More than two years after its merger announcement, Trump Media, the parent company of Donald Trump’s Truth Social platform, made its debut on the stock market Tuesday under the ticker DJT. The response from investors was frenzied, with the stock seeing significant enthusiasm from Trump supporters and retail investors eager to capitalize on its surging price. During its inaugural trading day, Trump Media’s stock price experienced a remarkable gain of nearly 60%, prompting fluctuations that led to a temporary halt in trading on the Nasdaq stock exchange.
This surge in Trump Media’s stock price reflects a broader trend in the market, where meme stocks have gained traction as a means for retail investors to challenge hedge funds that have been shorting companies like GameStop. While some investors are drawn to these stocks with the aim of turning a profit, others are motivated by various incentives. However, experts caution that investing in such volatile assets carries significant risks.
Similar to the unpredictable nature of meme stocks, experts anticipate a tumultuous journey for Trump Media in the stock market. Derek Horstmeyer, a finance professor at George Mason University specializing in corporate finance, advises investors seeking stable returns to approach Trump Media with caution, emphasizing the inherent risks associated with such speculative investments.
In it for the money
Mitchell Standley, a 39-year-old resident of Chandler, Arizona, ventured into investing in Digital World Acquisition, the public shell company that merged with Trump Media, in early 2022. Active in the Wall Street Bets subreddit, Standley recognized an opportunity to capitalize on the stock’s potential driven by the fervent support of former President Trump’s fanbase. He made a calculated investment of $750, which yielded approximately $4,500 in profit within just four hours.
Observing Digital World’s stock price surge ahead of its merger with Trump Media, Standley decided to re-enter the market, employing more advanced investing tactics this time. He purchased two “call options” with the company, one valued at $100 and the other slightly over $160. Leveraging the high demand for the stock, Standley successfully sold off both options, securing over $3,000 in profit.
Despite his financial gains, Standley, a registered independent, maintains that his investment decisions are driven solely by financial motives rather than political affiliations. While he acknowledges the unwavering support of Trump’s followers, he emphasizes his focus on financial opportunities presented by market dynamics.
Standley’s approach reflects a broader trend observed on online forums like Reddit, where investors are drawn to speculative investments driven by short-term profit potential rather than long-term commitment to the underlying company. Albert Choi, a law professor at the University of Michigan, highlights this phenomenon, noting that speculative bubbles often attract rational investors seeking to capitalize on short-term gains, regardless of their genuine interest in the company’s long-term prospects.
Investing to support Trump
Teri Lynn Roberson, a 52-year-old resident of the Dallas-Fort Worth metroplex in Texas, took a different approach to investing in Trump Media. Despite purchasing five shares of Trump Media at around $72 each, near the stock’s peak on Monday, Roberson views her investment as more of a symbolic gesture than a financial opportunity. For her, it’s about demonstrating support for Trump and his legal battles, rather than expecting significant returns.
Describing her investment as “all fun and games,” Roberson sees it as a means of making a statement and showing solidarity with Trump. She recalls a similar instance during the early days of the COVID-19 pandemic when she invested in Royal Caribbean’s stock to support the cruise industry during its challenging times.
Unlike investors driven solely by financial gains, Roberson is less concerned about the profitability of her investment in Trump Media. She plans to hold onto her shares at least until after the 2024 presidential election, emphasizing a wait-and-see approach to its performance.
While Roberson’s approach may reflect a sentiment of supporting the Trump brand, experts like Usha Rodrigues, a professor specializing in corporate finance and securities law at the University of Georgia’s School of Law, question the valuation of Trump Media. Rodrigues believes that the company’s fundamentals do not justify its market valuation, indicating that investor interest may be more aligned with the opportunity to invest in the Trump brand rather than sound financial reasoning.
According to filings, Truth Social’s parent company generated $3.4 million in revenue while incurring a loss of $49 million in the first nine months of 2023, underscoring the financial challenges facing the company despite its market value reaching nearly $8 billion by the end of Tuesday.
Is Truth Social the next GameStop?
Predicting the trajectory of Trump Media’s stock in the market is a challenging endeavor, with many experts anticipating continued volatility ahead.
Derek Horstmeyer, a finance professor at George Mason University, likens the stock’s future movements to those of GameStop, characterized by sharp fluctuations. He suggests that investors will experience a roller-coaster ride of ups and downs driven more by sentiment than traditional financial metrics.
This volatility presents both opportunities and risks for investors. Individuals like Mitchell Standley, who capitalized on the stock’s fluctuations to generate profits, stand to benefit. Even Trump himself stands to gain substantially, with his net worth soaring as a result of Trump Media’s public launch. With approximately 60% ownership in the company, Trump’s paper wealth reached around $4.5 billion by Tuesday afternoon.
However, for others, such volatility could lead to losses. The stock already experienced a significant downturn, plummeting from around $72 to under $58 within an hour toward the end of Tuesday’s trading session.
Usha Rodrigues of the University of Georgia warns that investors “run the risk of losing money” anytime they pump money into a stock that’s rising due to other investors’ behavior instead of the company’s performance. Investors may find themselves exposed to the unpredictable nature of market sentiment, potentially resulting in adverse outcomes.