Crypto is teaching AMC and Wall Street all the wrong things

Most people have always been able to see the similarities between stock speculation and gambling. Even if you didn't have the money or connections to buy stocks, you could still go to "bucket shops" in the late 1800s and early 1900s. These were like "off-track betting" parlors, but you bet on stocks instead of horses. People would "take positions" on stocks that paid off if the stock went in the right direction, but they never actually owned the underlying asset.

By the early 1920s, bucket shops were illegal in the U.S., and the 1929 stock market crash scared away manic speculators for the better part of a century. But in the past few years, people have started using financial markets again as a way to have fun. Now, instead of fake "bucket shops," real assets are used to gamble.

The dot-com bubble of the late 1990s started the pump, but it was crypto that really brought back speculative mania to finance around 2015, when hordes of speculators got caught up in obsessive day-trading on small-cap, mostly useless blockchain tokens. This was made possible by the fact that blockchain assets don't need permission to be used. It also happened at the same time as the rise of zero-fee trading and retail-focused services like Robinhood (HOOD).

Then, in early 2021, WallStreetBets and the GameStop (GME) short squeeze brought the degen mentality to regulated markets. At the time, this was described as a "David vs. Goliath" battle between small traders and big hedge funds. Spencer Jakab showed in his recent book "The Revolution That Wasn't" that this story doesn't really hold up. Most hedge funds did fine, and like most small-time day traders, GME bagholders got crushed when the stock fell from its meme-y highs of around $80.

GameStop Wall Street Stocks TV Show Is Also In Development
Even after the WSB, GameStop stock still trades at around $30, which is about 10 times what it was before the crash. This has made it easier for GameStop to get cheap capital. In other words, the meme squad's vibes changed GameStop's business outlook in a big way.

The management teams of big publicly traded corporations are now more and more open to playing meme games in exchange for money. The poster child in this case is the theater chain AMC Entertainment Holdings (AMC), which in early 2021 underwent a meme pump a la GameStop and has continued to hold on to some of the premium that resulted, albeit much less so than GME.

AMC to Issue Dividend in Form of 'Ape' Preferred Shares - WSJ
This week, AMC made the decision to implement an odd and intricate stock split in an effort to capitalize on its status as a meme-stock. AMC's corporate charter contains a cap that prevents it from issuing further shares, and present shareholders have already rejected attempts to increase that cap. They chose to live legends instead: This week, a share of new preferred stock that functions almost identically like common stock but isn't subject to the charter cap was added to every share of regular AMC common stock.

Additionally, the preferred stock trades under a distinct ticker, which is (obviously) APE.

If you merely look at the AMC chart, you can see why the AMC stock appears to be down significantly this week. Overnight, those units moved from covering the value of the entire firm to only covering half of it.

The closest a publicly traded firm can come to saying out loud, "Please use our stock to run your decentralized Reddit pumps," is by issuing new shares with the ticker APE. The structure of the split is irritating and is seriously confusing the market, therefore most publicly traded companies wouldn't dare make this move for fear of offending institutional investors. Additionally, the branding is completely unethical because it admits that the stock has little to do with fundamental business factors like, say, earnings.

(This is also a nightmare for me as a financial journalist. Many reporters are going to get the figures incorrect when your equity actually trades under two different tickers. Don't doubt it.)

For better or worse, in-person cinemas seem to be in a secular decline as a result of the advent of at-home streaming of blockbuster new films, but AMC doesn't seem to care. To put it another way, because there are no longer any promising real-world opportunities for this company, there is no reason not to YOLO your reputation in order to appease Redditors who find it amusing to buy stocks with the ticker $APE. (Recall when folks used to say, YOLO?)

Many financial experts questioned if the meme stock craze would outlive the coronavirus outbreak, which also fueled crypto trading among those who were bored while cooped up at home for long periods of time. It's still unclear how to answer that, but if more businesses see benefits in actively pursuing retail day traders, "meme interest" may continue to be an important indicator in formal equities markets.

That's probably not ideal for the markets' primary objective, which is to evaluate business performance and allocate resources in line with that performance. In addition to further deviating from fundamentals, it looks likely to increase volatility by giving sentiment a larger role in the equation.

Whatever market you're in, that's definitely something to keep in mind. Large swing-trade winners often dominate clickbait financial headlines, obscuring the fact that many regular traders are also part of the winners' exit liquidity. When those top-buyers lose money, the news is much less likely to focus on them.

So go ahead and try juggling financial knives if you think you're smart enough to do so. But if you'd prefer maintain your sanity, keep in mind that the meme is a business, therefore it does matter if it's profitable. To meme is human, to paraphrase poet and comedian Alexander Pope However, investing is divine.