Trump Media made its trading debut this week, allowing supporters of Donald Trump to show their support by investing in the parent company of the right-wing platform Truth Social. However, this investment is considered risky and few financial advisers would endorse it. Those who are against Trump may be interested in setting up a short position, which is a bet that the stock’s value will fall. Despite the appeal of a short bet on a company like Trump Media that brings in little revenue and has no clear path to profitability, it remains the most expensive US stock to short, with borrowing rates more than 200 times the average.
Shorting Trump Media can be costly as those who have already taken the plunge have suffered significant losses. The high borrowing costs and the unpredictability of stock prices pose a big risk for those who engage in short selling. While buying shares and losing their value may result in a limited loss, shorting a stock can result in unlimited losses if the stock price continues to rise. The managing director of predictive analytics at S3 Partners notes that there is a strong conviction among short-sellers that Trump Media’s stock price will decline, but long shareholders have a more positive view on the company.
Trump Media, trading under the ticker DJT, is considered a meme stock, with investors drawn to it more for emotional reasons than for sound financial fundamentals. The company’s financial metrics do not inspire confidence, with significant losses against minimal revenue. Investors are viewing their investment in Trump Media as a political statement, similar to the fervor seen in past meme stock movements such as GameStop and AMC. However, economics professors caution that such investments are risky and may not turn out well in the long run.
In conclusion, investing in Trump Media is a risky venture, especially for those who choose to short the stock. The high borrowing costs and the unpredictability of stock prices make short selling particularly risky. While there may be a strong conviction among short-sellers that the stock price will decline, long shareholders have a more positive view of the company. Ultimately, investing in Trump Media is more about making a political statement than a sound financial decision, and investors should be prepared for potential losses in the long term.
