Trump Media Makes Volatile Trading Debut

This week marked the trading debut of Trump Media, launching not just another stock into the volatile waters of Wall Street but also presenting a unique opportunity for Donald Trump’s supporters and detractors alike to invest in their convictions.

by Faruk Imamovic
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Trump Media Makes Volatile Trading Debut
© Getty Images/Michael M. Santiago

This week marked the trading debut of Trump Media, launching not just another stock into the volatile waters of Wall Street but also presenting a unique opportunity for Donald Trump’s supporters and detractors alike to invest in their convictions.

While supporters may view purchasing shares as a tangible way to back the former president, skeptics are eyeing the potential for profits through short selling, betting on the stock’s decline. However, this financial maneuver comes with substantial risks that even seasoned investors might balk at.

Trump Media, the umbrella company for the emerging right-wing platform Truth Social, has stirred controversy from its inception. With scant revenue, no profit, and no clear path to profitability to support its staggering $9 billion market valuation, onlookers might quickly conclude that the stock's only direction is down.

Yet, the market has never been one for straightforward predictions, especially when sentiment and speculation play outsized roles.

The Costly Gamble of Short Selling

The appeal of short selling Trump Media is undeniable for those skeptical of the company's financial fundamentals.

Yet, this strategy is fraught with challenges, not least of which is the exorbitant cost. Borrowing rates for shorting Trump Media stock have soared to more than 200 times the average, making it the priciest U.S. stock to short, as per S3 Partners' research.

This high barrier to entry means that shorts are incurring significant losses, with a single day’s loss reaching $61 million according to S3. Short selling inherently carries more risk than buying stocks outright. The potential loss from purchasing stock is capped at the initial investment, but short selling losses can theoretically be infinite, as there’s no ceiling to how high a stock price can climb.

This high-risk environment is compounded by the volatile nature of what many are calling a "classic meme stock," driven more by fervor and sentiment than financial performance.

Beyond the Financials: A Symbolic Investment

Trump Media's trajectory resembles that of meme stocks like GameStop, AMC, and Bed Bath & Beyond, which have seen their valuations detached from traditional financial metrics, propelled instead by collective enthusiasm or opposition.

The company's financials—or lack thereof—highlight the speculative nature of its stock, with losses dwarfing revenue. Yet, the stock continues to attract attention and investment, buoyed by a wave of support from those viewing their investment as a broader political or cultural statement.

Lawrence White, a professor at New York University’s Stern School of Business, encapsulates the sentiment-driven nature of investing in Trump Media: "Whether you’re going short or long, think of that as you’re making a political statement.

On average, it’s not going to turn out well." He cautions that even for those convinced of an impending bubble burst, the wait could be costly, especially for short sellers facing steep borrowing fees.

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