lower the price of those shares.

As Matt Levine pointed out for Bloomberg, the move wasn’t really necessary, “but if you’re in the business of running a meme-stock company, you do have to give your shareholders what they want and I suppose this is what they want.” At this point, he added, GameStop is sort of its “own special asset class.” His case was that people aren’t buying into GameStop because they’re walking by the store in the mall and deciding it’s a good investment being appropriately priced in an efficient market. They’re operating on excitement and vibes.

Cohen intermittently engages his watchers and fans with cryptic tweets that range from heartfelt to weird to crass. In October, he tweeted a picture of himself with billionaire activist investor Carl Icahn. It sparked suspicion the two might be working on something together, but it wasn’t clear it meant anything at all, which goes for most of Cohen’s tweets.

Then, in November, Bloomberg reported that Icahn has a short position in GameStop. In a rare interview, Cohen told the Wall Street Journal he aspires to be like Icahn and doesn’t mind that the famed investor thinks GameStop is overvalued, because he’s “the O.G.” As for the tweets? “I’m just being me, I’m just being myself,” he told the Journal. “I don’t want to speculate on how people interpret it.”

While GameStop has largely kept its meme status at arm’s length, AMC has fully embraced the joke. The company is also facing a trickier business outlook.

Adam Aron, who’s been AMC’s CEO since 2016, has “transformed himself into a Twitter-obsessed, gold mine-buying, populist folk hero,” as Felix Gillette and Eliza Ronalds-Hannon recently wrote in a lengthy profile of him for Bloomberg. Under his watch, AMC has undertaken a number of initiatives to keep the meme alive and investors engaged. In mid-2021, it launched AMC Investor Connect, which gives investors access to special screenings, promotions, and popcorn. (How meaningful this is to investors is up in the air. One AMC shareholder I spoke with recently described the program as “pretty dumb, to be honest,” though he got to see House of Gucci a week early.)

Aron, whose Twitter account is filled with pictures of him with AMC customers, investors, and fans, has opened up AMC’s earnings calls to questions from retail investors (it’s generally just analysts who get to participate in earnings call Q&As with a company’s execs). He also oversaw AMC’s investment in a gold mine, which has nothing to do with movies but is indeed a novel idea.

AMC, like GameStop, has been able to raise a lot of capital by issuing new stock as it has ridden the meme wave, but unlike GameStop, it still has an enormous amount of debt. It’s reached the limit on common shares (which represent ownership in a company) it can issue without investor approval, and so it has issued a set of preferred shares to existing investors that trade under the symbol APE — a nod to the community of meme stock investor “apes.” The move landed with a thud, and in November, APE shares were trading at about a third of AMC’s common shares. (Its common shares are also back down to around where they were before AMC became a meme stock.)

“Preferred just means when the company goes bankrupt and liquidates and pays off its creditors — whatever’s left, the preferred shareholders get first dibs on it. But since everybody got one, it doesn’t matter,” Pachter said. “The market doesn’t quite get it at all, and they’re bidding down the preferred, but they’re all going to go down together.” In other words, it appears neither AMC shares nor APE shares are a particularly good investment.

AMC declined to comment for this story and did not make Aron available for an interview, instead pointing to transcripts of earnings calls from April and November where the APE shares were discussed. In the November call, Aron defended the decision to issue the shares, while also acknowledging all had not gone as planned. “Markets are markets,” he said. “They act on their own accord, and they are out of our direct day-to-day control. Even so, we continue to be convinced that over time, the availability of APES will serve their purpose for AMC Entertainment well to help AMC to grow, to delever, and to raise capital.”

Pachter likes Aron more than he does Cohen but acknowledges AMC’s prospects are not ideal. “His company has a shit-ton of debt,” he said, “and there is a realistic bankruptcy issue.”

Brown, from Ritholtz Wealth Management, was even more pointed in his assessment of AMC. “They’re out of moves. They shot their shot, they effectively doubled the share count without issuing new shares,” he said, explaining the decision was sort of a wash. “They claim it gives them financial flexibility. Okay, what are you going to do with that financial flexibility though?”

GameStop may be better poised for a turnaround — or at least able to avoid going under longer — than AMC, but that’s not necessarily reflected in chatter among investors. Google searches for AMC stock have far outpaced searches for GameStop stock over the past year. Rishi Khanna, CEO of Stocktwits, a social network for investors, says that’s the case on his platform, too. “AMC is still the No. 1 stock for us again this year, conversationally,” he said. “GameStop is very different, GameStop has fallen well out.”

Retail investors can be patient, Colas from DataTrek said, but that only gets you so far. “You do eventually have to show results,” he said. “Sometimes, you get a good company with a horrible balance sheet, and the balance sheet usually wins.”

What unites some investors behind GameStop and AMC is a continued belief that another short squeeze, like what happened in 2021, could happen again. That unites them with the leaders at GameStop and AMC who do not love those betting against their own companies.

In certain online communities, individual investors post all sorts of theories about when and how this might go down. GameStop investors have taken to directly registering their shares to try to keep them away from brokers and market makers who lend them out to investors who want to short a company. It’s not clear whether the activity will mean anything for the companies or, even in the short term, for the stocks.

“The meme players are right: As long as there are shorts, they can squeeze them,” Pachter said. “But ultimately, the shorts are going to learn their lesson and stop shorting and give it up, and the longs are going to have to look at earnings to justify share price.”

There have been plenty of attempts to ascribe meaning to the meme stock (and meme coin) phenomenon over the past several months. Perhaps the correct view is that it was largely meaningless — a strange, exhilarating, and fun thing that happened (until it wasn’t, for some people) that doesn’t signify anything bigger at all.

Chris Temple, a film director behind the upcoming documentary This Is Not Financial Advice, a film about the retail investing trend in stocks and crypto, compared the situation to the television and film series Jackass. “There’s absolutely a culture that was built around this that is looking for thrills, and so for them, it was fun and it was a story and it was this desire to feel alive, I guess, even though, like with the Jackass thing, you break your bones along the way and you fuck yourself up,” he said.

Many of the bigger-name individual investors involved in the meme stock frenzy early have moved on. Gill, a.k.a. Roaring Kitty — the financial wellness educator responsible for driving much of the pro-GameStop narrative — has stepped away from the spotlight. He and others involved in the GameStop saga testified before Congress about the matter in February 2021, at which time he proclaimed, “I still like the stock.” He hasn’t posted on his YouTube channel or under his Reddit name since April 2021.

Rod Alzmann, one of the early winners in GameStop’s run, started researching and seriously investing in GameStock in 2017 and ran a website dedicated to doing research on the company and making the bullish case for it. He cashed out in January 2021, not when GameStop was at its peak but when it had gone up enough to deliver him what he says is some $2 million.

Alzmann has launched a new venture called Wook Capital, an investment fund that’s supposed to focus on crowdsourced research and try to capture some of the magic of the 2021 drive. He’s largely steered clear of GameStop, though he did buy back in briefly in November 2021. He thought the company was going to launch an “impressive NFT/blockchain offering” but acknowledges some of the adrenaline rush from announcing the buy on Twitter factored in as well. At the time, he tweeted he would “HODL” the stock this time, meaning he was in it for the long haul: “holding on for dear life.” When I point out that he’s already sold the stock again, he replied simply, “Oh mania.”

I also caught up with a guy who goes by Sir Jack A Lot — he asked me not to reveal his name in order to protect his privacy and image — whose claim to fame is making millions of dollars by piling into single stocks, including GameStop. He, like Alzmann, is trying to parlay his meme stock fame into something bigger, a stock app called After Hour that is yet to launch and which he hopes will be the “spiritual successor” to Reddit’s WallStreetBets. He sees finance as pop culture, something that’s become “entertainment, like this daily reality TV show.”

He acknowledged that the financials of a business do matter at some point, though at what point, it’s unclear. He cited a Warren Buffett quote, which is actually a Benjamin Graham quote: “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” Put another way: Markets move based on which stocks are popular in the moment, but they do ultimately value underlying business fundamentals.

“To me, that means, yeah, in the short run, you can use things like celebrity worship and memes to have people vote and cause craziness,” he said. “But in the long run, then again, what is long? Is that one year? Is that 30 years? Is that 100 years? In the long run, the weighing machine does end up looking at the profits and revenue, but we’re impatient people in 2022.”

The short run is indeed messy, and Cohen and Aron are imperfect heroes for this era.

In March 2022, Cohen revealed a major stake in Bed Bath & Beyond. He sent a letter pushing for changes at the struggling retailer and eventually got three board seats. The maneuvers turned Bed Bath & Beyond into a new meme stock. Months later, Cohen cashed out, making $68 million in the process. The stock plunged, leaving in the lurch many eager investors who had followed the executive into the trade. In September, Bed Bath’s CFO died by suicide. He was facing a lawsuit, alongside Cohen, alleging they were involved in a pump-and-dump scheme around the stock. The company has said the claims are without merit; Bed Bath & Beyond did not respond to requests for comment for this story.

“The whole thing about meme stocks, especially in relation to Bed, Bath & Beyond, is that they are a bubble that’s created by exuberance and excitement around a stock that is absolutely not backed by any of the business fundamentals,” said Neil Saunders, managing director and retail analyst at GlobalData Retail. “In a sense, it is just people playing games.”

It’s a reminder that retail investors aren’t always aware of what game is being played or how long everyone’s playing. “The golden boy left, sold all his stock,” Brown said. “What’s left is a failing retail business.”

Cohen, who per his Wall Street Journal interview seeks to emulate the likes of Icahn and Warren Buffett, also told the publication that he does in fact support the retail crowd, even if his actions suggest he is ultimately out for himself. “I admire the individual investors, and institutional Wall Street mocks them,” he said. “Frankly, it makes me sick.”

Aron has raised eyebrows with his sales of AMC shares, on which he’s made tens of millions of dollars between November 2021 and early 2022. In January, he said that was the end of the selling, on Twitter declaring, “I am in!” The sales took place at a price well above where AMC is currently trading.

Perhaps the meme stock craze — and the continued but diminished interest in the companies involved — is nothing more than the Tinkerbell effect. If enough people clap hard enough, believe hard enough, there’s value in that. But belief in a stock will only get you so far, whether you’re the investor or the company, whether you’re in it for the joke or not. Reality brings things down back to earth.

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