One of the hottest topics of this stock market year is certainly the war between hedge funds, which are speculating on falling prices for individual ailing companies, and private investors, who have exchanged views on Reddit and other Internet forums. With massive purchases of so-called "meme shares" such as the US video game retailer GameStop or the cinema chain AMC, hobby investors drove share prices to astronomical heights. Some large hedge funds, which had bet on falling prices at AMC and Co., then had to buy more expensively (short squeeze) and suffered high losses up to the point of near ruin.
Former stock broker Jordan Belfort, whose life of parties, drugs and luxury was adapted into a film starring Leonardo DiCaprio ("The Wolf of Wall Street"), has raved about the "brilliant "Revolt of hobby investors shown. According to Belfort, who makes a living as a sales coach and motivational speaker after serving a 22-month sentence on customer fraud and money laundering charges, everyone instinctively knows that when hedge funds band together, spread bad news or launch investigations to drive stock prices down, there's something wrong . This has now made small investors so angry that they have joined forces against the big short sellers. They are not primarily concerned with making money, but rather with fighting back.
The war goes on
Despite their success so far, the war against the big short sellers is apparently not over for retail investors. This was shown when AMC boss Adam Aron recently called off a planned capital increase after many private investors had spoken out against it.
When a company's share price increases significantly, it is common practice for the company to issue new shares. This not only raises the company's fresh capital, it also pushes the share price back down to a more attractive level. AMC has also followed this path and has already issued more than 100 million new share certificates since the end of January. But driven by the meme hype, the shares are still up 1,756.13 percent since the beginning of the year (as of July 13, 2021).
In view of this, according to "Quartz", CEO Adam Aron wanted to carry out another capital increase in order to accelerate further company growth. The problem: According to the articles of association, the number of shares is limited to a maximum of 524 million. Since 513 million shares are already outstanding, AMC can only issue 11 million shares before the maximum number allowed is reached. But CEO Aron did not want to be content with that and asked the shareholders for their approval of 25 million new shares.
But numerous meme traders have expressed their displeasure with this project via Reddit. Rather, they wanted to induce another short squeeze and inflict further losses on the short sellers. However, the issue of new shares would hinder this goal.
Retail Investors Take Control
Ordinarily, business leaders don't have to be overly considerate of retail investors, as it is the institutional investors who are in control of the companies. For example, an OECD study came to the conclusion that in the USA the ten largest shareholders of a group own an average of 43 percent of the company shares.
But at AMC the situation is different: according to CEO Aron, more than 80 percent of AMC shares are owned by 4.1 million private investors. This is most unusual. In addition, many of these are activist investors who organize themselves via Reddit. Adam Aron has now bowed to this power and has renounced the planned capital increase. He justified this decision with the split among the shareholders via Twitter.
According to Quartz, Kevin Mullally, a finance professor at the University of Central Florida, believes AMC may have realized that it would not be able to garner enough votes for the desired corporate action. Perhaps Adam Aron simply didn't want to mess with the group of investors to whom AMC's considerable stock market success is to be thanked. At the last earnings call, Aron recognized the influence of private investors: "They own AMC, we work for them, I work for them," quotes "Quartz" from the CEO.
Whatever the rationale for the pullout, it's a significant development as it reverses the usual roles of retail investors mobilizing online and with commission-free trading apps such as Robinhood equipped, have pushed through their will against the wishes of the management and institutional investors.
Editorial department finanzen.net
