Think GameStop Corp. and AMC Entertainment Holdings Inc. for examples of instances that are startlingly comparable to those in the craziest moments of the early pandemic. Investors are excitedly bidding up obscure stocks only to subsequently see them sink dramatically. The most recent instance is VinFast Auto Ltd, a manufacturer of unprofitable electric vehicles, which at the height of a four-week selling frenzy had a market value four times bigger than General Motors Co. and greater than McDonald’s Corp. In the eight days since, the stock has fallen by about 80%.
All of this means that in a nation where betting on everything from football to table tennis to whether Britney Spears will get married next year is now just a click away, the greater fool idea has now emerged as a significant and possibly permanent component of the financial landscape.
According to Peter Atwater, an adjunct professor of economics at William & Mary, VinFast has become the newest “lottery ticket.” Find something that has a dreamlike quality and can be influenced by a crowd that is moving in unison. These traits tend to be quite consistent.
Numerous day traders flocked to the trade as shares of VinFast, a Vietnamese company, began to suddenly soar in mid-August, helping to fuel a six-day 504% surge.
The Fidelity platform’s buy order flows and activity on well-known chat sites like Reddit’s WallStreetBets and StockTwits show that many retail buyers arrived too late, buying the stock right before it was set to start falling. To put it another way, they played the bigger fool.
The increase is a reflection of the high-risk bets that investors made on other businesses like Grindr Inc. and Intuitive Machines Inc. that went public through blank cheque deals during the last year. One important characteristic of these “de-SPACs,” as they are known on Wall Street, is that over the past 18 months, only a tiny portion of the stock has floated in the market, making it simple to push their prices higher or lower.
At least five de-SPACs had share price increases of more than 500% during the past year before losing their gains. Many of them offered tiny pools of shares for trading, attracting groups of investors on social networking platforms like Reddit and X, now known as Twitter, to generate interest in the expectation that more people would want to get in on the action.
In the case of VinFast, only around 1% of the stock is open for trading, and the timely placement of call options—a simple approach to drive stock prices even higher—set the setting. The stock rose from roughly $15 to as high as $93 in a six-day period until gravity caused an eight-day decline that brought it back to $17.15.
Over the past year, the share prices of at least five de-SPACs increased by more than 500% before they lost their gains. Many of them provided tiny pools of shares for trading, luring investors on social media sites like Reddit and X, now known as Twitter, in an effort to spark interest in the hope that more people would want to join the action.
In the case of VinFast, only around 1% of the stock is available for trading, and the setting was created by the timely placement of call options, a straightforward strategy to raise stock prices even higher. The stock increased over a six-day period from about $15 to as much as $93 before gravity brought about an eight-day collapse that took it back to $17.15.
However, since many traders began investing during the pandemic, this won’t dissuade them. They wager on stocks like they would play table games at a Las Vegas casino, encouraged by free money and celebrities like David Portnoy of Barstool Sport.
According to Matthew Tuttle, CEO of Tuttle Capital Management, “the market landscape really changed with Covid when you had a generation of people sitting in front of computers realising they can trade things and organise on Twitter or Discord.”
“You’re going to have a generation of degenerates out there doing that,” he continued. “I can now gamble on anything from my phone; I can play blackjack, poker, bet on sports, and gamble on stocks.”