AMC and GameStop Frenzy Goes Beyond Casino Mentality
Mohamed A. El-Erian, 02 June 2021
It has only been a few months since Reddit-enabled retail investors, or what some unflatteringly refer to as the “retail mob,” embraced GameStop Corp. and drove its valuation to the moon only to be frustrated by a sudden change against them in the rules of the game. Today, it’s all about AMC Entertainment Holdings Inc., whose skyrocketing value this week has already overcome what would normally curtail investor enthusiasm. The similarities are notable, as is the broader message about what is happening to the investment landscape.
Both phenomena involve an investment thesis, effective amplifiers and lots of cash to invest and borrow on margin.
The thesis for GameStop was to exploit a few massively offside hedge funds that, believing the business was structurally impaired for a long time, had shorted wildly, amounting to an eye-popping 140% of the outstanding shares, according to some reports. For AMC, professional investors and broker-dealers are being caught off guard by the chief executive officer’s embrace of retail investors in a manner that has allowed a solid set of believers in the company’s prospects to provide a foundation for many more speculative buyers. Their combined force has been enough to overcome a significant sale of shares to a hedge fund that, according to reports, were immediately flipped and dumped into the marketplace.
The amplifier in both cases has come through Reddit, a platform that has enabled the investment theses to be shared effectively and evolve. It’s a process that has provided comfort to subsequent waves of buyers and is a perceived staying power for the trade.
