Meme Stock’s Big Bet on Bed Bath & Beyond

Online retail traders try to turn what they see as a rigged system against itself. It works … until it doesn’t.

An animated illustration depicting emojis of a bed, a bath, and a rocket ship that leaps from behind a moon into a black hole
The Atlantic

Bed Bath & Beyond is a struggling home-goods retailer whose underlying business is so bad that stories about the company carry headlines like “Bed Bath & Beyond’s Big Dilemma: Can It Survive?” But for most of August, Bed Bath & Beyond was also one of the hottest stocks on Wall Street, rising almost 500 percent in a matter of weeks. And that strange divergence happened for just one reason: Meme-stock mania made a sudden and unexpected return.

You probably remember meme-stock mania from early 2021, when hordes of retail investors—many of them communicating with one another via social media and Reddit message boards—bought up the stocks of struggling companies such as GameStop, AMC, and, yes, Bed Bath & Beyond, sending them soaring to unimaginable heights. (At its peak, GameStop had gone from little more than $1 to $80 a share.) The frenzy faded and, in the big market sell-off in 2022, interest in these companies waned. But then, as the overall market perked up in July, the interest in meme stocks improbably returned—and for no company was that more true than Bed Bath & Beyond, which is also known on Wall Street by its Nasdaq abbreviation, BBBY.

At the end of July, BBBY’s stock was trading at roughly $5 a share. By mid-August, it was heading toward $30 a share. This wasn’t because investors got good news about the company’s business. In fact, all the news about the business has been terrible. Just last week the company hired a restructuring specialist, which suggests that bankruptcy may be in its future.

What happened to drive the stock up? Traders on the Reddit message board r/wallstreetbets started to talk about the stock more in early August, and the share price began to rise day after day. That got more retail investors to buy, driving the price up further. Bed Bath & Beyond is also one of the most heavily shorted stocks on Wall Street, so as the stock rose, some short sellers repurchased shares to cover their bets. That made the stock price rise more, which encouraged yet more retail investors to pile in, which drove up the price, and so on. All through this, retail traders were talking to one another about why it made sense to buy BBBY, and exhorting one another to hold the stock and not sell it, to have, in Reddit-trader parlance, “diamond hands.”

What’s mysterious, though, is what got the ball rolling in the first place. Many news stories on the subject mention that a big investor named Ryan Cohen, who had been a key player in GameStop’s rise, had taken a big stake in Bed Bath & Beyond and was agitating for changes. But Cohen revealed that stake in March, so this can’t explain why the stock took off in August.

However it may have started, the strategy of piling into BBBY worked great for meme-stock investors. Until it didn’t.

Last Wednesday, news broke that Cohen had filed papers with the SEC saying that he planned to divest himself of his entire stake in the company. The next day brought news of another filing, which showed that Cohen had sold all his shares.

That broke the fever and sent the stock tumbling. BBBY is now trading below $10 a share, down about 66 percent from this year’s high. And lots of the retail investors who bought on the way up have lost a ton of money.

We’ve seen this story before. It’s virtually identical to what happened to GameStop and AMC and, indeed, BBBY itself earlier. But what is still important to note is how bizarre this market behavior is, and how it upends conventional ideas of the way the stock market is supposed to work. In theory, stock prices reflect the collective intelligence of the market, assembled through the independent buy-or-sell decisions of investors, and a company’s stock price represents the market’s best guess as to the true long-term value of its business. So the stock price of a company is not supposed to quadruple on no news. But in the world of meme-stock investing, none of these rules apply.

For meme-stock investors, investing is not about evaluating the true worth of a company. Instead, it’s about trying to create a critical mass of transactions to game the system, working with others to orchestrate short squeezes, inflate stock prices, and then, ideally, get out in time.

This approach to the stock market has more in common with the stock pools of the early 20th century, when investors would work together to rig stock prices and pump and dump stocks. But whereas those stock pools were run by a small number of investors who usually knew one another, today crowds of small investors are working together virtually to, in their minds, turn a rigged system against itself.

In its reliance on conspiratorial thinking, populist sentiment, and convictions that the whole system is corrupt, meme-stock investing is a movement of its time (with obvious overlaps with crypto, anti-vax thinking, and Trumpism). And it has certainly made plenty of people rich. But what Bed Bath & Beyond’s plummet over the past few days underscores is just how fragile and risky meme-stock investing is.