Key points:
- Bed Bath & Beyond stock just dropped 60% and more
- This absolutely isn't a pump and dump
- This is just a meme stock when the story changes
Bed Bath & Beyond (NASDAQ: BBBY) stock dropped 20% yesterday and then another 40% postmarket. We can ascribe this to it being a meme stock – they're notoriously volatile – or perhaps just to sometimes these things happen. The one thing we mustn't do is call it a pump and dump. For that has a specific meaning and the recent BBBY stock price movements don't meet that. Quite apart from anything else a pump and dump is illegal and there's absolutely no even implication of anything like that going on here.
What is happening is that the meme stock frenzy is continuing. Specifically, Ryan Cohen runs an investment firm RC Ventures. This did very well indeed out of the GameStop (NYSE: GME) issue – that first indication of the meme stock frenzy. There it was spotted that the short interest in an ailing retailer was excessive – too much for it even be possible for all shorts to cover. So, a short squeeze could happen, it did, many people made considerable sums of money out of it – at least one hedge fund also had to sell itself so bad were its losses on the short side.
All of that's fine, so too the AMC issue and on to other such meme stocks. Which BBBY has become. But it's why BBBY became a meme stock that's so interesting. The frenzy really got going when Ryan Cohen and his RC Ventures bought in. A possible belief that this would work out like GameStop perhaps – ailing retailer, same major investor, why not?
Also Read: What Happened To Meme Stocks?
Why not after all? A major activist investor gets into an ailing retailer – why couldn't this work again? Well, one of the reasons could be that an activist investor needs to stay invested and become active in the corporate management in order to turn things around. Which Ryan Cohen hasn't done, in fact he's sold out of his entire Bed Bath & Beyond position. Making a very good profit on it too:” Cohen originally purchased his shares of Bed Bath & Beyond at an average of roughly $15.34 per share. According to CNBC calculations, Cohen made about $59 million,” Nothing wrong with that in the slightest, good stock trading in fact.
However, it is possible to think that that looks like a pump and dump. Buy some shares, talk them up, then as others invest and the price rises sell out again. The naughty part of that being to collaborate to make such a thing happen. To organise a group that does it. This being exactly the thing that Cohen hasn't done. This is good stock trading, not a pump and dump.
For of course the meme stock traders don't need to be organised – they're out there looking for the next GameStop. No, no one is being played, this is simply stock trading.
The lesson for us as investors is that we need to understand what's driving meme stocks – the meme. The story that is and once the story changes so does the stock value. As that 60% and more fall in BBBY yesterday shows. It's fine, delightful even, to ride the price changes but be careful about when the direction of the price changes, err, changes.
