Bed, Bath and Beyond Saving
The meme stocks are dying
What do you get when you mix pandemic-forced lockdowns, stimulus checks, the Reddit sub r/WallStreetBets, access to the entire trading market in the palm of your hand, and a collective desire to disrupt the status quo and stick it to the man?
Yup, you guessed it.
Meme stocks.
This perfect cocktail of factors led to a few lucky stocks being chosen, without much rhyme or reason, for the ride of a lifetime. Like stuffed toys trapped in a fairground machine, they were grabbed by the claw and carried into the air towards a new existence — cult-like status with a cult-like following. And as the months ticked on, the cult grew bigger, more vocal, and more devoted. As more and more bought in, the price started to rise. And rise. And rise.
The two biggest winners, GameStop and AMC, experienced insane gains — especially when you consider that GameStop was a long-struggling business and cinemas were closed due to the pandemic. Or in other words, it made no fundamental sense (more on that later):
GameStop shares rose from $3.25 in April 2020 to $347.50 in late January 2021, a rise of 10,692%.
Between June 2020 and June 2021, AMC stock shot up 3,000%.
From these two stocks, soon branded meme stocks, retail investors (i.e., those using their own money, trading on Robinhood from the comfort of their toilet seat) made bank. Well, some did. Others got swept up in the hype, threw their money in at the top of the mountain peak, and may as well have set it on fire instead. If you’re not first, you’re most certainly last. Investors also suffered and took to our TV screens, airwaves and Netflix documentaries to try and understand why the short positions they had adopted (betting the price would go lower) were now crippling their investment companies. It even forced Melvin Capital, one of Wall Street’s more successful Hedge Funds, to close. Boo hoo, said the Redditors as they rejoiced and doubled down.
Which other stocks were there for the taking?
Enter Bed Bath & Beyond (BBBY)
Yes, the struggling retailer that, at the time, was bleeding money and being crushed by Amazon. Yes, the company that tricked customers into thinking they spent time making beautifully neat walls of folded towels. The next bout of meme-madness started when Ryan Cohen, a heralded figure in the meme stock world who helped drive the GameStop boom and is now chairman of the company, wrote a letter to BBBY complaining about its operational plan and announced he had acquired a near 10% stake in the company.
That was the bat signal, and team meme stock poured in.
Ever since, the stock has endured a tug-of-war between meme-stoked enthusiasm and business-sense pessimism, swinging between huge gains and losses. But, unlike the epic highs of AMC and GameStop, meme fever won’t be enough for BBBY.
In Aug 2022, stocks plummeted when it was revealed that Cohen sold his stake because “his views changed on the business.” Or in other words, it was a failing business model, exactly as it was when he chose to invest in it. Not coincidentally, Cohen made profits of 56% on his investment. To me, an outsider who didn’t buy into the mania, it’s obvious what happened here — Cohen manipulated the meme rally for his own benefit.
How very Wall Street of him.
The problems have continued ever since, because the business was fundamentally broken, and the stock price was not a true reflection of what was going on under the covers. The company was struggling to stock shelves, struggling to pay vendors and struggling for cash flow. It started to close stores and lay off employees, eventually sounding the alarm, warning that bankruptcy was possible.
And in April 2023, BBBY filed for bankruptcy.
It was delisted from the Nasdaq and began to trade via an over-the-counter (OTC) exchange, and it proved to be the final nail in the coffin. At its meme stock high, it sat at $30 a share. By the time BBBY announced it was ceasing to trade as of September 30, the stock was at $0.08. The stock had dropped over 98% in the past year, and it was clear — no meme-rally could resurrect it. Then, the bombshell landed. The stock was completely delisted earlier this month. In the filing, BBBY said that its shares are canceled and "have no value" as the company's bankruptcy plan takes effect. Anyone who didn’t sell before that fateful day is left with a big fat pile of nothing.
It’s not an isolated incident. The other two meme stock champions haven’t faired much better, though they are still hanging on. AMC is down 70% and suffering huge quarterly losses. GameStop is down 50% for the year and 70% from the all-time high.
The fundamentals do matter
As always, those left holding the bag fall into two categories:
those who want to forget they ever pumped money into the stock of a failing business
those who convince themselves that if they keep holding on, despite all the red flags, one day the bag will pay out.
After BBBY’s initial bankruptcy warning, avid meme-stockers on Twitter believed it was a conspiracy to get them to stop buying the stock. As Dan Olsen wrote,
Bed Bath & Beyond says “FYI we’re basically already bankrupt and probably going out of business” and the meme stock fanatics insist it’s a lie to manipulate the stock (which would be a crime) and push for everyone on the forum to buy more.
Well, those who did buy again, only served to make the worthless bag they’re holding right now that little bit more… worthless.
As one Reddit user posted,
There is nothing left to even make decent tinfoil off of. Yet this certain cult calls everything bullish, even the stock being deleted as bullish. Not replaced, it’s deleted. My shares didn't get butterfly to take the spot, it’s gone, poof, vanished. People call that bullish. Am I the insane one here? Or does it look like the desperate hopes of people who lost potentially a collective of millions of dollars and refuse to accept the current situation as fact.
It’s no surprise the mods of this sub labelled this a ‘shitpost.’ Delusion at its finest. Let’s remove the tinfoil hat for a second and mention the very important lesson to be learned here, that will of course be ignored. These moonshot stocks rose on the back of hype and a clusterfuck of crazy, unprecedented conditions. The upward trajectory of the stocks ignored all business fundamentals, the very fundamentals that have very smart, very successful and very rich people shorting against these companies.
Like it or not, when the buzz dissipates, all that is left is the fundamentals. And the fundamentals do matter. Much like NFTs, Shitcoins and Web3, meme stocks require huge doses of hype and FOMO to keep the price soaring because that is all that is driving the price.
It seems 2023 has spelled the end for these meme stocks. Rather than heed the lessons though, I’m sure the meme stock champions will instead choose a handful of successors, a new batch of dead stocks to resurrect, in the hopes they can turn one man’s shit into another man’s gold.
But the outcome will be the same; a few retail investors will win, a lot of investment firms will walk away filthy rich (jokes on you), and most people who throw their life savings at the stock Reddit forums promised would go to the moon, will lose their life savings.
Great postmortem on the hype that I saw as nothing but disaster from miles away.
Fun fact: when COVID hit in 2020, I was playing with my Robinhood account. I spent all the money I set aside, that I could afford to lose, on ETFs and indexes. I chose one stock that was a company I actually liked to dump money into, a kind of “I’ll be helpful to this one company because I want it to succeed.” It was a company that shaped my childhood at the movies.
That stock was AMC.
A few years later, a friend messaged me on Facebook telling me I needed to drop everything and go invest in AMC before the price stops climbing! Well, I’m two years ahead of ya because I bought AMC back when it was cents per share. Talk about bizarre luck. I knew nothing about the meme stocks at the time but I promptly cashed out the golden opportunity that fell into my lap.