Wall Street has been ruled by private investors for almost six months. Even though private investors have been investing their money in the market for over 100 years, they have never had such an enormous impact on share prices as they did in 2021.
More specifically, retail investors on Reddit, Twitter, and other social media platforms have teamed up to buy stocks and call options out of the money on stocks with very high short interest. The goal of these retail investors is twofold. First they want a short press – a short-term event that pushes short sellers (ie, pessimists who bet on a stock’s downward movement) to exit. Second, since most short sellers are institutional investors, they want to “stick to the colors,” so to speak.
“Monkeys” went crazy for AMC
Although GameStop was the representative of “Reddit-based trading” for months, it was replaced by the cinema chain AMC entertainment (NYSE: AMC)which has produced a higher return since the beginning of the year.
The army of retail investors who own shares of AMC, collectively known as the “monkeys” believe that a big short squeeze is waiting for the stock. Indeed, AMC has seen the number of short stocks spike in recent months. From June 15, 2021, Morning star listed 85.08 million shares as vacant, relative to a free float of closer to 449 million shares.
In addition to seeking a short squeeze, Monkeys believe Wall Street is deliberately manipulating AMC’s stock price. Read any message board and you will see multiple discussions about dark pool trading of AMC stocks, the implications of naked short selling (i.e. short selling of stocks that don’t exist), and the idea that hedge funds (kindly referred to) as the “hedgies” seek out bankrupt companies by dumping them into the ground.
In other words, AMC’s retail investors see themselves as a mission to embrace the manipulation of Wall Street.
But the kicker is that manipulation is taking place. It’s not coming from Wall Street, however. In my opinion, AMC’s retail investors appear to be the real source of stock price manipulation.
AMC is being manipulated, but not by Wall Street
As early as June 1934, the Securities Exchange Act was passed to cover secondary trading in stocks, bonds, and debentures in the United States. There is a section on market manipulation in this 367-page law that governs what is and isn’t legal in the investment world. Section 9 (a) and 9 (a) (2) state (Page 87, for those interested):
It is unlawful for any person, directly or indirectly … to carry out, alone or with one or more other persons, a series of transactions in a security that is registered on a national stock exchange, a security that is not so registered or in connection with any security Swaps or securities swap agreements in respect of such security that cause actual or apparent active trading in such security or increase or decrease the price of such security to cause others to buy or sell such security.
In other words, it is illegal to defraud other investors by doing anything that would artificially affect the price of an underlying security. AMC investors will tell you that they simply “like the stock” and that “it’s not illegal to buy and hold a company”. I agree and so do the law. If AMC investors like the stock, they can buy as much as they want and hold for as long as they want.
However, their actions on social media seem to indicate intentionally influencing the supply and demand for AMC stock. In particular, Reddit traders are using a combination of hype, deliberate ignorance of fundamental operational data, and misinformation to artificially drive AMC’s share price up.
How can I support these claims, you ask? Just search Reddit or Twitter for posts on AMC. You don’t have to look far to find the misleading or harassing tactics used to enforce what appears to be an honest (but coordinated) compliance. Pump-and-dump scheme.
AMC is constantly being hyped on social media
To begin with, AMC monkeys use absurd price targets and post thousands of times on social media boards every day to keep interest high. The most common tactic here is to keep proclaiming that a short squeeze is coming (despite no guarantee that one will happen) and ditch an absurd stock price level to keep less informed investors interested.
You can often find people on Twitter trying to get a hashtag version of the “AMC100k” or “AMC500k” trend. In other words, these people are trying to trick unsuspecting investors into believing that AMC will somehow go from $ 2 in January to $ 100,000, or $ 500,000 per share. For some context here, $ 100,000 per share would be a market cap that is well over double the US annual gross domestic product (GDP), while a $ 500,000 share price would be nearly three times global GDP (more than $ 250 trillion). Apple is currently the world’s largest publicly traded company with a market capitalization of $ 2.2 trillion.
These whimsical price targets may sound harmless, but they are a straightforward attempt to create artificial support with no fundamental support.
Efforts to present income statement / balance sheet data are being dashed by the social media mob mentality
In my view, retailers are also manipulating AMC’s stock price by using social media tactics to stamp out any discussion of the company’s operational performance or balance sheet. And the reason is simple: the presentation of income statement or balance sheet data would completely destroy the purchase thesis of this company – and the manipulators know that.
Any attempt to discuss the company’s operating performance or its more than $ 5.4 billion debt will be posted on Reddit, Yahoo! and other message boards were quickly rejected and referred to as “FUD” (fear, uncertainty and doubt). Hence, the only message new investors will see is the carefully crafted message that AMC portrays as a short squeeze candidate with no obvious drawbacks and tens of trillions in market cap up.
But this never-ending confirmation bias doesn’t come close to telling the full story. While AMC has raised enough capital to stave off bankruptcy in the short term, the company’s 2027 bonds are nowhere near par value, suggesting bankruptcy still remains a very real possibility (albeit years later). This is not a FUD. That’s a fact.
In addition, ticket sales for the film industry were all rolled into one pretty steady decline in sales for 19 years. Even as AMC builds its market share, the industry has continued to shrink and is likely to continue to shrink as streaming and movie exclusivity goes against AMC.
Besides, the company is not profitable and so is it $ 324 million burned in cash only in the first quarter.
This is important information that investors should know. If you still want to invest in AMC, that’s fine. But deliberately suppressing and hiding specific facts from unsuspecting investors while hyping what is essentially hype-driven propaganda does not allow people to make an informed investment decision.
Misinformation and lies are the basis of this movement
The most egregious sign of manipulation, however, can be seen in the way AMC monkeys do Spread misinformation to encourage this pump-and-dump scheme. Below are some of the examples you will see on a regular basis and why they are not true.
- “Monkeys saved AMC:“Not correct. AMC saved itself by issuing hundreds of millions of stocks and high yield debt earlier this year. Camaraderie is essential to keeping other retail investors informed, which is why this falsehood has persisted for so long. The fact is that the operational performance of AMC and only its operational performance will determine whether or not it will be stored.
- “Short-selling hedge funds drive companies bankrupt:“Wrong. Short sellers and buyers are just people hoping for different results. That result is ultimately determined by the company’s operational performance. No matter how many stocks institutional investors short sell, they cannot bankrupt a company. Anyone who does says you are lying to yourself otherwise.
- “Hedge funds control the MSM:“Wrong. AMC retail investors want you to believe that every institutional investor is evil and that there is an ongoing battle between David and Goliath. The fact is, hedge funds don’t control the mainstream media (MSM). This is misinformation. Maintaining retail investors to keep less informed investors informed.
- “Hedge funds fill your pockets:“Wrong. Monkeys also routinely claim that any journalist, analyst, writer, television personality, etc. who are not exactly on par with them is paid by hedge funds or has hedge fund affiliations, this is a defense mechanism to keep the ‘us against them “Maintain the mentality that is required to keep this pump-and-dump scheme going.
- “Basics don’t matter:Wrong. A company’s operational performance and balance sheet are always important. And if you don’t think they are, speak to them Washington Prime Group Shareholders who saw half of their investment fizzle out overnight when the company filed for Chapter 11 bankruptcy protection on June 13. Washington Prime was touted by Reddit traders just hours before filing for bankruptcy for its high short squeeze potential.
In my opinion, AMC retail investors are hypocrites. They preach for transparency and rail against unsubstantiated manipulation on Wall Street, but purposely block the whole story on message boards and continue to spread misinformation to manipulate the price of AMC.
I have no idea how long the AMC stock price can remain artificially inflated by retail investors. What I do know is that every pump-and-dump scheme in history has collapsed at some point. AMC will be no exception.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.