AMC and Wall Street Are Learning All the Wrong Lessons From Crypto
The similarities between stock speculation and gambling have always been obvious to the common man. In the late 19th and early 20th century, even those who didn't have the cash or connections to actually buy stock could still frequent so-called bucket shops, which were kind of like off-track betting parlors but for wagering on stocks instead of horses. Patrons would take "positions" on stocks that paid off if the stock went the right direction, but without ever actually owning the underlying asset.
By the early 1920s, bucket shops were outlawed in the U.S., and the 1929 stock market crash scared away manic speculators for the better part of a century. But recent years have seen a belated resurgence in the use of financial markets for entertainment purposes. The difference is that now, instead of fraudulent bucket shops, the gambling is happening with real assets.
The pump was primed by the dot-com bubble of the late 1990s, but it was crypto that truly reintroduced speculative mania to finance starting circa 2015 as hordes of speculators fell down the rabbit hole of obsessive day-trading on small-cap, largely useless blockchain tokens. That was enabled by the permissionless nature of blockchain assets and coincided with the rise of zero-fee trading and retail-oriented services like Robinhood (HOOD).
Then, in early 2021, the degen mentality found its way into regulated markets via WallStreetBets and the GameStop (GME) short squeeze. At the time, this was covered as a kind of David-vs.-Goliath uprising of retail traders against big hedge funds. As Spencer Jakab laid out in his recent book "The Revolution That Wasn't", that narrative doesn't really hold up – most hedgies made out just fine, and like most small-time day traders a lot of GME bagholders got crushed when the stock fell from its meme-y highs of around $80.
Incredibly, GameStop stock still trades at around $30, roughly 10 times its pre-WSB levels. That has helped GameStop get more access to cheap capital. In other words, the meme squad materially changed GameStop's business outlook through little more than vibes.
Now, the management teams of large public companies are increasingly willing to play memey games if it means someone will hand them more cash. The poster child here is the theater chain AMC Entertainment Holdings (AMC), which experienced a GameStop-style meme pump in early 2021 and has also managed to hang on to some of the resulting premium – though a lot less of it than GME over time.
This week, AMC decided to play directly into its meme-stock status by doing a weird and complicated form of stock split. AMC can't technically issue more stock thanks to a cap written into its corporate charter, and current shareholders have already voted down attempts to raise that cap. Instead, they decided to become legends: Each share of normal AMC common stock this week received a share of new preferred stock, which behaves almost exactly like common stock but isn't covered by the charter cap.
The preferred stock also trades under a different ticker symbol, which (of course) is APE.
That's why AMC stock seems to be down dramatically this week if you just look at the AMC chart – those units went overnight from covering the value of the entire company to just covering half of it.
Issuing new stock under the ticker APE is about as close as a publicly traded company can get to saying out loud "please use our stock to run your decentralized Reddit pumps." It's a move that most public companies wouldn't dare pull for risk of alienating institutional investors, if nothing else because the structure of the split is annoying and is creating real market confusion. And the branding is absolutely classless, because it effectively acknowledges that the stock doesn't have much connection to company fundamentals like, say, profits.
(Also, as a financial journalist, this is a nightmare. When your equity effectively trades under two different tickers, a lot of reporters are going to get the numbers wrong. Count on it.)
But AMC doesn't really care, probably because, for better or for worse, in-person theaters appear to be in secular decline thanks to the rise of at-home streaming of big new movies. In other words, this is no longer a business with exciting real-world prospects, so there's no reason not to YOLO your reputation to cater to Redditors who think it's funny to own a stock with the ticker $APE. (Remember when people still said YOLO?)
When the meme stock mania first surfaced, many finance observers wondered whether it would outlast the coronavirus pandemic, which also juiced crypto trading among bored people stuck at home for months on end. That's still a somewhat open question, but if more companies see upside in actively courting retail day traders we could see "meme interest" remain a significant metric in formal equity markets.
That's probably not great for the actual intended purpose of those markets: evaluating the economic performance of companies and allocating resources according to that performance. Not only does it further push stocks off fundamentals, it seems likely to juice volatility by making sentiment a bigger part of the mix.
That's well worth remembering, whatever market you're in. The stories of big swing-trade winners tend to dominate clickbaity finance headlines, overshadowing the reality that those winners' exit liquidity also includes a lot of retail traders – and when those top-buyers get wiped out, they make the news far less often.
So if you think you're smart enough to juggle financial knives, by all means have at it. But if you'd rather keep your sanity, remember that there's a business behind the meme and it actually matters whether it's turning a profit. To paraphrase poet and satirist Alexander Pope, to meme is human. But to invest is divine.
– David Z. Morris
