If there’s one positive aspect of Virgin Galactic (NYSE:SPCE) that’s noticeable right now, it’s that between Jan. 27 and Feb. 18 of this year, SPCE stock appears to be printing a series of rising lows. That’s it.
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To be clear, it doesn’t mean other positive catalysts for the space-tourism company don’t exist. But it’s becoming increasingly difficult to find reasons to keep pouring good money into bad with SPCE stock. If anything, the underlying company is a great lesson in recognizing the sunk cost fallacy — and more importantly, to avoid getting sucked into the mentality.
A post on BehavioralEconomics.com explains the concept as follows: “a person may have a $20 ticket to a concert and then drive for hours through a blizzard, just because she feels that she has to attend due to having made the initial investment. If the costs outweigh the benefits, the extra costs incurred (inconvenience, time or even money) are held in a different mental account than the one associated with the ticket transaction.”
With the investment market, many folks tend to keep buying the dips on the assumption that things can only get worse for so long before rising higher. But in some cases, the business continues to flounder. I’m not going to guarantee that’s the situation for SPCE stock. However, when shares have hemorrhaged 82% over the trailing year, it takes a brave person to stay the course.
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In addition, SPCE stock is rapidly becoming a medium to capitalize a dream that may or may not materialize. I get that Virgin Galactic has always been an aspirational trade. However, even speculators start to lose patience.
But when those closest to the business bail? That could be the ultimate dealbreaker.
SPCE Stock Insiders Rush for Exits
Last Friday, venture capitalist Chamath Palihapitiya generated headlines when news agencies revealed that he stepped down from his role as chairman of Virgin Galactic. As The New York Times described it, it was “a low-key and sudden departure for the outspoken financier, and another sign of the bad times that have hit the market for blank-check funds.”
Of course, the blank check part was in reference to how SPCE stock entered the public arena, via a reverse merger with a special purpose acquisition company that Palihapitiya sponsored. In March last year, he sold his entire personal stake of Virgin Galactic. Now, he’s not even on the board.
As the Times stated, no one knows quite why Palihapitiya is leaving the company. But I don’t think it really needs that much thought. “But it’s worth noting that Virgin Galactic’s shares fell to $9 yesterday, down 81% from their 2019 debut,” the newspaper said.
If SPCE stock had serious potential to be a viable investment, Palihapitiya would likely have stuck with it. He’s no dummy, which makes his departure all the more alarming.
Even more ominous for the space-tourism company, he’s not the only one. While there was early insider excitement for SPCE stock, when 2021 arrived, all the insider transactions were sell orders. Combined with Palihapitiya’s eagerness to jump ship, I think you have the core information about SPCE’s prospects.
I’ve said this before about other companies, most notably Palantir Technologies (NYSE:PLTR). If the underlying business was truly worthwhile, the ones who are running the show would put skin in the game. But if the opposite is true, that action speaks louder than any snazzy marketing brochure.
I hate to think like this but the more SPCE stock crumbles, the more it seems that Virgin Galactic was a cynical ploy to extract money from unsuspecting retail investors.
Caveat Emptor, as They Say
Now, I can’t prove that Virgin Galactic is a cynical ploy so it’s merely my gut reaction. But I can’t help but have a bad taste in my mouth. So many influential capitalists were pumping SPCE stock and the possibly trillion-dollar space economy.
Where are they now? Dumping SPCE as quickly as they can, it seems like.
The implosion brings up another adage that I hope people can learn from: you don’t have any friends on Wall Street. As soon as you think you do, you might want to check what you were sold and make sure you aren’t holding a bag of the smelly stuff.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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