The problem of indolent retail shareholders

The first rule of meme stocks is that you short them at your peril — no matter how overvalued they might seem, the crowd can always bid them up.

Driving the news: Shares in Digital World Acquisition Corp, or DWAC, sure seem like they're defying gravity right now, even after having fallen 87% from their peak last October.

Why it matters: DWAC shares are trading on the hope — some would say pure faith — that the SPAC will be able to acquire Truth Social, the Twitter competitor associated with Donald Trump.

• The problem is that the deal hasn't closed yet — and DWAC hasn't been able to muster sufficient votes from its retail shareholders to extend the deadline.

The big picture: Institutions have established procedures for voting their shares; individuals don't. As a result, according to ProxyPulse, while 83% of institutional investors vote their shares, just 30% of retail investors do — and that number has been slowly and steadily declining since the firm started measuring in 2017.

• Say Technologies, which was bought by Robinhood for $140 million in 2021, was supposed to help reverse that trend. But Say refused to share with Axios what proportion of Robinhood's DWAC or AMC holders voted their stock when it really mattered, which suggests to me that the numbers weren't particularly impressive.

By the numbers: DWAC's sponsors have spent $2.8 million of their own money to extend the life of their company for another three months, and have pushed the deadline to vote back to October 10. But they still need 65% of shareholders to vote in favor, and right now, even after a massive marketing push, they're only at roughly 40%, per Reuters.

• The catch: As shares continue to trade in high volume, it's increasingly difficult to find eligible voters, since in order to vote a shareholder needs to have owned the shares on August 12.

How it works: DWAC is now on borrowed time, and will liquidate at $10 per share when the clock finally runs out. That makes it hard to justify a share price that is still more than $20.

• Even if DWAC does get shareholder approval to extend its own life, it seems increasingly unlikely to receive SEC approval to buy Trump Media & Technology Group. Without that approval, DWAC is worth no more than $10 per share.

The bottom line: AMC similarly couldn't get approval from its army of retail "apes" to get permission to issue new stock, so it had to construct an awkward new preferred security instead. With DWAC, the consequences of retail apathy are much more existential.