While it’s possible to accrue useful information from people with an incentive to sell you something, it’s best to leave the final decision to your own due diligence. However, it’s what insiders are or aren’t doing that could be a telltale sign, which is how I feel about AMC Entertainment (NYSE:AMC). It’s not about the reasons to buy AMC stock but rather, who isn’t.
You see, the problem with involving biased sources for potential decision-making processes is that you’re likely not getting a complete picture. That’s where independent due diligence is necessary. Performed correctly, you can hopefully filter out the cheerleading squad and get done to the brass tacks. You want to know as much as possible — the good, bad and ugly.
However, insider actions that go against the logical direction of the underlying bias are events that, in my opinion, you should always pay attention to. For instance, if someone appears truly desperate to get rid of their car, you might want to hold off: there could be a potential repair bill in your future if you sign on the dotted line. In today’s market, my correlating concern is insider selling of AMC stock.
I’ve covered this topic before so I’m not going to get too deep into it. But the bottom line is that you should note the logical conundrum. If AMC stock was such a great investment with a brilliant future — like so many folks on the internet believe it is — why are the executives selling it?
Obviously, since I’m not an insider with the cineplex operator, I can’t say for certain what’s going on. But my personal speculation is that they see the writing on the wall. Thus, it’s time to bail out and why not?
I’d do the same.
Hollywood Can Save AMC Stock But it Probably Won’t
Indeed, I did exactly that, exiting the lion’s share of my holdings while keeping some in the tank, just in case. In hindsight, I probably should have emptied the tank. While AMC stock doesn’t have an execution date, its Hollywood lifeline may not come through.
Just as the pandemic was ravaging the U.S. in 2020, The Hollywood Reporter noted disappointing developments among the frequent moviegoing demographic. By race/ethnicity, the Hispanic/Latino demo saw a rise in attendance per capita. But otherwise, per capita attendance decreased “among all other ethnic groups.”
Nominally speaking, the white audience is king in the U.S. because without it, AMC stock and the entire cineplex industry would probably collapse. At the same time, Hollywood has been pushing aggressively for diversity and representation in cinema. Is the white demo losing interest in such initiatives?
The evidence doesn’t necessarily point in that direction; otherwise, films such as the holistically diverse Black Panther likely would not have been successful without strong white attendance. Further, ample academic reports suggest that Hollywood pays a financial cost for not being diverse.
However, the arguments supporting diversity in cinema — which of course is 100% positive — gloss over a key reality in the modern box office: people want to see the big blockbusters on the big screen because that’s where you get the experience that a living room TV can’t duplicate.
In other words, parroting off observations from a New York Times report, the white male audience ages 25-to-45 largely determines the commercial success of a film. It’s Hollywood’s version of California’s electoral vote tally.
But making movies that universally appeal to this demo — a good story, lots of action, perhaps some private moments but definitely no politics — is becoming contrary to Hollywood’s modern ethos of pushing certain political agendas.
A Day Late and a Dollar Short
When Marlon Brando won the Best Actor award for his iconic performance in The Godfather, he did something that will be talked about forever: he outright rejected the award, instead asking Indigenous American actress Sacheen Littlefeather to speak in his stead to protest Hollywood’s negative portrayal of her people.
This occurred in 1973, so you can imagine that, while the audience mostly cheered, there were a notable few that were extremely upset at the ideologically motivated intrusion into their fantasy, paraphrasing Brando’s response to the uproar.
Now, Hollywood is taking an active role in rectifying past wrongs. Unfortunately, it may be too late as the radicalization in U.S. politics has created a vituperative give-no-ground mentality among many social circles.
Under this framework, Hollywood is in a rough position. Promote diversity and inclusion in cinema or cynically go with what works? In my view, it’s a similar situation regarding Spotify (NYSE:SPOT) and the free-speech-versus-broader-consequences debate between Joe Rogan and Neil Young.
If I’m underwater on AMC stock, I would want the underlying company to do what works; let’s just keep it real. I’m not deliberately stoking controversy as money talks and almost everything else walks. That’s how real life works. However, Hollywood isn’t real life and that’s the problem.
On the date of publication, Josh Enomoto held a LONG position in AMC stock. 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.
