There's arguably been no hotter stock on the planet in 2021 than movie theater chain AMC Entertainment (AMC -6.30%). It's gone from teetering on the brink of bankruptcy in early January to being valued at $23 billion, as of business close on July 7.
At the heart of this rally are AMC's passionate army of retail investors, collectively known as "apes" -- an homage to Rise of the Planet of the Apes, where leader Caesar infers that apes are stronger together. This might sound like a feel-good story whereby retail is finally exacting its revenge on Wall Street, but the reality is that AMC has become a battleground pump-and-dump scheme driven higher almost entirely by the misinformation and lies spread by its retail investors.
While I've previously covered some aspects of the misinformation campaign used as the foundation for the rally in AMC's stock, below are the eight most pervasive lies that have fueled this pump-and-dump scheme.
Lie No. 1: Hedge fund short-selling bankrupts companies
The whopper of all lies exchanged on message boards and via YouTube is the idea that hedge fund short-selling is somehow responsible for bankrupting businesses.
The reality is that the operating performance of a company determines whether or not it thrives or goes under. There are plenty of companies whose share prices are under $1 that aren't bankrupt, and there are companies with share prices north of $1 that ultimately file for bankruptcy protection. Investors who choose to buy or short-sell stock are simply betting on an outcome. They don't control or influence how well or poorly the underlying business performs.
Put another way, if I buy $1 billion worth of Apple stock tomorrow, I might help lift its share price, but I've not improved its sales or profit potential one iota. Likewise, if I short-sell Apple's stock tomorrow, I haven't hurt its sales potential or profitability at all. Why would this hypothetical scenario be any different with AMC? Hint: It's not.
Lie No. 2: Shorts have to cover
Another dose of misinformation from AMC's apes is that short sellers of the stock have to cover. Specifically, apes are implying that there's some level of urgency here and that the disorder from excessive covering will lead to the "mother of all short squeezes."
The truth is that short-sellers "have to cover" as much as apes "have" to sell their position. In other words, short-sellers can cover their position at their leisure.
What's more, hedge fund assets under management jumped to $4.07 trillion in June 2021, according to BarclayHedge. For short-covering to be disorderly, a massive wave of margin calls would need to come into play. Since the vast majority of hedge funds are diversified, and they have well over $4 trillion in assets in their sails, the chance of a margin call wave forcing short covering is virtually nonexistent.
Lie No. 3: The short squeeze is coming/around the corner
Just as they teach every salesperson, creating a sense of urgency with customers (i.e., potential new investors) is important. Apes are constantly hyping the idea that a short squeeze is imminent, or at worst right around the corner. Unfortunately, it's been five months since this ongoing claim began making its rounds, and there's nothing these retail folks can say to substantiate it.
Aside from an institutional investor/hedge fund margin call wave being highly unlikely, history has also showed that short squeeze candidates have a poor track record of success. Earlier this year, I looked at the trailing three-month returns of 114 stocks with short interest above 20% and a market cap of at least $300 million. Only 9 of 114 stocks had gained 10% or more, while 94 of 114 had a negative three-month return.
Apes need fresh capital to keep this pump-and-dump scheme going, but the data clearly shows that short squeezes rarely pay off.
Lie No. 4: Fundamentals don't matter
AMC's retail investors are also quick to dismiss anything having to do with concrete fundamental data. Whether it's the company's operating performance, industry ticket-sale trends, or AMC's balance sheet, they'll proudly proclaim it as FUD (fear, uncertainty, and doubt) and remind you this isn't a fundamental play. They do this because AMC's operating performance and balance sheet are nothing short of a horror movie, and they damage the misinformation campaign being put forward on social media and YouTube.
I'll let you in on an investing secret that tenured investors know: Fundamentals always matter. Purposefully telling new investors to ignore fundamentals is like telling a used car buyer not to inspect the engine and just trust that everything is OK.
For instance, social media was buzzing about Washington Prime Group's short squeeze potential over the weekend of June 12 and 13. The company filed for bankruptcy protection late Sunday night (June 13), halving investors' stakes the following morning. The engine (fundamentals) drives the car; not the other way around.
Lie No. 5: Hedge funds control the mainstream media
AMC's apes need to create the impression that anything negative said about their company's stock on television, radio, the internet, or print can't possibly be true, and telling the lie that hedge funds control the mainstream media (MSM) is the easiest way to accomplish that task. Again, this pump-and-dump scam needs fresh capital to keep moving higher, therefore presenting the media as evil is an easy way to try to rally new investors to the retail cause.
But, as is all-too-common with the ape agenda, it's devoid of fact.
It just so happens that Harvard University provided a painstakingly thorough look at MSM ownership for 176 of the most influential media companies/outlets in May 2021. The findings? Only five of the 176 outlets are controlled or majority-controlled by private hedge funds. Apes simply hate hearing bad things said about AMC and will go to any lengths necessary to obfuscate those facts, including lying about MSM.
Lie No. 6: "You're obviously short"
To build on the previous point, AMC's impassioned retail investors will also claim inherent ownership biases in the anchors, guests, authors, and so on, who rail against their stock. This is necessary to help recruit fresh capital to their cause by trying to create an "us vs. them" mentality.
To offer an example, I've personally been told on social media many dozens of times that I'm "obviously short" or "clearly losing a lot of money" because of the journalistic position I've taken on AMC. While I can't speak for any other company, I can proudly claim that my stock holdings are public information, and they're updated daily if I make a move. To boot, article disclosures state any positions I, and my company, have for any stock mentioned. This includes short positions, as well as any options ownership. The icing on the cake is that I also publicly announce my trading activity on Twitter.
Despite this transparent information, apes constantly and falsely insinuate a financial interest when none exists.
Lie No. 7: BlackRock and Vanguard buying AMC stock is bullish
This is one I find particularly amusing, because apes are more than willing to welcome institutional investors with open arms if they happen to own shares of AMC.
Retail investors regularly use BlackRock's and Vanguard's ownership of AMC stock as a reason to promote optimism. However, this tells only a fraction of the real story. BlackRock and Vanguard are two of the largest institutional investment firms in the country, based on assets under management. As of their mid-May 13F filings, which detailed their holdings for the first quarter, BlackRock had close to 5,000 positions, with Vanguard chiming in with more than 4,000 positions. During Q1, BlackRock and Vanguard added to more than 3,900 and 3,200 of these stakes, respectively.
Put another way, BlackRock and Vanguard have so many product offerings that they have a stake in virtually every stock listed in an index. Saying that BlackRock and Vanguard buying AMC is bullish is akin to saying you bought shares of Ford stock because you like red paint.
As a percentage of shares outstanding, hedge fund and overall institutional ownership in AMC fell during the first quarter from the sequential fourth quarter. That's a fact!
Lie No. 8: Apes saved AMC
The eighth and final mammoth lie that AMC's retail investors rely on to coerce community compliance and bring in fresh capital is the idea that apes saved AMC. These folks genuinely believe that by purchasing shares of AMC they've somehow saved the company from going bankrupt.
As I discussed with the first lie on this list, buying and selling stock has absolutely no influence on how well or poorly a company performs from an operating standpoint. Even if apes were to buy every share in existence, AMC could still go bankrupt if its operating performance doesn't improve. And based on its 2027 bonds trading well below par, bondholders aren't convinced that things will improve enough to save the company.
What really saves companies from bankruptcy is their operating performance and the actions of management. In AMC's case, selling hundreds of millions of shares of stock an issuing high-interest debt last year and in early January gave it the financial lifeline needed to survive the worst of the pandemic. That's not apes saving AMC; that's the company's actions extending a lifeline.
If anything, apes are purposely harming AMC by tying the hands of CEO Adam Aron and shooting down any additional opportunities for the company to raise capital and shore up its balance sheet.
If this list of lies shows anything, it's the lengths apes will go to manipulate AMC's share price. However, history is very clear that all pump-and-dump schemes end in disaster. That's not FUD. It's a practical guarantee.