It’s the year 2050; Trump Business School based in a Mars colony is doing a case study. Planet Earth’s students study alongside students from other planets (I can’t give you the names of those planets as we haven’t discovered them yet).

The case study getting dissected is: Donald Trump has a publicly traded company in 2024 with the ticker symbol DJT; he owns more than half of the stock, its business model is to “fight back against woke ideology and bring truth to masses”, and last year it had a net loss of $58.2 million on $4.1 million revenues. How much is the company worth?”

If you write “Well zero”, you will be thrown out of not just the business school but probably from Mars as well. And if you write “Meta Platforms Inc. trades at like 9.3 times revenues so maybe $38 million?” – You will still fail miserably.

For centuries, stock trading was done with limited public financial information of companies, meaning it was difficult to estimate future cash flows and discount them back to present value. Stock market speculation was a psychological gambling game.

Things changed in the 1930s with public companies forced to publish audited financial statements. With that, it was possible to do fundamental analysis and the value of the stock.

But in the recent past, traders found a flaw in that relationship. While the value of a company’s cash flows probably does set a real floor under its stock price, it does not put a ceiling on the price. If the stock has cash flows worth $100, and you want to pay $150 for it, I can’t stop you, and I cannot directly monetise the difference: I can’t sell all the stock for $150 and then buy it back for $100; I can’t force the price down to the fundamental value. If everyone just collectively decides to pay $150 for a thing with cash flows of $100 (or even $0), then it’s worth $150.

Maybe, going forward, stocks will trade based on, I don’t know, collective attention, online sentiment, the desire to “outwit the crowd”. Stocks can once again be pure tokens in a psychological gambling game.

Poster child for this current era stock-trading are meme stocks. But one can argue the new era started a bit earlier, with cryptocurrency.

Cryptos has no cash flows (ignoring yield farming); its price represents what people are willing to pay for it. So, people copied that model, and the creation of and speculation on pure, abstract, scarce electronic tokens became a big business.

A share of stock is a scarce electronic token. If you and your friends online want to make jokes and invest based on those jokes, then, depending on your sense of humour and which online chat group you’re in, you might buy either Dogecoin or GameStop Corp. stock, and, for your purposes, those things are not that different.

Though GameStop went down about 86 per cent (beginning of April) from its highs of January 2021, the market capitalisation of Dogecoin has been higher than $7 billion (highest was c.$30 billion!) for about three years now, with no cash flows at all. People just like that Shibu Inu.

We are not doing fundamental analysis anymore. Maybe, it’s all about having fun online, playing a complex game of mass psychology, using our investments as a form of self-expression, buying stocks and cryptocurrencies we identify with, and feeling better about ourselves if they go up. It’s purely behavioural finance.

A lot is written about behavioural finance in trading but nothing to explain what’s happening now with any authority or an iota of rationality.

Coming back to DJT, that represents investors fondness for Donald Trump, and/or speculative bet that there are enough investors who love DJT, will drive the worth of the company in tens of billions of dollars.  It’s got zilch to do with cash flows.

Another thing supporting that valuation is obstacles to bring anything fundamental to the valuation. Its costly and risky to short it with borrowing costs of 500 per cent, according to brokerages. That makes it the most expensive US company to bet against.

Even if you think that a stock is overvalued, you can’t do anything to force it down to fair value. You can’t just short unlimited shares: You must borrow them, and pay 500 per cent per year to do so, and not many shares are available to borrow.

Even though the stock is down massively from peak on spectacularly bad earnings, but I do think the theory above is right in spirit. Even now with those earnings, Trump Media is trading at only like 1,400 times revenues. It’s just not about the earnings.

Modern day investors and traders must get attuned to new considerations for investing and trading that has nothing to do with fundamentals or technical but to have an opinion on how loved certain people, pictures of dogs, etc, are. Do I see a book titled How to Trade Meme Stocks in near future?

Somnath Banerjee is head of investment management at Curmi and Partners Ltd.

The information presented in this commentary is solely provided for informational purposes and is not to be interpreted as investment advice, or to be used or considered as an offer or a solicitation to sell/buy or subscribe for any financial instruments, nor to

constitute any advice or recommendation with respect to such financial instruments. Curmi and Partners Ltd is a member of the Malta Stock Exchange and is licensed by the MFSA to conduct investment services business.

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