The Unprecedented Volatility of Trump Media & Technology Group’s Stock: A Rollercoaster Ride for Investors
If you blink even for a moment, you might miss the dramatic fluctuations in Trump Media & Technology Group’s (TMTG) stock price. Since its public debut, this company has sent shockwaves through the investing community with its erratic and extreme market movements.
The owner of Truth Social, a social media platform, has already put traders on an emotional rollercoaster. The stock’s price has experienced breathtaking spikes followed by disconcerting crashes, making it a far more volatile investment than even the infamous cryptocurrency, Bitcoin.
Former President Donald Trump’s Net Worth: A Reflection of TMTG’s Volatility
The impact on former President Donald Trump, who is the company’s largest shareholder and chairman, has been significant. His net worth has dropped by over $2 billion since TMTG’s closing price on March 27, the day after its initial public offering (IPO). On a particularly dismal day, Trump’s net worth plunged by an astounding $1 billion.
Reasons Behind TMTG’s Volatility
The extreme turbulence of TMTG’s stock can be attributed to several factors, with the most prominent being its association with Trump. His name recognition, polarizing political stance, and close connection to the company have generated immense interest from retail investors, professional traders, and the news media, leading to an inherently volatile environment for the stock.
A Market Environment Unprecedented in Stability: TMTG’s Standard Deviation
“Because it’s Trump, this thing is going crazy,” stated Matthew Tuttle, CEO of Tuttle Capital Management. He emphasized that the stock’s volatility makes it an unsuitable long-term investment for retail investors and an unfavorable betting opportunity.
According to Michael Ohlrogge, an associate professor at NYU School of Law, during TMTG’s first nine trading days following its IPO, the stock has moved up or down by at least 5% every day. More than half of these days saw double-digit percentage changes.
“That is not normal,” Ohlrogge said.
Valuation and Fundamentals: The Unusual Case of TMTG
One primary reason for TMTG’s volatility is its extraordinary valuation when it went public. Experts argue that the company was overvalued, which often results in increased volatility and instability.
In 2023, TMTG reported a loss of $58 million and generated just $4.1 million in revenue. Despite these figures, the company was valued at up to $11 billion on its first day of trading.
Truth Social’s User Base: A Decline in Monthly Active Users
Additionally, TMTG’s monthly active US users on iOS and Android plunged 51% year-over-year in February, according to Similarweb.
Volatility Amplified: Momentum Traders and Short Sellers
“This stock seems to be completely untethered to fundamental value,” Ohlrogge stated.
Even a 50% drop each day that week would still leave TMTG with a market valuation of about $173 million. This would equate to approximately 40 times the company’s 2023 revenue.
“A company with minimal revenue doesn’t have much of a floor,” said Matthew Kennedy, senior IPO strategist at Renaissance Capital.
Momentum Traders and the Impact on TMTG’s Volatility
Another significant factor contributing to TMTG’s volatility is the presence of momentum traders. These investors can amplify market moves, turning a 4% dip into an 12% decline and vice versa.
The Impact of Being a New Stock: A Rocky Start for TMTG
Lastly, as a new stock, TMTG faces unique challenges. Companies that go public through traditional IPOs or mergers with Special Purpose Acquisition Companies (SPACs) often experience a bumpy beginning, as there is less trading history and these companies are less established. Furthermore, large portions of their shares remain locked up due to insider restrictions.
TMTG’s Free Float: A Challenge for Short Sellers
The limited availability of TMTG shares to borrow is another factor that fuels the stock’s volatility. This issue has made it exceptionally difficult for short sellers to bet against the company due to its high borrowing costs.
The Cost of Borrowing TMTG Shares: A Barrier for Short Sellers
“People really, really want to short it. That is driving up the borrowing rate exponentially, which then makes it very hard to short,” Tuttle explained.
The Future of TMTG: Betting on Trump’s Political Fortune
In essence, TMTG’s stock has become a vessel for investors to wager on Trump’s political future. The company’s value will significantly differ depending on whether he returns to the White House or not.
The Political Divide: Betting on Trump’s Stock
“There are Trump supporters who see a big balloon rising and think that it will never fall to earth,” said Jonathan Macey, a professor at Yale Law School. “There are sophisticated investors, who understand things like gravity, and are betting on its swift return to ground.”
Conclusion: TMTG’s Volatility: A Unique Case Study in Investing
Trump Media & Technology Group’s stock is an intriguing case study of volatility and unpredictability, making it a captivating topic for investors and observers alike. Its extreme price swings are unlikely to subside anytime soon, offering an ongoing lesson in the complexities of the stock market.
