Choose your fighter [Members]
For MOGULS by The Investor
on April 4, 2024
Should you ever find yourself researching a couple of meme stocks du jour for a long article, plan accordingly. Block out 48 hours – ideally a weekend – and get in the snacks. Warn your significant other you won’t be showering. Type like fury.
When I decided a fortnight ago that the more-or-less mutual debuts of Trump Media & Technology Group (Ticker: DJT) and Reddit (Ticker: RDDT) on the New York Stock Exchange could make for an interesting Moguls post, I didn’t expect a quiet life.
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@TI. Brilliant piece as always. 🙂
Perhaps Monevator should IPO under the ticker ‘FIRE’ 😉 You’ve got a broad moat (UK’s only weekly content FI site AFAIK, and a 17 year record) with a huge Total Addressable Market. You’d be way ahead of where, say, NKLA was in 2020, when it exceeded the market the caps of Ford and GM, despite not having produced a single vehicle at that time, and with all of its Q2 revenue that year ($36k) coming from installing solar panels at the home of its Executive Chairman.
@All: in case your interested, there’s some back and forth on MSTR on the first BTC related Monevator piece (December 2017) over here (see comments #58-71):
https://monevator.com/bitcoin-bubble/comment-page-1/
Do check out the Zack Morris’ piece on LinkedIn as well as on his Substack, as it’s there that he addresses a technical objection to his MSTR to the moon thesis.
FWIW, I think that the drawback with RDDT, as compared to either DJT or to MSTR, is that it is at least somewhat tethered by conventional metrics (Daily Active Users, Price/Sales, etc).
Obviously, the specific problem for an outsider investor in DJT is that the IPO is effectively a single company double SPAC with a cross over between the sell and buy sides.
@Delta Hedge — Thanks for getting in with getting the comments rolling as always. I do agree that Reddit is less ‘memey’ than Trump Media, on the grounds that it has earnings, a business model, and a sensible valuation, and hence whatever ‘meme’ factor is currently in the price it must be a fraction of that which constitutes the ludicrous (by conventional metrics) valuation of Trump Media.
The one caveat is as I said near the top, reflexivity works in markets. If Trump Media can parlay its stock into a great acquisition then, in a weird laws-of-physics-defying bit of time travel, today’s valuation might be seen to be justified. Well, maybe. (In reality it’d probably then crash to earth for being valued as a convention company).
To be clear I think it’s more like DJT goes to zero in the long run than it sustainably goes to say $10bn, but it could certainly touch $10bn on the way.
But what do I know about profitless, SALES-less meme stocks. Beginner’s mind here. 😉
Re: a float, funnily enough a friend did suggest we Crowdfund the Monevator business in 2021 on Seedrs or Crowdcube and then use the proceeds to ramp-up editorial, redesign the site, invest in membership architecture and so on.
There were many reasons why I thought this was a bad idea, but our puny profits — especially at the time — topped the list. Maybe Trump has shown me I was too timid on that score… 😉
> 17 year record
Wow. Monevator is soon to come of age – that’s worth a celebration in itself!
A few days on since publication now, and this Moguls’ article isn’t quite getting all the comment love which it deserves; so I hope that I may be permitted a longer second take (and with my apols when doing so for the couple of typos/grammar slips in my first comment above, and I’m afraid they’ll be some typos I’ve missed in this one too).
IMHO there’s two pressing questions with meme investing, namely:
– Should we ignore it, as aspirant ‘sensible’ investor types?
– Regardless, what difference will meme investing actually make, i.e. is it here to stay and, if so, then will it produce lasting and material structural changes to the global capital markets?
With a hat tip to Monevator’s 16 March weekend reading list (https://monevator.com/weekend-reading-is-that-a-billion-pound-bazooka-in-your-pocket-scottish-mortgage/); Travis Kling over at ‘epsilon theory’ and Nick Maggiulli at ‘Of Dollars and Data’ separately hit the spot recently in identifying the causes and consequences of meme based investing:
https://www.epsilontheory.com/financial-nihilism/
https://ofdollarsanddata.com/more-people-buy-number-go-up/amp/
For many, especially in the US, meme stocks and meme crypto are the new lottery tickets.
Cyberspace has enabled a new form of gambling. But one that is more social (or parasocial), collective and coordinated.
Choose the right stock or coin early enough and you get a shot out of poverty.
Choose the wrong one, or be late, and you get to be a bag holder or rug pulled.
But, in either outcome, you get to join a tribe (e.g. MAGA Trumpers for DJT, or the self styled ‘SHIB Army’ say in the crypto space).
It’s a form of identity politics-based gambling whose increased influence is prefigured somewhat by the rise in the popularity of gambling generally, and with gambling’s greater associations with the investing economics of desperation. For example, stateside, each 10% decrease in income is associated with a 4% increase in lottery spending. Based upon the data from 24 State Lottery Commissions and the US Census Bureau, at 2022 prices:
– In 2019, in the poorest 1% of US zip codes that had lottery retailers, the average adult spent around $600 per a year on lotteries (i.e. ~$1,200 per household), or nearly 5% of those households’ incomes (of $25,000 each on average). In 2021 that rose to $700 per adult ($1,400 per household) for the poorest 1%.
– That compares with just $150 per adult ($300 per household) in each of 2019 and 2021, or less than 0.15% of household income ($225,000), for those in the richest 1% of zip codes with a lottery retailer located in the area. The poorest households spend more than 30 times the percentage of their income on lotteries than richer ones with access to lottery retailers. And this drastically understates the difference. The figures are only for zip codes with lottery retailers. Why have a lottery ticket retailer if there are insufficient sales per head, as there are for the areas with the wealthiest households? Hence, in 2023, to join the top 1% of US households by income an individual would need to earn an average income of $407,500 per year and a household would need a threshold income of $591,550 (not $225,000).
As the linked to John Rekenthaler FT piece on DJT (“Trump Media isn’t a Meme Stock, it’s a Cryptocurrency”) discusses, the boundaries between speculative meme stocks and cryptos are becoming blurred, as both serve to function as a similarly effective forms of wealth transfer from the desperate towards the pockets of the founders, owners and originators, the insiders and the early adopters.
Sadly, none of this going away anytime soon.
It’s becoming part of a new investment reality, and it is a likely going to become an enduring feature of that landscape.
Whilst, as @TI alludes to, story stocks have been around since the invention of the stock market in Amsterdam in the seventeenth century (the Dutch East India Company) with a lineage stretching from the South Sea and Mississippi Companies in the eighteenth century, via the Railway Mania of the 1840s, through to the Radio Corporation of America led boom in the 1920s and to the Nifty Fifty stocks of the late 1960s and early 1970s; the internet generally, and social media in particular, turbo charges, optimises and entrenches the hype cycle in a way that is both more persuasive and more pervasive than any previous (less interactive) media (like TV, radio, magazines and newspapers) could manage. Bubbles will likely happened more frequently in the future, and will probably reach ever greater extremes of participation. They may even last longer and, in doing so, in a sense realise, albeit in different form, Yale economist Irving Fisher’s misplaced prediction of storied stocks reaching a permanently high plateau in 1929.
The collective hallucination of cyberspace around meme stocks and coins could create it’s own reality, and defy investing gravity with ever greater boldness. The more widespread the illusion becomes, the more people will want to believe it is true.
I’m assuming most Monevator readers will typically be passive (index tracker) types (like me). In principle, they could just ignore meme investing entirely and stick to broad market trackers.
And, for factor aficionados, its not clear if meme investing helps or hinders.
As @TI’s link to the FT’s ‘Momo goes vertical’ piece indicates, of all the Fama-French factors impacted by memes, momentum is perhaps the most (and most obviously) ‘in play’.
However, whilst there’s a ‘cultural momentum’ aspect to meme investing, as displayed through its speed and reach of social media dissemination, this may not map well to either traditional price momentum (i.e. with 12-1, 6-1 or or 3-1 months’ momentum) or to conventional measures of price trend (i.e. 50 and 200 Day Moving Averages).
The momentum in memes is faster, more volatile and less predictive. The trends take a shorter time to establish, are harder to ride, and are maybe less tradable.
On the whole, and counterintuitively, perhaps meme investing helps value and quality investment (a little bit) as less money going into them, and more into meme stocks, should help the returns to each factor (investment flows being perhaps somewhat negatively correlated to longer term returns).
OTOH, a case can be made for using the single ‘bet’ Kelly criteria to size up small strategic punts on certain meme investments where the return profile is convex.
Regimes of momentum and mean reversion connect to how the meme phenomenon takes place and how much of its potential returns can be systematically realised.
So if a meme stock or crypto has a 99% chance of going to zero and a 1% chance of going up between 1,000 and 10,000 times then Kelly says to bet between (at the risk of over exactness) 0.901% and 0.9901% of bankroll.
Follow Kelly, and if you manage to get both the unknowable odds of winning and of payout ratios right, then you won’t exhaust your bankroll before hitting on a winner.
Of course, Kelly just sets the upper bound for position sizing in this sort of super speculative meme stock (or coin) world.
One doesn’t have to go ‘full Kelly’ and can adjust down for circumstances including risk aversion.
Where the actual odds and win payouts are, as here with meme stocks, wholly unknowable (both retrospectively and, obviously, prospectively), then it makes good sense to discount the raw Kelly figure substantially, after first undertaking a best, conservative guess of those odds (the win rate) and returns (effectively the win payout); and to also assume that a loss would mean a complete loss of any and all capital put into a meme based investment (i.e. therefore to use the ‘betting Kelly’ formula).
If the largest total loss of capital in meme stocks and coins that one can stomach (without anxiety, and with no more than mild irritation) is just 50 bps of available investment capital then, regardless of any larger result which the Kelly betting formula may give, 0.5% will become the ceiling (unless, of course, Kelly already has given a smaller position size).
Thanks for the kind words and long extra comment @Delta Hedge. I think I am going to have to try shorter Moguls pieces, the evidence is people are being overwhelmed by the info here. 🙂
Anyway interesting to see Trump Media down 18% yesterday on news it is to allow existing holders to exercise their warrants:
https://www.cnbc.com/2024/04/15/trump-media-shares-plunge-after-company-files-to-issue-additional-djt-stock.html
The stock is down about 43% since I wrote the above on 4 April. Still another 56% to go from that initial highwater level 😉
If the company was actually raising money from this upcoming dilution, that would be (extremely mildly) bullish. As I say in the article, it should be issuing all the stock it can without cratering the price, at these levels.
But judging by the CNBC article above it’s just a way for insiders to get mo’ money.
Reddit down 14% or so over the same period. Meme stocks gonna meme stock I guess… 😉
Another arguable meme stock disguised as something else; this one on even more egregious metrics than for Trump Media (although less entertaining) – a 1,900% premium to NAV 🙂
https://the7circles.uk/irregular-roundup-22nd-april-2024/#Destiny_Tech_100
RDDT results out yesterday – better than expected, but still big losses – shares up 15% on news:
https://www.theguardian.com/technology/article/2024/may/07/reddit-earnings
It’s started again! 2021 redux 😉 From investing.com today: “Shares of AMC Entertainment (NYSE:AMC) and GameStop (NYSE:GME) have rallied premarket [GME is now up 82% after the open, and trading being halted] and many investors are wondering why. Some have speculated that Reddit (NYSE:RDDT)’s recent IPO ignited the rally, and while that may have helped GME shares’ recent run, there may be another reason for the strong move in both stocks premarket Monday. On X (formerly Twitter), a tweet from the account @TheRoaringKitty has been suggested as a reason for the premarket rally. Keith Gill, aka Roaring Kitty, heavily invested in GME throughout 2020, believing the company was undervalued. He shared his bullish thesis on Reddit’s WallStreetBets forum. During 2020 and 2021, meme stock mania resulted in GME and AMC hitting record highs as retail traders on the WallStreetBets Reddit, inspired by Gill’s confidence and fueled by social media, piled into GME en masse, sparking a buying frenzy. This squeezed hedge funds, which had heavily shorted the stock, leading to a dramatic rise in GME’s price. AMC, another heavily shorted stock, followed a similar trajectory, with its price soaring due to retail investor enthusiasm. GME shares have been rising significantly over the last month, up more than 60%. Now, the return of the RoaringKitty account, which tweeted for the first time in almost three years on Sunday evening, has coincided with the rise of both meme stocks once again, resulting in investors wondering whether meme stock mania could be back.” Crazy times again (?!)
GME now up 300% in two days off the back of a tweet with circuit breakers triggered yet again today. Market cap now closing in on $13 bn for a P/E around 2,300x (P/S is a slightly more credible 2.6x). What’s more impressive is that in 2024 only 24% of the shares are sold short whereas it reached 140% in 2021 – don’t ask me how that’s possible 😉
In case anyone’s interested: Trump Media & Technology Group lost $327 mn in Q1 24. Corresponding turnover?…$770,500. Active subscribers 113k.
They say that lightning doesn’t strike twice, but Keith Gill is going for 3 in a row (albeit after a hiatus since 2021):
https://www.theguardian.com/business/article/2024/jun/03/gamestop-shares-soar-as-roaring-kitty-reveals-116m-bet-in-reddit-post
Completely nuts. Again, I’m surprised that this man’s social media activity can move the stock around quite this much when the short interest is ‘only’ 22% (as of 15th May 2024, according to Market Beat), against a ~140% peak in 2021 (due to naked shorts). Then again, volumes today were 974% average.
MSTR now a hurtling over $1,800 in after hours pending Wall Street opening this afternoon. MSTR share price premium over MSTR’s BTC NAV (~0.01 BTC per share) has stayed at over 100% since it and BTC wobbled beginning in April. The shorts are gonna be hurting.
Just noticed that long Reddit (RDDT) short Trump (DJT) would have delivered 103% since this article was publishing on 4 April.
It’s never easy.
But sometimes it’s easy-ish*. 😉
*touchwood* *touchwood* anything could happen with a meme stock at any time, and as always NOT investing advice just food for thought on our shared adventures in the markets…
@TI: Hilarious pairs trade, but at the same time the outcome is so inevitable 😉
In the meme space, my money’s still on MSTR and Palantir. We’re talking only ~1% allocations between them both though, because this is everything to lose territory.
Update on DJT, the co-founder has now dumped all his stock, apparently after the lock-up period was lifted:
https://edition.cnn.com/2024/09/26/business/trump-media-co-founder-former-apprentice-contestant-dumps-shares/index.html
Nice $100m if you can get it, though I’d imagine he wishes he could have sold before DJT declined 85%…
Before I get too superior I should note I’ve experienced some thesis drift on my ‘exploring owning a meme stock’ with Reddit and am starting to really like its long-term prospects as a play on ‘the good Internet’ and non-AI generated content. We’ll see!
Tom Dyson today (all prices split adjusted) “Microstrategy [MSTR] wins the contest for the most extreme stock chart of all time…IPO’d at $8 June 1998. March 10, 2000, touched $333 a share. Over the next 7 trading days, crashed to $63 and kept falling for another two years…bottomed at $0.48 a in July 2002…roundtrip now complete. Yesterday MSTR reached…new all-time high of $351. A rise of 35x followed by a 99% collapse and then a 731x rise (so far)”. The two UK listed 3x single stock LETFs on MSTR are even more insane (LMI3, GraniteShares and MST3, LeverageShares). I estimate up to 30x volatility of the S&P 500 on those LETFs.
Further to the FT’s article on MSTR’s massive fund raise ($42 bn) in the MV weekly links yesterday (link here for ease of cross referral):
https://www.ft.com/content/30f9f510-5687-4749-84d9-4b29b5610e79
This is a breakdown from Friday last week of the MSTR NAV premium:
https://open.substack.com/pub/junkbondinvestor/p/decoding-the-paradox-of-microstrategys
And this is the bull case for MSTR from Pareto Investor yesterday (plus an insightful analysis from Zack Morris earlier this year identifying Michael Saylor’s master plan etc):
https://open.substack.com/pub/paretoinvestor/p/microstrategy-the-perfect-bitcoin-proxy
https://open.substack.com/pub/noconflictnointerest/p/how-bitcoin-eats-the-equity-market
(So, looks like Saylor is acting to plan 😉 )
https://open.substack.com/pub/noconflictnointerest/p/microstrategy-is-a-bitcoin-bank
https://open.substack.com/pub/noconflictnointerest/p/microstrategy-is-a-bitcoin-bank
And here’s evidence (from Ecoinometric on Friday) that BTC is for now following its usual post halving pattern, which is arguably bullish for MSTR:
https://open.substack.com/pub/ecoinometrics/p/bitcoin-is-following-its-usual-post
And for balance, this is the bear case on MSTR from SC Capital Group on SeekingAlpha on Wednesday last week:
https://seekingalpha.com/article/4737047-microstrategy-ccorp-means-double-taxation-107-nav-price-target
Apologies. Managed to duplicate link #5 as link #6 is the post (prospective #17) above. Link #6 should instead have been:
https://open.substack.com/pub/noconflictnointerest/p/a-response-to-kerrisdales-microstrategy
A “Sorosian” approach to MSTR and BTC:
https://open.substack.com/pub/philoinvestor/p/microstrategy-bitcoin-and-strange
MSTR hit $449 split adjusted overnight, so equivalent to $4,490 pre split, up from the $1,300 to $2,000 levels referenced in the above Moguls’ piece. A Diamond Hands approach has paid off on this one, so far 😉
@Delta Hedge — Indeed and congrats. I’ve done very well with Microstrategy this year (though I wish I could just own a bloody Bitcoin ETF in my ISA or SIPP, the regulations are ridiculous IMHO) but I’ve continually traded it.
If I’d held my chunky holding from early 2024 in full it’d have been a huge positive kicker for my YTD returns by now.
That said I cannot get comfortable with it trading for c. 3x the BTC on the books. I read/hear the articles trying to justify this, but at most it sounds like betting on a short squeeze on BTC. Obviously if Trump does decide to amass a BTC reserve anything is possible. Perhaps just buying MSTR would be the easiest way to get it done quickly!
I still have a small holding but it’s much less than what I have in, say, Reddit (as per article above).
As ever just an update, not personal advice for anyone reading. (Sorry I have to keep saying this in Moguls, but because it’s a membership service I have to stress nobody should be thinking this is more than what it is — hopefully entertaining and thought-provoking insights from an active investor into his own ups and downs of investing. 🙂 )
Thanks @TI. Yes it’s pure Trumpian sentiment/ inelastic market driven/ short covering. Then again:
– Like or loath it (the latter for me, just on principle) BTC seems to have the benefit of the Lindy effect. Of 40,000 different crypto coins listed at one point or another on one exchange or another since 2014 only 38% are still around and BTC has not been flipped by any other (and the BTC/ETH ratio is looking impressive for the apex coin presently).
– MSTR is an NAV premium oscillator but, whilst it looks bounded on the low end at trading to NAV, there’s surely no more reason to think it should necessarily always revert to NAV or must always be bounded at 3x than to impute a fair value to BTC. BTC could just as fairly be worth $0 (successful 51% attack) or Saylor’s lofty prediction of $13 mn per coin in 2045. MSTR in 2045 could be at 1x NAV, 3x or, for that matter, more than 3x. Perhaps MSTR is to BTC what Constellation Software is to bespoke small software providers – a serial acquirer worth more than the present sum of its parts as it can increase its BTC/Satoshi count per share (which it’s tripled since end Q4 2020 from 0.0005 to 0.0015).
– The couple of GBP UCITs LETF products with MSTR as the underlying (hilariously ISA eligible) are indeed nuts. But I wouldn’t be surprised if there was a highly variable DCA / turbocharged Martingale strategy which could work. Turn the absurd volatility, into a feature, not a bug.
@Delta Hedge — As you know, investing sages often ponder how much it’d cost to build a rival to Coca-Cola.
But we know exactly what it’d cost to recreate $MSTR!
$33bn to buy a 331k BTC stash, plus $1bn in a SaaS ETF?
$MSTR trades at $99.5bn…
I get it’d be hard to buy 331k BTC, but surely this can’t end well?
(Disclosure: As I say I’m actually still long a sliver of $MSTR because George Soros. And caveat: I’d be far better off if I’d just held my nose and held on to my original position instead of fretting about this kind of maths!)