“The reason people own this stock is because they support Donald Trump in some way,” Rekenthaler said.
“It's an act of faith,” he said.
The former president is a major shareholder in Trump Media, which trades on the Nasdaq under the initials of his name, DJT. The company's stock got off to a rocky start this week with two straight days of declines, but was up more than 20% by Wednesday afternoon.
According to the company's website, its mission is to end “Big Tech's assault on free speech by opening up the internet and giving back a voice to the American people.”
The company closest to Trump Media, Rekenthaler said, is Tesla. He said investors backed Tesla because of their faith in Elon Musk, which helped push the company to its highest price in 2021.
The key difference is that Tesla was a “much bigger company,” said Rekenthaler, who wrote an April 10 op-ed criticizing Trump Media's reputation.
He said Trump Media currently does $4 million in business through social media. Meanwhile, the company's valuation is now more than $3 billion, down from about $9 billion when it was founded.
“The problem is there's still room for a decline,” Rekenthaler said.
Like investors in other publicly traded companies, Trump Media shareholders ultimately want to redeem their shares for more than they paid. But there's no guarantee that will happen, Rekenthaler said.
Other investors chose to bet on the stock through short selling. That, too, could be “dangerous,” Rekenthaler said.
“This stock is really unpredictable,” Rekenthaler said. “It certainly could go up in the short term and hurt shorts.”
The company responded to a request for comment by referring it to its Frequently Asked Questions web page. Trump Media outlined risk factors to its business in a recent filing with the Securities and Exchange Commission in connection with its stock listing. That includes risks associated with the former president, such as his reputation and popularity. the possibility of his death, imprisonment or incapacity; Alternatively, your relationship with the Company may be discontinued or limited.
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Preston D. Cherry, Ph.D., founder and president of Concurrent Financial Planning in Green Bay, Wis., said there is a certain level of risk involved in investing in companies with ties to high-profile celebrities.
Mr. Cherry, who is also a certified financial planner, said that collaborating with a well-known person can result in increased trust in a company. But when celebrities and companies part ways, like Adidas and Ye, also known as Kanye West, or Weight Watchers and Oprah, it can affect investment prospects.
Additionally, investors could get caught up in the frenzy over initial public offerings, Cherry said.
“Retail investors have a sense of FOMO, especially the fear of missing out on popular IPOs. [initial public offerings]” Cherry said.
As a result of all this hype, companies could be overvalued when they go public, he said.
Ted Jenkin, CFP, CEO and founder of financial advisory and asset management firm oXYGen Financial, says stock prices for early-stage companies can be very volatile, which is why the average investor is reluctant to day trade. If you are tempted to sell or sell short, you could face a number of risks, he said. A company based in Atlanta.
“These kinds of stocks are speculative at best,” Jenkin said.
Cherry and Jenkin are both members of the CNBC FA Council.
