Trump Media’s trading debut this week allowed Donald Trump’s supporters to show their support by investing in the company, which includes the right-wing platform Truth Social. Critics of Trump may be interested in taking a short position on the stock, anticipating that its value will decrease due to the company’s lack of revenue, profitability, and clear path to sustainability for its $9 billion valuation. However, it may take a long time for the stock to actually fall, as borrowing rates for shorting Trump Media are currently very high.
Short sellers of Trump Media are experiencing significant losses due to the high borrowing costs associated with shorting the stock. While a short bet can potentially yield profits if the stock price declines, it also poses a higher level of risk compared to holding a long position. Short sellers essentially borrow shares of the stock to sell at a higher price, with the hope of buying them back at a lower price later on. However, if the stock price continues to rise, short sellers may face unlimited losses.
S3 Partners’ managing director of predictive analytics, Ihor Dusaniwsky, highlighted the contrasting views between short sellers and long shareholders of Trump Media. While short sellers anticipate a significant decline in the stock price in the short term, long shareholders have a more positive outlook on the company. Trump Media, trading under the ticker DJT, has become a meme stock driven more by sentiment and political beliefs rather than solid business fundamentals, similar to other meme stocks like GameStop and AMC.
Investors in Trump Media are not necessarily focused on the company’s financial performance, as it has posted losses against minimal revenue. Instead, supporters of Donald Trump are investing in the company as a way to make a political statement or show their allegiance to the former president. Economics professor Laurence White of New York University’s Stern School of Business warned that participating in the trading of meme stocks like Trump Media carries significant risks and may not result in favorable outcomes for investors, whether they are going long or short on the stock.
While Trump Media may be a popular investment choice for supporters of Donald Trump, the company’s lack of profitability and clear business strategy raise concerns about its long-term sustainability. Like other meme stocks, DJT’s value is driven more by emotions and political beliefs than financial metrics. Investors considering investing in Trump Media should be aware of the risks involved in trading meme stocks and the potential for significant losses if the stock price does not perform as anticipated. Ultimately, the trading of meme stocks like Trump Media can be a risky endeavor with uncertain outcomes for investors.