Meme stocks like AMC and GameStop might be new, but their executives are continuing a very old Wall Street tradition: Making hay while the sun shines. You’ve probably read that insiders have sold tens of millions of shares, or “gifted” them to family members in cases when they weren’t allowed to sell, but they also have raised billions of dollars from enthusiastic retail investors.
I wrote about this for today’s Wall Street Journal. The whole #Apestogetherstrong and “diamond hands” schtick is new, but executives have long taken advantage of temporarily overvalued equity to buy competitors. Cisco’s value grew 2,000 fold during the dot-com boom and AOL bought the world’s largest media company with it in 2000. Back in the 1960s, “conglomerateurs” used their companies high growth and lofty P/E ratios to buy more growth with dozens of acquisitions of unrelated companies.
An article in The Saturday Evening Post in 1968, at the height of the boom, was titled: “It Is Theoretically Possible for the Entire United States to Become One Vast Conglomerate Presided Over by Mr. James L. Ling.”
The whole thing fell apart between 1968 and 1970 or so. This will too, but the value of the money raised and whatever it buys, or whatever debts it pays off, is real. Selling shares or using them to buy something can make a corporation more valuable. The math only works at the expense of late-arriving true-believers, though, whose contribution is diluted over the existing shareholder base.
Spencer Jakab 