Jim Cramer: GameStop, AMC and the Chorus of 'Hold'
The expectations of so many these days are based on false premises: every stock can be like GameStop (GME) or Tesla (TSLA) if the buyers and investors would just try hard enough to hold the line and move up the shares.
I find this whole narrative insane. How can a company’s stock be hostage to its own shareholders to do the job that the company can’t?
But that’s what happens when WallStreetBets took over the flow of certain stocks and made it clear that they were the bosses, not the company, not Wall Street analysts, not Wall Street professionals and, most important, not the short-sellers.
To me this method of buying does not represent anything remotely considered to be investing. Sure, it’s OK to care what your fellow shareholders might do. In fact, I have been deeply focused on knowing what your compadres might do. That’s because it’s vital to try to find out what an Archegos might do. For example, when I saw big trades before the market opened in Tencent (TME) and Baidu (BIDU) I thought something was wrong at the companies. Nope, that was Goldman Sachs (GS) shrewdly dumping the shares that Archegoes had in these names to protect their own balance sheet. Talk about important knowledge.
But I have never seen before the need from shareholders to listen to the chorus of Hold, the word shouted by Mel Gibson in Braveheart to encourage the Scots to hold the line against the English cavalry, in order for a stock to go higher.
The lesson, if shareholders hold against the sellers, they can defeat them, especially the nefarious short-sellers who want the stock lower.
Why is this a questionable way to put money into a stock? Because it can only go so far. Right now, in fact, there are only two stocks that are being kept higher: GameStop and AMC (AMC) , the former because of a hope that a new board member who co-founded Chewy (CHWY) can keep the stock up almost 900% for the year and the latter, up 400%, because of a bet that the short-sellers will be wrong and the stock can rally if it is the last man standing.
In the last two business days both Adam Aron, the CEO of AMC, and GameStop have announced offerings to help shore up their balance sheets and give more firepower to the companies’ management.
AMC is looking for authorization to sell 500 million shares, an amount that will most likely not be used, but at least Aron will not have to go back to the well for more shares. GameStop is offering $1 billion in stock at the market so as not to hurt the stock.
I applauded both of these moves, AMC because it has some very expensive debt that can be bought back at a great price that is anti-dilutive. Aron told me on Mad Money that he can use the shares to help beat the short-sellers who have played havoc with the stock. GameStop wants the money perhaps to buy another company to re-invent the foundering company, or perhaps change it to a gaming palace filled with e-gamers trying to win cryptocurrencies. It’s the best plan I have heard and I don’t care that it is mine.
Now, I am in favor of both moves. But I have been roundly criticized for siding with the short-sellers because these offerings are diametrically opposed to the “hold” philosophy or faux philosophy. By even discussing this positively I have had anything that I have ever said or done wrong thrown at me endlessly and I suspect that will happen tonight in my Twitter file. This is gang rule and everyone who knows these stocks is being played out. I find it so silly because in the case of AMC I am looking at the balance sheet and know how important Aron’s move is. For GameStop, it’s imperative to raise money because the insurgents who have joined the board need the money to grow the company into its market share.
In other words, the WallStreetBets people who live on Reddit don’t even know who their allies are.
It’s fine. I will be shellacked for violating the Hold philosophy but it is not me who has let that cohort down. It’s them because they have become stale with their two trick ponies and funny emojis and an occasional huzzah for awesome long-range ETF manager Cathie Wood and one of her favorites, Palantir (PLTR) . I am not saying they are betraying their readers. Belittling those critical of their Hold exhortations works. I haven’t seen anyone else question their 9 million plus army. I just think that they have to recognize how the stock market works to raise money to do great things. I welcome them to join me in analyzing these companies’ actions in an open-minded way and after making it open season on me, realize I am on the same side as they are.