This Isn’t Your Grandfather’s Mania

AMC isn’t worth $30 billion. You know it, people buying the stock know it, and even AMC’s management team knows it. Here is what they said in a recently filed 8-K.

We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business,  or  macro  or  industry  fundamentals,  and  we  do  not  know  how  long  these dynamics  will  last. Under the circumstances, we caution you against investing in our Class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment.

The company told investors that they are going to sell shares from time to time. They also told investors, and I’m paraphrasing here, that they would be crazy to buy them. I don’t know that we’ve ever seen anything like this before from management.

But not too long ago, way back in January, we saw something very similar with the stock. In the first 17 days of 2021, AMC gained over 800%.

And then, predictably, the music stopped, and prices crashed.

I have no explanation for why this stock is reinflating, but I think we’ve lost the script. When dumb moves happen in the market, and this is certainly that, people point to retail investors. Small money might have lit the match, but big money is pouring gasoline on the fire.

 

People are drawing comparisons to 2000, but this is very different. First of all, the mania is limited to just a handful of names. In the dot-com bubble, this was happening every day with a different name(s). The other difference is that, unlike back then, nobody actually believes these companies are “worth” whatever their current market cap is. Everybody knows AMC’s business isn’t worth $30 billion. But that doesn’t mean the stock isn’t worth $55. The only thing that matters is what the next person machine will pay for it. Buyers are just playing a game with tickers on a screen. The madness can continue as long as people think they can get out before the collapse.

“Well then they’re just gambling,” you’re probably thinking. OF COURSE THEY’RE GAMBLING. So if we can agree on that, then it’s easy to make a case for why stocks are their vehicle of choice. When you buy a lottery ticket, you expect to lose 100% of your money. AMC was up 100% yesterday! I’m not saying it’s smart, but I certainly can understand.

The silly videos on Tik Tok will continue to get all the attention, but I’d bet the vast majority of speculators are being relatively responsible with their money. This isn’t a mob of crazed maniacs putting their life savings on the line. And again, let’s not forget that at this point, retail is a sideshow.

Millions of people are playing musical chairs, and there’s only a handful of seats. When the music stops, prices will come crashing down. Forgive the cheese, but we’ve seen this movie before, and we know how it ends.

 

 

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.