This is the second part in our series analysing current meme stock favourite, BBBY.
Our first instalment went into a previously-unknown element behind the rise of GameStop (GME) stock in late 2019 (unknown to the mainstream at least). This noted that a user called ‘namsilat’, who also appears to operate TheCorporation subreddit, had provided suspiciously well-timed advice on the purchase of GME stock hours before an announced collaboration between Microsoft and the gaming retailer.
Ryan Cohen, one of the heroes of Wall Street Bets sold all of his position in Bed, Bath & Beyond on Thursday, August 18. By close of trade on Friday, the stock was down 39 per cent. As reported in our original coverage of BBBY on August 8, Cohen’s position, plus the high proportion of shorted shares in BBBY appeared critical to the original justification to buy the stock — only adding to the hype.
Now that Cohen has cashed out, however, the popular wisdom is that it’s all over for Bed Bath and Beyond.
But is it?
As a contra indicator consider the following commentary from Nigel Green, the CEO of DeVere Group, a large independent financial advisory, which landed in our inbox on August 18 warning investors about the rise in meme stocks. As the rent-a-quote analysis noted:
“Back then, as is likely to happen this time around, many individual investors – often young and inexperienced – got badly burned by the experience.
“This kind of investing is extremely speculative and valuations can be expected to be incredibly wild – in both directions. There are genuine risks to people’s wealth here.”
If you do want the thrill or novelty of chasing big gains, you really should ensure that you have a sound, diversified, long-term plan beforehand.
“There’s a major difference between investing and gambling.”
Nigel Green continues: “Piling into single stocks is the opposite of diversification, which is universally regarded as an investor’s best tool for generating and protecting long-term wealth.
What Green’s warning inadvertently reveals we think is that boomers like Green himself still have no idea about what the “meme stock frenzy” (as DeVere calls it) is really all about. There is at the end of the day an ideological framing to this stuff that goes beyond traditional stock investing rationale. If you don’t get that, you don’t get meme stocks. It’s absurdist by design.
Who Dares To Trawl The Subreddits Wins
Drawing actionable intelligence by going native on investing subreddits is a time intensive and exhausting process that nobody really wants to go through. And yet, sometimes it pays to nerd out. And that dear readers is why we have gone deep into the subreddits so you don’t have to. Our conclusion? A comprehensive reading of much of the prose suggests the momentum for BBBY is far from over (at least for now).
Boomers may not understand this, because they see WSB as an ‘investing’ subreddit. In reality, it operates more like a terrible casino crossed with a comedy show or a Japanese endurance game show.
It only takes a day or two to absorb WSB’s mentality. Members of the subreddits happily joke they are all equally ‘regarded’ (replace the g with a t and you get the cipher). As such, they commit to a motto of “buy high, sell low” on purpose.
WSB lurkers do not need crusty old men telling them they are making irresponsible choices.
They want to make irresponsible choices. It’s conscious self-sabotage for the Lols, with the occasional chance of outsized gains.
Indeed, the entire point of this culture is to YOLO (you only live once) or ‘yeet’ your money into stupid bets.
The political element, so often mentioned by talking heads with regards to GME, is the exception.
Only specialised subreddits like /r/Investing_Discussion actually deal with real investment strategies.
It follows that good money-making strategies on WSB, unlike Green’s points, are fundamentally dissimilar from successful mainstream analyses. The same applies if we try to conduct share price forecasting for meme stocks.
In WSB, you are encouraged to follow two ‘dumb’ strategies;
- Be one of the first on the trade before or while it pumps.
- Inverse any popular advice on WSB because it’s that bad it will only make money if it’s inverted.
Those who can read the sentiment in the rooms, however, can make money from pre-empting the effectiveness and influence of the above two strategies in the market. This intuition-based system is quite simple; look at WSB posts and comments and observe how the crowd is behaving.
It’s still dumb, but it’s slightly less dumb than the options above.
For example, here is one systematic approach based on the above that can be applied to BBBY:
- What posts are going up in popularity?
- What comments are popular in these posts?
- In what direction is the narrative of the trade shifting?
Analysing the subreddits at 9AM BST on Friday, I discovered two negative posts on BBBY related to Cohen’s sale. Some included images such as the below;
These salty posts, however, were quickly overturned by very bullish posts.
They make three points:
- Cohen’s position on BBBY was not really part of the original play on the stock by WSB.
- The actual play was that BBBY is heavily shorted.
- Apes together strong.
So far, quite bullish.
The comments on the posts, however, tell different stories;
- We are all regarded, as am I.
- I’ve lost so much money.
- BBBY is dipping harder than the Titanic.
A review of the above suggests the stock is thus at a critical juncture.
It’s worth noting a similar disconnect between bullish posts and bearish comments occurred during the first dip of GME in early February 2021.
The original GME “investment” narrative was driven by “DDs” (due diligence conducted by ‘regards’, hence the quotation marks) exclaiming the possibility of the Mother of All Short Squeezes (MOASS). This hope-fuelled theory predicted a bigger short squeeze for GME than VW’s.
However, despite the “DDs” that attempted to inject some semblance of rationality into the GME trade, the real strength of the stock’s narrative soon became its political and class-oriented element. Dumb money vs Wall Street.
Enthusiasm on WSB for GME was quickly strengthened by “evidence” of stock market manipulation by “hedgies”, such as Citadel, and Robin Hood’s close relationship with them.
Since GME’s stock-shorting narrative was arguably not the cornerstone of its strength, BBBY bulls can make “DDs” about the high percentage of the shorted stock all day, to no effect.
Last week, it did not augur well for BBBY’s momentum that the politicisation of the stock was light compared to that which influenced GME. A further bearish indicator was the comparative lack of emotional ties to the stock. Individuals on WSB had spent the happiest moments of their childhoods at Gamestop, which cannot be said for the comparatively boring Bed, Bath & Beyond.
In light of Cohen’s sale, however, the politicisation of the BBBY narrative has taken a turn.
When Caesar realised the Celts outnumbered the Roman legions, his troops’ ships were burned to ensure that with the escape route closed, his legionnaires had no option but to fight. Similarly, the betrayal of WSB’s last “ally” and bridge to the mainstream, Cohen, is serving to harden and energise the politicisation of BBBY on the subreddit.
One such post title makes the effects of this ‘betrayal’ by Cohen apparent;
“If we give up on $BBBY now, the Hedgecucks will forever win.”
And the top listed comments;
“Only a true regard is willing to go down with the ship”
“Fuck em all.”
BBBY’s momentum depends on one thing; whether the politicisation energises the base of WSB enough to maintain a healthy stock floor – one from which further bullish “DDs” can be launched.
We will keep you posted.