Martha Stewart’s verdict cost her $95 million in just a few minutes.
The share price of Martha Stewart Living Omnimedia – which creates her magazine, TV shows and products – began collapsing late yesterday after Wall Street panicked over her guilty verdicts.
“She’s basically finished as a brand name,” said analyst Dennis McAlpine of McAlpine Associates, who’s tracked the Stewart empire from its start a decade ago.
Many investors thought she’d get off, causing the stock to soar earlier yesterday to its highest price in a year, hitting $17 a share, and giving Stewart a paper profit of around $100 million on her personal stake in her company.
But the mood turned darker in the afternoon when courthouse word spread that a verdict was in, causing speculators to change some of their bets.
The scramble caused a huge backlog of sell-or-buy orders on nearly 17 million shares – 20 times the usual daily activity.
It got so hectic that the New York Stock Exchange suspended trading on the shares during the 11/2-hour wait for the verdict.
All week, investors had been gambling millions on the outcome of her trial. Some made bets on her losing, some on winning – and it caused the stock price to swing wildly for days.
When the guilty verdict came in, many professional traders knew they’d lose their shirts on their gambles, while others celebrated cashing in.
In the last half-hour of trading, the NYSE finally opened the floodgates for the rampage of trades to roll out, wiping as much as one-fifth of the value off every investor’s holdings.
But Martha Stewart was clearly the biggest loser. Shares in her company dropped $3.17 to $10.86, giving her a paper loss on her shares of about $95 million.
Some investors think the stock could drop to as low as $9 a share Monday.
McAlpine is advising his clients to make bets that the company’s stock will continue to tumble next week.
That’s done by a trading technique called “shorting.” An investor simply borrows stock from a trading house, much like a bank loan except it’s in shares instead of dollars.
If the stock drops, the investor pays back the loan with cheaper shares bought on the open market, and then pockets the difference for a profit.
If the stock goes up, the investor has to replace the borrowed shares with more expensive shares, and loses a bundle.