Trump Media
In other words: it turns out to be an ideal candidate for short traders: investors who bet that the value of a company’s stock is overvalued and will fall.
And that’s some of what’s happening. But so far not so much: According to short tracker S3 Partners, more than 3 million Trump Media shares have been shorted. This equates to approximately 11% of the company’s total notable shares.
That’s a lot more than average stocks, where about 5% of stocks are short-selling, but about as much as max-shorting stocks. Short stocks, for example, hold 38% of Beyond Meat and 35% of Carvana.
What gives?
S3 CEO Ihor Dusaniwsky gives an explanation: It’s tricky to short sell Trump’s company for technical reasons.
To short sell a business, you have to borrow the inventories from someone else, sell them, and then wait for the value of the inventories to go down before having to buy them back and return them. But Trump’s company began as a special company. target acquisition company, a genius business design that briefly popularized the pandemic stock market craze, and it’s hard to borrow from SPACs in general and Trump’s SPAC in particular:
So that’s one of the whys of the explanation. The other explanation is one you can understand without being an expert at short selling: Trump Media is the definition of a meme inventory: inventory that is marketed because other people on social media think it’s valuable, funny, or because they have to stick to it. Man or anything else.
And even if meme stocks eventually come back down to earth, you can bet against them in the meantime.
This is partly due to the nature of short selling in general: unlike classic stock market investing, where the most you can lose is your initial investment, when you short sell, your potential losses are not capped off. They can continue to rise along with the value of the company’s inventory that you expected to fall.
And that’s partly because retail investors have learned that, in some cases, they can, in some cases, combine to short sell and increase the value of a meme inventory. Maybe it’s because they want to make money; because they need to stick with The Man.
That, of course, is the lesson we learned in the brief GameStop squeeze of 2021. And if, for some reason, you missed it, there’s a whole movie about it, which has its messes but is also quite funny.
So while I’m not offering investment advice, I’m pretty sure Trump Media probably won’t be worth $9 billion or anything like that by the end of this story. And also: it would be cauteloso. de to try to figure out when inventory will finally reflect reality.
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