“I just try and avoid being stupid.” – Charlie Munger
You could tell by the smell that this stock would go to hell.
The roughly 600,000 investors who piled into this money-losing debacle should have learned upfront that the company:
Loses millions of dollars each quarter.
Went public through a reverse merger with a shell corporation.
Does not have a long history of providing audited financials because it did not go through the rigors of an initial public stock offering.
Would be driven by enthusiasts rather than fundamentals.
Involves a businessman who ran six other companies into bankruptcy and was under investigation for falsifying business records.
Uses the losing ticker symbol DJT.
The last company that used DJT as a ticker symbol was Trump Hotels & Casino Resorts, which plunged into penny stock territory and left investors and creditors with mountains of defaulted debts.
The latest DJT is already down more than 77% since hitting its blustering heights shortly after it began trading publicly on March 26.
Take a tip from “The Halfwit’s Guide to Stock Market Investing.” If a businessman has a long history of filing corporate bankruptcies, don’t buy his stock. Just don’t.
Thank you for being one of my 5,700 subscribers. I write free every week because I want to reach as many people as I can with my humor-leavened exploration of corporate folly. I also write at least one paid post each week for those who support my work financially. I truly appreciate your readership no matter how you subscribe. You can help a lot by simply sharing my posts with friends and associates. - Al Lewis
A flashing red exit sign
DJT, the stonk underlying Donald J. Trump’s Truth Social, is a loser and it’s likely to become an even bigger loser in the days to come.
Please don’t get the impression that I’m delving into politics here. What I’m getting into is what I am always getting into: An obvious financial blunder.
Many DJT investors likely believe, without evidence, that elections are rigged. But it’s going to be harder for them to pretend they’re winning when their money is smoldering in a dumpster fire.
Smart investors check politics at the door and consider facts. And here’s the most relevant fact regarding DJT: Company insiders will be allowed to sell their shares for the first time on Sept. 19, when a lockup period for insiders expires.
Given the ephemeral nature of this company, it could be a sizable dump, depressing the stock even further. There are hundreds of insiders, and Trump, who owns about 60% of the company, faces powerful temptations to sell at least some of his shares.
Investors have been warned.
“Because President Donald J. Trump is a candidate for president, he may, subject to the Lock-up Period, divest his interest in Truth Social,” according to a DJT prospectus.
“The sale … could have the effect of increasing the volatility in TMTG’s share price or the market price of TMTG common stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.”
Lost in SPAC
DJT went public through a reverse merger with Digital World Acquisition Corp., a shell corporation known as a SPAC, or special purpose acquistion company.
SPACs are essentially black boxes. Investors buy them on hopes they will merge with a lucrative private company, but who knows what they will do?
For it’s part, Digital World Acquisition Corp. has had serious accounting issues, and three of its insiders have been convicted of insider trading.
As investors first bought DJT stock, it was well-known that most SPACs perform poorly Additionally, research by SPACInsider suggests SPACs decline in value by nearly 10% after lockup periods expire.
Where are the greater fools?
Some companies depend on investors who are stupid enough to buy their stocks. It’s called the greater fool theory. It goes like this: Dumb-money investors buy an overvalued asset in hopes of selling it to someone with even dumber money.
Greater fools for DJT are currently in short supply, which is one reason why the stock has slumped. DJT hit its all-time high of $78.38 in March, and now trades for about $18.
Its market value has nosedived from $10 billion at its peak to about $3.5 billion on Monday. And the value of Trump’s stake has slid from about $6 billion to $2 billion – which is still a pretty nice deal, for Trump, and a reason to sell at least some of his shares before they fall further.
Despite its stunning decline, DJT is still overvalued at $3.5 billion in market capitalization considering that it brings in less that $1 million in revenues.
In it’s most recent quarter ended June 30, the company lost $16 million on only $837,000 in revenue. That marked a vast improvement over the $327.6 million it lost on $770,500 in revenues in its first publicly reported quarter ended March 31. But the company is still a loser in the highly competitive social media space.
DJT investors need to ask themselves this: If Truth Social is so promising, why is Trump back on Twitter? And why is Trump sucking up to Elon Musk who has lost billions running Twitter into the dirt?
Goals for trolls
The reality is that DJT trades on bluster and has proven more volatile than Bitcoin.
“Get behind the DJT stock and sent it over $100 per share,” one Truth Social user ranted as the stock launched. “Drive the liberals insane!”
“Get yourself a piece of #DJT stock if your a true MAGA supporter,” posted another.
Perhaps a degree from the now-defunct Trump University is what cultivates such astonishing financial ignorance.
You don’t buy a stock to own the libs. You don’t buy a stock to support a political candidate. If you buy a stock for any other reason than to make money, you deserve to lose your investment. And if you bought DJT, you’re well on your way.
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Good piece, Al. You're preachin' to the choir in my house! 😁
The lemmings don't care. They'll follow him right off a cliff