Aug 10, 2022
Titan’s Takeaway: It’s difficult to imagine companies with low levels of profitability breaking the bear market and far more likely that the recent resurgence of meme stocks is fickle, more likely to crash than endure.
Last week, we saw an obscure Hong Kong-listed fintech company, AMTD Digital, go up more than 22,000% at its peak, just weeks after its IPO.
Despite only bringing in $25M in revenue, AMTD Digital’s market cap rose to more than 400 billion dollars. This far surpasses market behemoths like Coca-Cola, Meta Platforms, and Chinese retailer Alibaba. The increase was so ludicrous that management issued a thank you letter to investors for the recent price action.
I’d be thanking them too if the value of my shares went up by 220 times.
A move like this is largely unheard of, but it brings back memories of the speculation-inspired meme-mania we saw in Q1 last year. Some of the usual suspects also rallied on Monday, with Bed Bath and Beyond up more than 40% and up more than 90% since early last week.
2021's meme stock mania occurred at the apex of a historic decade-long bull-run, fueled by a pandemic stimulus that literally injected cash into investors' pockets. Companies with little to no profits or even a reasonable path to profitability soared to, what we believe to be, insane valuations.
Today, the economic conditions are quite different. Instead of near 0% interest rates and cash being pumped into the economy, the Fed has raised interest rates in its 4 last meetings at a pace and degree not seen since the 1980s. In other words, it is taking liquidity out of the ecosystem.
Many meme favorites have been popular short targets for fund managers throughout 2021 and 2022. These have likely been pretty successful trades up until recently, but it's short squeeze season. According to one report, Goldman Sach's "most shorted" basket of stocks is up more than 17% since last Tuesday's close.
With a challenging macro setup, we don’t suspect the market will be too kind to companies generating little to no cash flow, like an AMTD Digital, Bed Bath and Beyond, Gamestop or AMC.
It's rare that companies with the lowest levels of profitability will lead the charge to break a bear market. We find it highly unlikely that this bear market will be any different.
Our team has continued to focus on sourcing companies with what we believe to be high-quality earnings while striving to remain defensively positioned on the whole.
For meme stocks, there will certainly always be winners. But if I were a betting man, I’d wager we’d see far more losers in the end.
Cash Management
© Copyright 2024 Titan Global Capital Management USA LLC. All Rights Reserved.
Titan Global Capital Management USA LLC ("Titan") is an investment adviser registered with the Securities and Exchange Commission (“SEC”). By using this website, you accept and agree to Titan’s Terms of Use and Privacy Policy. Titan’s investment advisory services are available only to residents of the United States in jurisdictions where Titan is registered. Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities or investment products. Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are hypothetical in nature and may not reflect actual future performance. Account holdings and other information provided are for illustrative purposes only and are not to be considered investment recommendations. The content on this website is for informational purposes only and does not constitute a comprehensive description of Titan’s investment advisory services.
Please refer to Titan's Program Brochure for important additional information. Certain investments are not suitable for all investors. Before investing, you should consider your investment objectives and any fees charged by Titan. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested, including principal. Brokerage services are provided to Titan Clients by Titan Global Technologies LLC and Apex Clearing Corporation, both registered broker-dealers and members of FINRA/SIPC. For more information, visit our disclosures page. You may check the background of these firms by visiting FINRA's BrokerCheck.
Various Registered Investment Company products (“Third Party Funds”) offered by third party fund families and investment companies are made available on the platform. Some of these Third Party Funds are offered through Titan Global Technologies LLC. Other Third Party Funds are offered to advisory clients by Titan. Before investing in such Third Party Funds you should consult the specific supplemental information available for each product. Please refer to Titan's Program Brochure for important additional information. Certain Third Party Funds that are available on Titan’s platform are interval funds. Investments in interval funds are highly speculative and subject to a lack of liquidity that is generally available in other types of investments. Actual investment return and principal value is likely to fluctuate and may depreciate in value when redeemed. Liquidity and distributions are not guaranteed, and are subject to availability at the discretion of the Third Party Fund.
The cash sweep program is made available in coordination with Apex Clearing Corporation through Titan Global Technologies LLC. Please visit www.titan.com/legal for applicable terms and conditions and important disclosures.
Cryptocurrency advisory services are provided by Titan.
Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice.
Contact Titan at support@titan.com. 508 LaGuardia Place NY, NY 10012.