Front Row For The BBBY Meme Craze

So, I opened a position in Bed Bath & Beyond (BBBY) in 2018 and added to the position in 2019. Since then, I have sucked my thumb on the position.

I have sucked my thumb as former management attempted to pull a Chicago Bridge & Iron and run the company into the ground and beyond. I have a $18.83 cost basis on 220 shares. 

By the end of June this year, my loss was close to 70% of my cost basis. At that point, I figured it was a lost cause and that I was just going to ride this to a complete loss and take that as a tax deduction either this year or next. A bankruptcy and liquidation became my expectation.

Hence, I have had a front row seat for the latest meme craze that BBBY is a part of. Here are some of my thoughts so far on this meme craze:

1. The casino part of the stock market is insane. BBBY has just under 80 million shares outstanding yet trading volume of its shares was over 160 million yesterday. Mind you, institutional shareholders supposedly own over 50% of the outstanding shares.  Do the math!

2. The casino part of the stock market is incredibly dangerous. There is an old saying that the stock market can remain irrational far longer than you can remain solvent. Shorting a stock is a giant gamble. Doubling down on shorting just adds additional risk, potentially exponentially. Yet, that is exactly what is occurring with BBBY.

3. New terminology! MOASS – Mother of All Short Squeezes, FUD – Fear, Uncertainty, Doubt, FOMO – Fear of Missing Out. To understand meme stocks, one needs to expand their vocabulary.

4. The Meme investor crowd is an interesting bunch. There is a near complete admiration for Game Stop (GME). AMC, BBBY and any other meme stock will always be secondary to that of GME. There is an interesting psychological component at work here. Of course, it would not surprise me to see a meme stock that is not GME to be the one with the wildest stock price increase when all is said and done.

5. Contagion – There will be a meme stock that is so misplayed by hedge funds and shorts that the stock price will skyrocket. I am not talking about into the hundreds of dollars, but into the thousands. When that occurs, it will ripple through the rest of the market.  Margin calls will be made, forcing the immediate sell of other stocks to occur. With risk at levels that have not been seen in decades, this could just be the lighter fluid needed for the markets to have a very nasty reality check.

I have no clue where things are heading with BBBY. I do think the fact that BBBY repurchased 25% of their outstanding shares earlier this year – by former management, at a time the company was bleeding money – will have an impact. If any sort of positive news is released by BBBY – obtaining a loan that covers the burn rate for a year plus, a sale of Buy Buy Baby, someone else buying a 5-10% stake of outstanding shares – then BBBY shares may rocket to the moon and beyond. Should that occur, the ripple effect throughout the rest of the market will be impressive as well, and likely not in a good way.

I would not buy additional BBBY here and I have not. There is simply way too much risk involved here. I just happened to have a position in it and sucked my thumb for so long that it was better to sit and watch instead of selling and exiting.