If you’re just hearing about the GameStop short squeeze, here are some explainers. James Surowecki:
GameStop is a struggling, kind of boring, mid-size retailer stuck in a legacy business — selling physical video games. But it’s also pretty much the only company anyone on Wall Street is talking about right now after its stock rose 160% in a matter of hours on Monday morning to an all-time high of $159. (By day’s end, GameStop’s price had been cut by more than half, but that still left it up more than 300% this year and almost 3,000% from its 52-week low. And it was up another 15% at Tuesday’s open.)
It isn’t GameStop’s precipitous rise, impressive as that’s been, that has everyone fascinated. Instead, it’s what fueling that rise: concentrated buying by thousands upon thousands of small individual investors who are using sites like Reddit and Robinhood to drive up what are now being called “meme stocks.” GameStop is the best-known of these meme stocks, simply because its gains have become so outrageous. But it was preceded last year by Hertz and Kodak, which, despite having struggling businesses, saw their stock prices soar when they became Reddit darlings. And now stocks like AMC, Nokia, and Blackberry (which is, yes, still in business) have also caught Redditors’ fancy.
Here’s a longer one at The Verge that details how Robinhood, a trading app, made this easier. Here’s a story on why AMC is the next GME.
Wall Street – like a casino, but it’s where you keep your retirement money.
Open thread.
beef
This reeks of pump & dump. The SEC is going to have a field day investigating.
Roger Moore
If I were with the SEC, I would look very carefully to see if anyone who unloaded a long position during the squeeze was involved with pushing Game Stop on Reddit. It would be hard to go after all the retail investors who were involved, but if someone is manipulating those retail investors, they need to be caught and punished.
polyorchnid octopunch
What beef said. I wonder how long it’ll be before Reddit starts receiving the subpoenas for subscriber information.
different-church-lady
What retirement money?
Barbara
Ugh. It takes me back to some very dark places that resulted in me losing money for very bad decisions that were prompted by very bad people.
Roger Moore
@beef:
The thing is that it’s not a normal pump and dump play. There were hedge funds with huge short positions in Game Stop- it was supposedly the most shorted stock on the exchange- who had to unwind those positions because they didn’t have enough reserves to cover their shorts. It’s a classic example of a short squeeze.
The short squeeze is what sent the stock through the roof, but once it’s over the stock is likely to fall back to something more closely resembling its real value. That’s going to kill the retail investors who bought to try to trigger the squeeze and who didn’t get out in time. The real winners will be anyone who managed to sell off a long position during the squeeze. That’s why I think the SEC needs to look carefully at the people selling during the squeeze to see if they tried to manipulate others into triggering it.
MattF
The Verge article is good, explaining how Robinhood makes money. Hint: they‘re selling timely data on their customers to professional traders. I’ve known enough Wall Street professionals to stay away from them— unless you have a fetish for being skinned.
Central Planning
I checked on GME yesterday when I heard about it – price was $80. I checked this morning, because my luck is usually when I buy something that I hear about, the price goes down. Anyway, it was over $300 this morning, and it’s $345 now
I still don’t own GME.
Served
There is also the activist component to it, where the Reddit group is trying to take down a specific hedge fund. They had to hit a specific stock price, and the entire $13 billion fund would collapse.
The initial GME Reddit investor took his initial long play in September 2019, and has turned $50,000 to $22million.
Jim, Foolish Literalist
@Barbara: I gave up trying to figure out the stock market long before 2008, but I look at housing prices and wonder why so few people are getting nervous.
BruceFromOhio
Old wine, new skins – this is the boiler room in fast-forward ripping off the kids with too much time on their hands.
@beef: indeed.
JustRuss
@Jim, Foolish Literalist: Yep, I’ve been looking for a house for a couple years, figured I’d wait til the market settled down, but it’s been on a constant upward trajectory. Can’t be sustainable.
PenandKey
And this is a prime example of why I’m a firm believer in Bogle’s “don’t bet on individual stocks, invest in the whole market” philosophy. Trying to game high frequency algorithm trading platforms with better network latency than I’ll ever have is sheer lunacy. Better to invest in vanguard funds and skip out on the churn. Yeah, the rates are lower, but I don’t go to casinos or buy lottery tickets for the same reason. I prefer to keep my shirt.
debbie
Glenn Beck was using GameStop this morning as proof Dems were dangerous. ? ?
karen marie
@Jim, Foolish Literalist: Rental prices are ridiculous. I would love to find somewhere to live that a small one-bedroom apartment doesn’t cost half my monthly earnings.
debbie
@Jim, Foolish Literalist:
Commissions. Wouldn’t want to cut them off too soon. //
OGLiberal
Blockbuster is up almost %1000 since yesterday’s open.
BruceFromOhio
@debbie: Is he using MadLibs for content now?
Glenn Beck is using ___(noun)____ as proof Dems are ____(adjective)____
Limbaugh played it his entire career.
Ken
Reminds me of both this Fox Trot classic and this XKCD. As PenandKey said, don’t try to pick stocks – unless you’re doing it for other people, and get paid your commission whether they go up or down.
JaneE
This sounds borderline illegal. As if we need yet another thing to investigate these days.
Back when I was working there were a couple of guys – different companies, years apart – who got really excited by some small stock no one else seemed to notice and spent all their coffee room time touting the great opportunity to all and sundry. Both times the company had a great product and an unlimited market – unlimited because probably 90% of the country really didn’t have a use or desire for what they made. This may be the modern internet version of the guys who were jazzed by a product and company that no one else cared about, but now they have an audience of thousands or more and there are bound to be some like-minded people out there.
I can lose my money just as quickly at Las Vegas, have a lot of fun doing it and get free drinks at the same time. I certainly don’t have the inclination or ability to actually analyze a stock in order to decide if I should buy it or not. Index funds take all the work out of it, and do just as well over the long haul.
West of the Cascades
How many billions of dollars in tax revenue that could be used to fund all sorts of Nice Things could be generated by a one-cent-per-trade tax on stock trading?
hueyplong
Did Beck say that in between scary ads screaming at his listeners/watchers to buy gold and reverse mortgages?
RobertB
@Roger Moore: IANA lawyer, nor an investment person. So, worth every penny you paid, etc. But it looks like the people who get into trouble would be the people who started buying GME to stampede the short sellers and the option writers into covering their shorts.
Ken
Wow, ten cents a share? Someone must have gone to their one remaining store.
Le Comte de Monte Cristo, fka Edmund Dantes
“The markets are inherently rational, and do the yeoman’s work of setting value, and how dare you say that hedge trades are bad for business and long term stability and so speculative that they are nothing more than roulette spins.”
– Some Glibertarian Commentary
Another Scott
The sure sign that a bubble is going to burst (sometimes soon, usually within a couple of years at most), is the popular press/TV getting in on the hype. Be wery, wery careful.
In other news, Space Force has come up a few times recently. GovExec talk about the issues with getting rid of it.
tl;dr – It may be very hard to get rid of, but deciding what it (and Space Command) actually does (and where they’re located) will be easier.
Cheers,
Scott.
hueyplong
@JaneE: When I was a dealer (long, long ago) and someone got hot on our (craps) table, we called for “free” cocktails out of order so as more easily to get the money back.
That and converting their winnings to larger denomination chips worked like a charm. Pretty soon everyone was wiped and we were standing at an empty table discussing that night’s Giants-Dodgers game.
Le Comte de Monte Cristo, fka Edmund Dantes
@Ken:
MoviePass is TOTALLY coming back…
boatboy_srq
Somewhat more accurate.
Just Some Fuckhead
@JaneE: I also will get you drunk if you give me all your money. I even know how to make a Caesars.
Bill Arnold
As far as I know, short squeezes are not illegal. Case law otherwise? Not sure how/why doing it with a distributed hive-mind Voltron is qualitatively different.
This piece in bloomberg is interesting.
GameStop Is Just a Game – Also BlackRock, Melvin Capital and Leon Black. (Matt Levine, January 26, 2021)
RaflW
“like a casino, but it’s where you keep your retirement money”
Yes and no, of course. What the GME gamers are doing is, at least for some of them, a little more strategic in trying to screw the hedge funds.
It also sounds like a round of bored folks are getting into amateur/newby day trading, and that’s likely not to go well – where the casino tag is more apropos.
But no one should be saving for retirement like that. Boring, broad-based index funds, held for multiples of years is the way to do that – and yes, of course I know many many people can’t afford to even dabble.
The fundamentals of our economy are f*cked, and not likely to get fixed in the next 4 our 8 years. $15/hr minimum wages getting passed will help a bit, but we will also need a significantly different tax regime. Inequality is getting worse, and there is only so much bread and circus to be done before the populace gets so restless that the true elites (aka Republican donors) may face unexpected threats.
This is the lesson of history I think the rich forget about once per century. Political stability requires a little more “giving back” than these bastards are willing to do. So the rabble have to shift the rich’s frame of self-interest.
Ksmiami
@beef: it’s another mania. Like Tulips
OGLiberal
@Ken: It’s actually like a 1500+ increase. Was at .006 at yesterday’s open and now over .1!
Ken
@West of the Cascades: Proposals for a Tobin Tax on stocks are always met with howls that it will destroy the markets. I never could figure out why commissions don’t do the same.
Besides, if stock transactions don’t generate enough added value to survive a 0.01% transaction tax, maybe the resources would be better directed to an industry that does – say, fast-food.
burnspbesq
@beef:
It’s something very different.
As of a few days ago, the number of GME shares sold short (a bet that a stock will go down) was greater than the number of shares outstanding. For reasons that remain unclear and that I would probably see as irrational, a whole big mob of retail investors decided that it was time for the shorts to take it in the shorts.
‘I’m certainly not opposed to the SEC taking a look, but if you’re hoping for heads to roll, my guess is that you’ll be disappointed.
RobertB
@JaneE: What would be illegal would be what you’re describing – you and I touting some penny stock and selling it back and forth to each other to get the price to go up.
This looked more like the sort of shit I would watch on CNBC 20 years ago. “Buy DunceCo, it’s a sure thing.” Except this was on Reddit, and the line was, “Buy GME call options, and when the option writer chickens out it will be Fat City.”
pacem appellant
@Another Scott: Thanks for the read! your tl;dr is spot on. My mother purchased a Space Force t-shirt for me. I haven’t gotten rid of it (yet), but I’ve never worn it in public. I think Biden should eventually re-name the Space Force. I don’t know if he can, but that would help separate the work it does from 45.
raven
@JustRuss: Have you watched “Pretend it’s a City”? It’s Fran Lebowitz and Martin Scorsese on life in NY and the episode about real estate is hilarious.
Barbara
@BruceFromOhio: Seriously, who could have guessed that Madlibs would become a model for political discourse. I thought that the allegations that were spewing from Giuliani and Powell regarding election fraud were like a game of Madlibs, and then I saw someone tweeting out that very sentiment and I knew I wasn’t alone. It’s like an organic brain disease.
KenK
@PenandKey: @#13 Yep. For a long time, my wife and I have been in “sector funds” and stayed away from individuals. I’m retired and my wife is ‘almost’ retired. Our holdings are probably a bit cash-heavy compared to funds (60%) but we s/be be fine short term and long term.
Many decades ago, when I first dipped my toes into investing, my advisor suggested that I “kitchen” invest. By that, he meant to look in your kitchen cupboards to see what brands you had. Nothing sexy about canned/boxed foods, but foods are generally always in demand ;)
There go two miscreants
@Bill Arnold: Matt Levine is consistently both laugh-out-loud funny and educational. The wittiest writer on Bloomberg.
Barbara
@KenK: My own view is that most people shouldn’t buy individual stocks unless they really know something about an area, and the idea comes to them from that knowledge, or disinterested reading and their own research. In other words, do not buy any individual stock at the suggestion of any other person who could profit from it. That might sound somewhat extreme, but as a guiding principle with very limited exceptions it will save you from making some seriously expensive mistakes.
Le Comte de Monte Cristo, fka Edmund Dantes
@Just Some Fuckhead:
Filthy Canuckian drink. Clamato juice?!??
burnspbesq
@KenK:
That’s why I own Lilly and Dexcom. The diabetes pandemic ain’t going away any time soon. And it feels good to get back a tiny portion of the absurd amount I spend on insulin.
Roger Moore
@PenandKey:
It’s not even obvious that the return is better with fancier investment vehicles. Even if a hedge fund really can do better than the market- and the data doesn’t really support that- the costs are so much higher that it doesn’t make sense. The only people hedge funds make rich are the people running them.
I have personally put almost all my investments into very boring stuff like index funds. The only remotely risky investment I have is my brother-in-law’s company, and that was more of a way of supporting his dream than a hard-nosed investment decision.
Roger Moore
@RobertB:
Those people are going to get in financial trouble. The people who really ought to be in legal trouble are the people who started the stampede, especially if they profited from it.
Gozer
How is this materially different than an institutional investor shorting a stock?
sab
@Jim, Foolish Literalist: Yeah. Housing prices in my lower middle class neighborhood are up 50% from 5 years ago. It makes no sense.
Obdurodon
Just as stock trading itself was democratized a while ago, now so are the traders’ dirty tricks. This is most definitely not a good thing. As I said on Twitter, anyone who’s just now hearing about this and rushing to get into it is effectively jumping into shark-infested waters. Maybe they’ll be lucky, but it’s not an approach I’d recommend. For every one who turned $50K into $22M there are at least three who did the exact opposite, and nobody could have predicted which one would be the winner.
Roger Moore
@burnspbesq:
If I understand correctly, the actual market information that made this kind of make sense is that Game Stop was doing well selling the new generation of PlayStation and XBox consoles.
TheronWare
I believe the greater fool theory applies yes?
debbie
@hueyplong:
Most likely. But I was listening because he’s trying to get a Constitutional convention together to revise the Constitution to protect his rights (Second Amendment, etc.). A web site has been set up, but I missed the address. It might be amusing to check it out.
Doc Sardonic
@Le Comte de Monte Cristo, fka Edmund Dantes: Ugh…a Michelada with vodka. Bookended North and South by nasty ass Clamato based drinks.
Just Some Fuckhead
@Le Comte de Monte Cristo, fka Edmund Dantes: Shut your fucking hole up this minute.
Cheryl Rofer
OT, but judging from the responses to my post yesterday, some of you might be interested in this:
JoyceH
Well, this explains what is going on with my BlackBerry stock. A couple months ago I opened a TD Ameritrade account. It’s basically just a game, I’m currently drawing from an inherited 401K, and have a nice stodgy account that will take over when I outlive the 401K (as I have every intention of doing!). But I also opened a small TD Ameritrade account just to play Girl Tycoon with. I’m mainly investing in renewable energy companies, figuring they’re finally going to come into their own, but also buying stuff that I just like and the web analysis looks good. (Utz – great potato chips!) But last week I bought a bit of BlackBerry and since then it’s gone through the roof.
From a MarketWatch article of several days ago – “The company commented on the recent trading in its stock, at the request of the Investment Industry Regulatory Organization of Canada (IIROC): “The company is not aware of any material, undisclosed corporate developments and has not material change in its business or affairs that has not been publicly disclosed that would account for the recent increase in the market price or trading volume of its common shares.” “
Ken
More likely there are around 400 who turned $50K into $0, which is worse IMO.
Ceci n est pas mon nym
Heard a story about this, and actually debated playing with it in a modest way, with some amount it wouldn’t kill me to lose.
Got as far as the online brokerage firm asking me for my SSN and noping out before I thought about this is how Grandpa lost all his money in 1929 when “everybody” was getting rich in the stock market.
I’m glad that AMC is the next stock they’re playing with. I like AMC as a company, but I think I’ll support them in the old-fashioned way by seeing movies. We just saw one in fact, the new Tom Hanks western. (Via streaming, no human contact for us.)
scav
OT, but amuses me equally: Reuters – Proud Boys leader was ‘prolific’ informer for law enforcement
Obdurodon
@Ken: Correct. Thank you.
cwmoss
@karen marie: That’s easy! Just go somewhere there aren’t decent-paying jobs!
Taken4Granite
@Roger Moore:
Where are all the customers’ yachts?
Same goes with most stock trading. The broker made money. The firm made money. Two out of three ain’t bad.
germy
Maybe they can Ralph Nader the GOP.
Bill Arnold
@Obdurodon:
Here’s one of the losers.
Melvin Capital, hedge fund targeted by Reddit board, closes out of GameStop short position (Jan 27 2021, Yun Li)
Shrug. Somebody (who is interested in how markets break (and how to break them)) over the weekend was nudging me to get into the action in a leveraged way. (I did not.) Shark-infested waters (Whales too), for sure, with lots of little sharks too. But we’ve also been wired to believe that the very rich deserve to have all the money, not least because they flash their big sharp teeth.
Brachiator
I see ads all the time for Robinhood. Had no idea of its impact.
SFBayAreaGal
@Another Scott: Put it in San Francisco and rename it Star Fleet Academy and Headquarters.
different-church-lady
I continue to be astonished by what people who have disposable income do with it.
Le Comte de Monte Cristo, fka Edmund Dantes
@Just Some Fuckhead:
Honey? Darling? Is that you? If it isn’t, JSF is doing a great job impersonating you….
Roger Moore
@Taken4Granite:
Hedge funds carefully open themselves only to the kind of investors who can already afford yachts.
Central Planning
@Bill Arnold: I saw somewhere that the redditors were saying that was a bunch of BS and they were just waiting for the stock to drop again.
Supposedly, Melvin’s short position was larger than the amount of stock traded (either yesterday or today), so it was mathematically impossible for them to close out their position.
Roger Moore
@germy:
From your lips to FSM’s orecchiette.
Hungry Joe
@PenandKey: This, this, and this. Vanguard (Bogle’s) joint. Index funds, esp. the targeted retirement finds. Contribute regularly, don’t sweat the ups and downs, don’t try to outsmart the market. (If anyone could actually outsmart the market consistently he’d be a multi-trillionaire.) Take the good (long-term) returns, and sleep at night.
Bill Arnold
@Central Planning:
Interesting. Will look further thanks. (I find this fascinating.)
Also, if true, it’s a flat-out like to manipulate the market. :-)
Enhanced Voting Techniques
@scav: Don’t the Peace Protests always say the most violent ones are the undercover cops?
Good Lord, is this some dumb situation were the FBI was concerned about a coup against the government, so the FBI provoked one, just to entrape potential insurgants? My head hurts now.
Roger Moore
@Bill Arnold:
IMO, everyone sucks here. This is the kind of thing that happens when people treat the stock market as a casino rather than a way of efficiently allocating investments.
Central Planning
@Bill Arnold: Just to be clear, I am passing on what the WSB redditors were saying.
I would bet that not all of them know what they are looking at.
PsiFighter37
If only I had a job that allowed me to day trade what is going on right now. This is easy money, hand over fist, for at least the rest of this week – barring some enforcement action by the SEC, or brokerages / NASDAQ saying they will halt all trading in a defined set of stocks (which I don’t think is justifiable).
Central Planning
@Roger Moore: The stock market is a casino. It’s just legalized gambling.
I don’t feel like I “own” any part of a company because I own their stock. The company already got that money when they issued the stock. I’m never going to own enough stock to influence a company, and the only thing I can really do is maybe vote for the board? BFD.
Spanky
@PsiFighter37:
Ummm, yeah. Good thing there’s not, oh, maybe a new administration eager to let everyone know there’s a new sherriff in town, eh?
Just One More Canuck
@Le Comte de Monte Cristo, fka Edmund Dantes: Squeezed only from the finest, freshest clams. What’s wrong with that?
Just Chuck
@Bill Arnold: pump-and-dump is still illegal. This appears to be both a p&d and a short squeeze.
scav
@Enhanced Voting Techniques: Oh no, he can’t remember a thing about these incidents, not really. Utterly rear-view mirror. (The cited instances are all in the past.) The amusement is more of the proud boys in array sort, all eyeing their former idols, leaders and fetishes with legitimate suspicion.
Ruckus
@different-church-lady:
Thank You.
Barbara
@Roger Moore: To be fair, federal securities laws limit who can invest in unregistered securities. On the one hand, this might be viewed as unfair to the little guy, but on balance it is probably more protective than not. Even people who invest in hedge funds rarely invest only in hedge funds. There are also ishares or other vehicles that try to clone various hedging strategies, that you can invest in more directly if you wish.
LeftCoastYankee
I find it amusing whenever the true nature of the stock market rears its head publicly, there’s an effort to “hrumph-hrumph not serious investors”.
Every stock purchase is a done by a buyer who believes that they will be able to sell the stock for more than they purchased it for. This part is obvious.
Every seller after the IPO is someone who has gone through the thought process above. Also obvious.
Less obvious: the actual company doesn’t receive any direct benefit* to their price dropping or rising. Conversely, the company’s performance is only tied to the change in price by the dynamic above. When it aligns, the idea that the market is a serious investment opportunity based on serious business performance takes hold. When the changes are based on investors acting independently of the companies performance, it exposes the fact that every stock purchase is a bet on predicting herd mentality.
It’s not like a casino. It is a casino.
*company’s employees and officers will benefit if they have shares, the company benefits indirectly (loan terms, market power, good PR, etc.)
Barbara
@Central Planning: A friendly pushback. If you invested in a diversified portfolio in the market and did nothing, there is almost no five year period over the last 90 years in which you would have incurred a net investment loss, with or without dividends. There is no casino in operation that can say the same thing for people playing their various games. Investing in individual stocks can be like gambling, but investing in the overall market (let’s say, at least 20 stocks with no stock being more than 5% of the value of your portfolio at inception) is not.
smintheus
American Motors still exists?
Central Planning
@Barbara: I don’t disagree. My point (my pet peeve?) was more around individual stocks and that some people feel that owning them is owning part of the company. Technically? Yes. But that doesn’t get you anything.
The majority of my retirement is in index funds and target date funds. I’m a big fan. I know I can’t time the market and I have a day job :)
JoyceH
This is kind of morbidly interesting. On paper, I’ve made $1500 on BlackBerry THIS WEEK. But I’m not going to sell it, want to see what happens next. (This is all just Monopoly money to me right now – book royalties, now, that’s MONEY, that’s something you can SPEND!)
Anonymous At Work
What hilarious about these articles is that they are sui generis of “Millennials Ruin X” (X = short-selling) or an inversion of the genre. “‘Damn whippersnapper Millennials can’t spend their money like we believe they should,’ grouse Boomers who professionally give interviews to WSJ on slow days.”
Bill Arnold
@smintheus:
AMC Entertainment Holdings Inc.
AMC Stock Gets Caught in Short Squeeze. Shares Are Up 180%. (Liz Moyer, Jan. 27, 2021 12:34 pm ET)
Another Scott
@smintheus: Kinda.
Nash – Kelvinator + Huson = AMC (largest merger at the time)
AMC got eated by Chrysler in 1987 (to get Jeep).
Chrysler got eated by FIAT, became FCA.
FCA got eated/mergered by Stellantis.
Huge companies like that don’t really go away.
[eta:] I knew that AMC in this thread was different, but … Hehe.
Cheers,
Scott.
bluehill
All of the comments about GME are accurate to some extent. To me, it’s a flash mob of retail traders that have pooled their resources on a few highly shorted names and now it’s taken on a life of its own and attracting more money from the broader public. GME’s outsized short position made it especially susceptible to short squeeze.
In the past, there probably weren’t many firms that would be willing to bet their capital to force a squeeze by buying stock and options to bid up the price and force the shorts to cover. However, the rise of commission-less trading, social media and probably other factors made it easier for retail traders to band together and buy out-of-the-money options, which can trigger a chain-reaction of buying and, therefore, drive shares higher. Now they are targeting other highly shorted names like Blackberry, Nokia and AMC Theatres.
From an outside perspective, it is fascinating to watch and wonder how this going to change the investment industry. In some ways, for better and worse, it reminds of the effect Facebook and Youtube had on politics.
Roger Moore
@LeftCoastYankee:
I think you’re leaving out a couple of important points:
PJ
I can’t see what the hand-wringing is about. On the surface, there’s nothing illegal going on here. There’s no false information involved. 140% of GME stock was shorted; this means that there is no way for all of these shorts to be covered by available stock at any one time. Short holders can keep putting off having to buy stock to cover their position by hedging, but it keeps getting more expensive. And if redditors keep buying and holding, there’s even less stock available, which drives up the price even more. Eventually the short holders will be forced to cover their positions, and they will have to buy at the market rate. Figuring this out is not rocket science. As for the redditors, plenty of people will have bought high and end up selling low, but that’s what happens every day on the stock market.
Obdurodon
@Another Scott: Fun fact: my brother has been there through all of that except the first one. Unifying IT infrastructure, isolating it again (i.e. undoing years’ worth of his own work), unifying, isolating, etc. He’s had at least a half dozen company names on his paychecks, without changing jobs. Amazing that he has kept his sanity.
bluehill
@PJ: Unfortunately, some small guys are probably going to lose everything. Melvin Capital lost a lot, but the PM won’t be struggling to pay rent.
Another Scott
@Jim, Foolish Literalist: Nationally, housing isn’t close to the 2000’s bubble. Yet.
CalculatedRiskBlog:
Around my part of NoVA, there haven’t been many houses on the market. Some of that may be a consequence of housing being converted to rentals a few years ago (maybe in the speculators’ hopes of AirB&Bing everything and making a killing if/when the County endorsed a free-for-all – which didn’t happen). The market does seem to be unbalanced, but not overheated, to these eyes. Local housing regulations are always an issue in places where people want to live (Hi M^4!) – we may be getting to the point that sensible regulations have to be added to limit rentals, or tax them differently, or something to reduce speculation in mature areas. Or change zoning for in-fill development so that higher density is permitted/required.
Dunno.
Cheers,
Scott.
Another Scott
@Roger Moore: 3) Companies often pay (or at least did in olden days) employees with stock as a way to keep cash money payments low. Sometimes it works great (Microsoft Millionaires), sometimes, not so much.
Stock value really does matter.
Cheers,
Scott.
Martin
[Caveat: Martin has made 6 figures money with stock options trading.]
To start, I’m fine with this. If you didn’t know GameStop was a dumpster fire back when they were getting hammered for refusing to close at the start of the pandemic, then I don’t know what to tell you. There’s nothing about the stock that isn’t open for the whole world to see, if you understand the market they’re in (hint: most investors don’t, and that’s their own damn fault).
Gamestop is fucked, short of a pretty big pivot to a new market. Their market is selling consoles and console games, including buying and selling used games, which is cool, quite a few of my games were bought used from them. But console games are almost entirely non-physical online sales now. Just like your phone, it’s way more convenient to buy it right from the console, wait an hour for it to download and then play it. Even for mobile gaming like Nintendo’s products, that the norm. They also sell things like Funco Pops but you can get them pretty much anywhere. Their appeal was you could go there, browse through the selection, do some impulse buying, and head off, but their draw (physical games) are dead in the medium term. It’s a rapidly shrinking market, with the physical retail trend stacked on top. They’ve made no meaningful effort to find a new market. So they’ll simply go the way of Radio Shack.
Now, there’s a HUGE appeal to buying deep out of the money LEAPS in a situation like this. And a year ago I considered it – even when they were fighting to keep their doors open. The reason is that we knew new consoles would be coming out at the end of 2020, inside the quarter that Gamestop would be reporting near the Jan expiry date, and we knew they would be supply constrained due to the shortage of chip fabrication capacity (Apple bought first refusal to quite a lot of it) and we know that Gamestop is one of the few retailers that has contracts for buying large numbers of consoles. That sets up a situation where Gamestop suddenly has a market, and a big one, selling hard to get consoles online.
The uninformed investor is unlikely to see that confluence of events a year out, and they are also unlikely to see that the likely large earnings that will almost certainly generate ‘Is Gamestop Back?’ headlines after they post earnings is extremely situational. Once the demand is satisfied, their market will dry up. That creates the perfect situation to short squeeze the stock, or to gamma squeeze it (which happens at expiry). Expiry for LEAPS was 1/15, but expiry for short term options is 1/29 – this friday. If you saw the hype this month, those are the options you’re buying.
So, last March the stock was trading at about $4. I would have looked at an $8-$10 strike price (they hadn’t seen $10 in a year), and gotten those for $0.25. I’d have bought 10,000 of them ($2500 out of pocket, my normal outlay for something like this) with the expectation that I’d lose the entire $2500. But today I could have sold them for $290 each ($2.9M back in my pocket and a nice chat with the SEC). I made quite a bit of money doing exactly that, mostly with Apple. About 4 times out of 5 I lose everything, but that 5th time pays for all of the losses 10x over.
This is how people get rich. It’s not a casino because the odds aren’t fixed. Someone who is an experienced investor and knows the gaming and tech market well could have seen that quite a ways out. Part of that experience is knowing that inexperienced investors that don’t know this market will flood in and hand you their money. I would expect Gamestop to be trading at $4 again by the end of 2021.
PJ
@bluehill: Eh, at least the redditors seem to know what they are doing, that’s why they call it “YOLOing”. They know they can and usually probably will lose everything. (Not so here, if they bought in before, say, yesterday, due to the spiral effect of shorting 140% of the stock.)
But my broader point is that this is how the stock market works: some people win, and a lot of people lose. It ain’t no secret.
Another Scott
@Obdurodon: Neato. :-)
One of my mom’s first cars was a 1960 Rambler. With the flat-reclining bench seats. Made a comfy bed at times.
Thanks.
Cheers,
Scott.
Martin
@PJ: I would argue that it’s a regulatory failure to allow more than 50% of a stock to be shorted.
Martin
@PJ: Look at it this way – the redditors are probably just dumping bitcoin to buy Gamestop. They were fucked either way long-term.
PJ
@Martin: Ha! “Long-term thinking” is not the specialty of “Wall Street Bets.”
bluehill
@PJ: I agree they “know,” but as Mike Tyson says – everyone has a plan until they get punched in the mouth.
Roger Moore
@Another Scott:
Company stock plans weren’t just a way to keep cash payments low. They were a way of encouraging company loyalty and, I think, part of a post-war ethos that employees should share in the company’s success. My parents are rich today because my father was allowed to participate in the Hewlett-Packard company stock plan starting in 1966, and I think a lot of his coworkers did very well, too.
Barbara
@JoyceH: When I used to own individual stocks I played a game whereby, when the stock doubled I would sell half the holding, and figured that whatever happened after that would be okay because I had made back my investment. The problem is, not everything doubles. The BEST decision I ever made was to close out of WorldCom when I kept reading about how its profits were just accounting tricks that were made possible from rolling up other telecom companies. Even my broker congratulated me for getting out when the getting was still good. But I got tired of it, for one thing, and for another, my SO’s employer had to sign off on every sale and purchase because of internal conflicts management. Which made the whole exercise a lot less appealing.
PJ
@Martin: I’m curious to see how much the SEC becomes an active regulator over the next four years.
Obdurodon
@PJ: If all this meant was that hedge funds no longer have a unique opportunity to make massive money by shorting companies more than they’re worth, then that would be a good outcome. Unfortunately, I think the consequences from this sort of activity go well beyond that. When random people band together to move markets like this, their profits are losses for someone else – or practically everyone else, including people who rely on those assets for retirement etc. The artificial volatility isn’t really good for anyone but the speculators themselves, either.
Here comes the new boss, same as the old boss, except that the new boss is *legions* of new bosses doing the same things that were always unhealthy. Now it’s just a more crowded casino, but still a casino. Hardly a cause for celebration.
Ken
The efficient market hypothesis claims that it is in fact impossible to beat the market, because (simplifying) the Market Knows All.
In practice, the phrase is usually trotted out in opposition to regulations; wouldn’t want to interfere with the efficiency of the markets, would we?
Martin
@Roger Moore: The downside is that if the company goes under, you’ve now lost your job and your investments.
I operate under a very discouraged theory of investing. Rather than diversifying as a primary means of making money, pick one or two stocks, learn their market better than anyone else (seriously, I spend at least an hour a day on research, and have for the last 25 years), and just play that game. Diversify your profits. I still have 50% of my net worth in one stock, but I can retire on the other 50%. I’ve been trying to get that down to 25% but it goes up in value faster than I can sell it off and stay under AMT.
Ken
Did anyone else just get cold shivers?
bogart_83
Can someone please, please explain to me why any of the short sellers would try to close their positions right now? I keep reading a ton of talk about how much money their losing, but I don’t understand why, considering they can hold their short until the stock goes back down, which it will because GameStop is a terrible business model for the current reality.
Hell, why wouldn’t you short even more of it? No way it stays at $330. It’ll be back at $20 eventually.
NotMax
Is it true that in place of an embossed seal Balloon Juice stock certificates display a mustard stain?
Martin
@PJ: Me too. They really need to up their effort. Was pleased to see Yellen giving a look at Bitcoin. The cryptos are an even worse problem.
I applaud ideas like Robinhood, but they’re going to hurt a lot of their customers by giving them way too much rope.
And for the record, I’m in favor of a transaction tax on stocks. The whole system needs to be slowed down a notch or 3. I’ve watched my call options expire worthless because the stock closed just a few cents shy of the strike price on multiple occasions. It’s really a strange coincidence that these big stocks always seem to close on expiry dates just a hair shy of a multiple of $5 or $10.
The main reason why I didn’t buy those LEAPS a year ago is the high speed trading has gotten way too good at squeezing out fractions of a cent by playing shorts, equities, and options simultaneously. I just can’t compete with that.
Another Scott
@bogart_83: See Martin at #101.
Don’t all of these short contracts have expiration dates?
That’s what seems especially dangerous about playing with contracts like these. You have to get the direction of the market move right, but you also have to get the timing right. InterUniversal Motors may be over-extended in 2021, but in 2023 they might be bigger than Tesla. Or
vise[sic?] vice versa…Cheers,
Scott.
catclub
I suggest reading Matt Levine at Bloomberg – you can get his daily newsletter. There are a whole lot of subtle questions involved in ‘is it fraud?” and ‘is it illegal stock manipulation?’ A hedge fund that buys up a 5% share of a company has new rules come down on it. But each of those individual buyers, acting in semi-concert? Not so much, or so clear.
bluehill
@bogart_83: Even though Wall Street doesn’t seem to like Keynesian economics, they love one of his quotes – “Markets can remain irrational longer than you can remain solvent.”
bogart_83
@Another Scott: Finally found my answer on google.
No, there’s theoretically no limit to how long a short can be out, but it’s not up to the borrower of the stock, but the lender. If the lender calls the position, and why wouldn’t you when the price is so high, the short seller has to close the position.
Link
PJ
@Obdurodon: Either the stock market is a casino or it isn’t, but it shouldn’t work just for wealthy people.
Wall Street exists both to allocate funding to businesses and to facilitate speculation on those businesses (based on predictions of how the business will fare) and on the speculation itself. This speculation can and does have a direct on how the business fares (sometimes deliberately, sometimes not – in this case, the shorters seemed to want to drive Gamestop into bankruptcy). You could eliminate the speculation and put an end to the casino, but then there would be no reallocation of capital after the initial allocation. Once you invested, you would be stuck with it.
I don’t think the US is ready to go there, or to embrace some kind of completely socialist funding of enterprises. So the question is, what are the rules under which the speculation operates? I think we will see the SEC become more active now, but I can’t see how a bunch of YOLOing redditors are any worse for the market than a bunch of hedge funds or investment bankers.
PJ
@Martin: I also think a transaction tax would be a great idea. Anything that helps to level the playing field.
Roger Moore
@Ken:
A few points about the efficient market hypothesis:
catclub
FTFY
Martin
@bogart_83: They don’t want to. They’re forced to. They’re getting margin called – they have to put up additional capital because their margin account is too low on funds, or they’re being forced closed – basically they have to put up the stock immediately.
And since short sales are time limited, these are likely positions that need to be reconciled in the next week. If you shorted the stock and don’t currently hold it, you’re under real pressure to buy the underlying shares now before it goes up any more which would cause you to lose more money.
One of the reason why I like OOTM LEAPS is that they expire on a very common date for short trades to close. And that creates a lot of volatility. Options traders make money on volatility. You could have straddled this stock back in March at any strike price and made bank on both the put and call simply by selling them on different dates while the short sellers desperately try to save their asses.
catclub
@bogart_83: Another aspect of the short squeeze by the redditors is that you can direct your broker to NOT lend out shares you own for shorting.
fewer shares to short means higher prices.
I think they are doing that, as well.
Obdurodon
@PJ: They’re not worse, but they’re an addition. It’s not good for a few entities to be jerking stock prices around for purely speculative reasons, and it’s not good for a larger number to be doing it. I used the phrase “artificial volatility” instead of just “volatility” for a reason. Some volatility is natural and necessary, as you point out, but we’ve been way beyond that point for a while now. Volatility induced deliberately for the sake of arbitrage, or as part of a war between different groups of investors, is not the same as the market reflecting the volatility of the underlying real world or just taking its time to settle on a “correct” price
Ruckus
@Martin:
Sounds like Buffet.
Martin
@Another Scott: Never, ever, ever do naked shorts or sell naked calls. They have unlimited loss potential. They’re good tools if you want a hedge against an equity you hold. If you have a $10 stock and want to lock in a 50% return, sell calls against the shares you hold at a strike of $15. If the stock stays under $15, you still have your stock plus what you were paid for the option. If it goes over $15, you lose the profits over $15, but you’re guaranteed the $15. But if you don’t hold the underlying share, and the stock hits $300, someone like me will come calling and demand the 10,000 shares that I paid $0.25/share for the option to buy from you at $15. You just lost $2.8M on a contract that I paid $2500 for. If you had the 10,000 shares, you made $50K + the $2500 I paid you. You missed out on $2.8M, but you’re still up.
My fear is that investment services like Robinhood are giving out these tools to investors that don’t understand the risk. When I applied for the right to trade options, I was WAY too inexperienced for that. I got lucky before I got smart. Same thing when I got accredited investor status. I’d rather these be based on a demonstration of knowledge rather than ‘hey, you have $10,000, here’s the keys to losing millions’. That would open them up to less wealthy investors, and hopefully keep the idiots out. Who the fuck was naked shorting once interest exceeded 100%? You are guaranteed to lose your current and future savings right there.
bogart_83
@Martin: Ok, so here’s another question I have: what is going to happen to all traders who hold GME now? How will they realize any gains, because who is going to buy GME long at $330?
Roger Moore
@Martin:
This is true. It happened to a lot of Enron employees. Their 401k had invested heavily in the company- at least in part, I think, at the direction of upper management as a way of keeping the scam going longer- and they lost out when the company collapsed. This is a good reason a 401k should always have an outside administrator who isn’t susceptible to influence by the company management.
My parents were in a proper stock plan, where they bought the stock at a favorable price but then were free to do with it as they chose. Sometime in the 1980s, they decided they shouldn’t keep all their eggs in one basket and started to diversify. Back in those days, companies would still send out printed annual reports, and my parents had a shelf devoted to them. I learned a lot about business by reading those annual reports and trying to figure out the difference between the way they reported income and expenses and the way they reported assets and liabilities.
That last one is one way I think it might be good to run government more like a business. We talk a lot about debt and deficits, but we don’t talk about assets and other liabilities. For example, people might think differently about infrastructure spending if they saw how deferring maintenance causes it to depreciate faster. The same thing about the way we treat national lands. Many of our environmental problems come because we ignore the value of the environment. Maybe people wouldn’t be so eager to sell off mineral rights if they saw how mining hurts the value of the land. And so forth.
Martin
@Ruckus: Exactly who I learned from to refine the idea. Buy what you know, avoid what you don’t, put your excess in an S&P 500 index or diversify even more. I know Apple, a few of their suppliers, and a few others in their sector. I did a crash course on Gamestop last year to see if I should do that trade, but work intervened to a degree that I couldn’t get myself to the point that I was confident in the trade, so I didn’t do it.
I’ve missed a lot of big trades like that (Apple LEAPS in 2008/2009 come to mind) but you can’t regret your misses. I’m sure there were a million opportunities I missed but have no way of going back to measure what I missed out on. I’ve done well, and that’s what matters. My method works, don’t fuck with it by doing dumb shit.
Buffet avoided tech because he didn’t understand it. I made money in tech during that time because I understood it, but not Dairy Queen.
Bluegirlfromwyo
@JoyceH: Good choice on alternative energy. The alternative energy ETF I’m in did very well last year and I expect it to do better with an administration that actually cares about our warming planet.
Martin
@bogart_83: They’re all fucked. I mean, if you hold GME long, you at least have the comfort of only losing money you have. The folks that sold naked shorts have the added pain of losing money they don’t have. And understand, a lot of these folks buying the stock are doing so to cover that naked short, so that if the stock goes up more, they aren’t even more fucked than they already are.
A bunch of disciplined investors like me get to retire next month, and a bunch of undisciplined investors get to live with mom and dad for the next decade. My hope is that a lot of the people getting fucked on this trade are people that made bank in Bitcoin and can just sell that off to cover.
I think Robinhood is probably in some real trouble here. They hand out trading rights to people that have no business doing this.
bluehill
GME closed at $345, up 152% for the day. A move like this – GME was $20 on 1/12 – are why some people think markets are efficient in the long run but can be inefficient in the short run. Of course as Keynes also said, “in the long run, we are all dead.” So YMMV.
Roger Moore
@bogart_83:
Because they can’t necessarily hold indefinitely. To short a stock, you have to borrow it from someone. Nobody will let you borrow the stock just on your good name; you have to put up collateral equal to the current value of the stock you’ve borrowed so the person you’ve borrowed it from can be assured you can buy it back and return it. This is called covering your short. A short seller can be forced to close their short position if the stock price gets high enough they can’t cover it anymore.
The need to close short positions can create what’s known as a short squeeze. If a short seller has to close their position by buying back the stock when there aren’t enough people interesting in selling, their need to buy may drive up the market price. The rising market price causes other short sellers to need to close their position, driving the price even higher. It’s basically the opposite of the financial meltdown in 2008, when companies had to start selling assets to cover their loans. In either case, the need for some people to change their market position rapidly moves the market in a way that forces others to follow suit and creates a vicious cycle.
Martin
@Roger Moore: Regarding 3: There is a LOT of information which is public, but unseen. That’s where I make my money. No big name analyst covers just one stock, but I do. I figure out which people on message board work for the company I’m covering, and I see what they talk about. I look at statements from suppliers. I’m very much a fundamentals investor, but using information that almost nobody else will see.
When ApplePay was announced, I spent weeks researching how the financial payments market worked, and uncovered all the technical details of how ApplePay worked. I read the trade journals for the payments industry, etc. That allowed me to see how likely it could move to other countries and what the underlying cost dynamics was. Apple was charging banks 15 basis points for a slate of technologies that they stitched together with the payments market that would eliminate 100+ basis points of fraud that the banks were on the hook for, but would soon shift to retailers. It was a system that everyone made money on because it was paid for by fraud mitigation. And that 15 basis points carries nearly 100% margin for Apple because they aren’t actively part of the system beyond the tech in the iPhone, which you the consumer pay for. Apple clears nearly $1B a year from that service.
The SEC still sees investing information as something scarce, because historically it always has been. But the internet makes it abundant. So abundant in fact that it’s just as hard to find amid the noise.
Roger Moore
@bogart_83:
You’re absolutely correct. The big winners from this aren’t the guys on Reddit who triggered the short squeeze; they’re the people who owned stock before this and sold it to the shorts trying to cover their positions. That’s why I think the SEC needs to look at the people who did that and see if any of them were involved in the Reddit group.
Roger Moore
@Martin:
This is the big lesson, IMO. For every really great opportunity in the market, there are hundreds of people trying to convince you something is a great opportunity when it isn’t. If you aren’t sure you know what you’re doing, leave it alone. If you miss out on a great opportunity you can get a chance at another one, but not if you lost all your money to a scam in the mean time.
...now I try to be amused
@Roger Moore:
Hell, my 401(k) had a lot of Enron in it. It was all the rage then.
Soprano2
My husband buys individual stocks. He looks for companies that pay dividends, and have paid dividends regularly. The intent of the fund when we established it was to generate enough income to pay our real estate taxes and homeowner’s insurance. It’s done much better than that. We bought some Apple stock right after the 7 – 1 split when it was at $91/share. Since then it’s split again and going up. It’s the biggest part of our portfolio now. He’s constantly griping about their small dividend, but the appreciation is so great that he’s loathe to get rid of it.
JoyceH
@Barbara:
I’m trying to decide if I want to sell half this BlackBerry and then buy it back when the price inevitably drops. Not sure of the ethics of being a profit-taking bystander to the riot, though…
Martin
Gotta give props to the guy on Reddit who played it right. He bought April 21 GME calls with a $12 strike. Paid $0.20 for them. 500 contracts (50,000 shares), so he paid $10K for them. They’re currently worth a bit under $17M. He sold some of them and bought 50K shares he bought at just under $15. He’s got an additional gain of $16.5M on them. He selling the shares, holding the calls. Dude is up $25M just today on an initial investment of a bit over $10K.
Martin
I think the reddit situation may be ultimately valuable. This is basically a crowdsourced effort to outgame the high speed traders, to a pretty powerful degree. While that’s not a good substitute, regulation usually comes when the people who used to control and profit from something suddenly realize they’ve lost control. You can see the folks that usually get to play the market risk-free starting to panic and demand something be done.
Regarding the efficient market hypothesis, I’m looking at the valuation of the auto market doubling because of Tesla and wondering how we’re going to get twice as many car sales or double the price of cars. Because there’s no profit efficiency being introduced here (why tech is such a powerful force – they are one of the few markets that can lower COGS on a per unit basis in an inflationary market, meaning they have the potential for tremendous profit efficiency). I suspect a lot of money is going to be lost by auto shareholders when that reality comes home.
BruceFromOhio
@Soprano2: There are cheaper dividends out there. Apple flashed it’s lightning bolts and is unlikely to do so again in the same way, unless the company comes up with something genuinely new. DadFromOhio is living happily in his old age due, in part, to Apple.
I invest the same way your husband does, buying individual stocks in companies that make stuff and pay a dividend. And I’ve watched stocks that I sold after I hit my target go on to increase to ridiculously high values. (SHW, I could retire today if I had held on to it through the Valspar acquisition) Am I sorry? Of course. But I stuck to my plan and gained the clams I sought. No regrets, man. Update the plan, do the research, keep going. Everything is about to take a big tumble, and this Reddit business could be the first pebbles ticking down the slope.
Martin has the goods. Nicely done!
And we are totally stupid for not assessing a $0.01 or 0.02 per share levy on trades. It will take some of the volatility out of the flash trading sending the blackjack tables and the roulette wheel into the ditch, and put some serious scratch in the Treasury. As a small independent, I see it just as a cost of doing business. The big daddies will cry like lost children.
Roger Moore
@Martin:
You don’t have to double the price to get twice the value; you only have to double the profit per sale. It’s at least conceivable that electric cars could wind up being enough cheaper to produce that the manufacturers could squeeze out some extra profits. But I agree that Tesla is grossly overvalued, even when you remember that it’s more than just a car company.
I sold my Tesla stock last year because I thought its sudden jump in valuation was the result of a short squeeze. I wound up leaving a lot of money on the table when the price didn’t come back down the way I expected, but I still came out way ahead on my investment. As you said above, it doesn’t pay to worry too much about missed opportunities. I think I made a reasonable call, and I’m not going to complain because my profits were impressive rather than astronomical.
BruceFromOhio
@Martin:
I don’t think that is what will happen, or what needs to happen for the valuations to go up. And i do not expect them to go that high either. Tesla is ridiculously overpriced, it’s an emotional valuation rather than one based on filings and the balance sheet. The company just happens to be in the right place at the right time with a desirable product.
In this contemporary equities market, stock prices are demonstrably divorced from the value stream(s) of the companies. I credit the Fed with holding interest rates so ridiculously low for so long while running the printing presses overtime for most of a decade. Inflation is right in front of us, and it’s not at the gas pump or the grocery checkout.
Bill Arnold
This image about “stimmy checks” distills a lot of the glee I’m seeing in several internet subcultures.
Martin
@Roger Moore: That’s the profit efficiency I was referring to. The problem is the value proposition to buyers. Tesla has some of that going for them but I don’t see it being sustainable. They’ve been trying to rework the manufacturing process with no progress other than the battery pack (non trivial, but not enough).
So without a fairly radical reinvention of the manufacturing process to reduce costs, combined with a meaningfully improved value proposition, I don’t see how the valuations can be sustained. And we’re entering a period where cities are removing auto infrastructure in favor of other modes of transit. There will still be growth in industrializing nations, but everywhere else it looks like car ownership will decline. Maybe modestly, but that still makes the valuation challenge harder to pull off.
EVs are good, but they aren’t enough of a change for the industry. I think this is a place where Apple may come in. This is the kind of market redefinition they excel at. But I’m not convinced they’re on the right track. They seem to have a good technology portfolio to draw from, but I’m not seeing the go-to-market.
And to BruceFromOhio at 146, Apple’s success came in the $400B tech market. Cars are a $2.4T market. If they can drop an iPhone caliber market redefinition around cars (I don’t think they’ll launch a car unless they’re convinced it is one) they’ll grab 20% of that market. Nobody will be able to catch them because they’ll build so heavily around their services and device ecosystem. Their value proposition will be unmatchable.
This is a good article with a clip of Steve Jobs I return to often.
Tesla’s value proposition is a change in the drivetrain. That’s ultimately going to be commodified. It’s not enough to protect market valuation. Their Supercharger network is nice, but that kind of proprietary infrastructure is always either doomed to fail, or will be regulated into a common good.
H-Bob
@Ken: The issue may be computer/machine trading, where they make a huge volume of trades but in very small price increments (I’m not sure about the underlying concepts). They may be able to pay negligible or no commissions (due to affiliations with brokers) but can’t avoid the trading tax. The tax would put a damper on such trading (I don’t know the desirability of such trading).
Roger Moore
@Martin:
I think we’re more or less on the same page. Tesla did some very clever things, especially targeting the luxury segment first, that other car companies were either unable to recognize as good ideas or unwilling to do for fear of cannibalizing their existing profit centers. But that isn’t going to be enough. Even if they could completely take over the industry, they aren’t going to manage to make it massively more profitable on the scale they need to sustain their market cap. Their price is going to come back to earth eventually.
That’s why I’m just as glad I took my profit when I did. Yeah, I could have made even more if I had held onto my stock and sold it today, but I don’t have the nerves for that kind of thing. If I were the kind of person who held onto it then, I probably would keep holding onto it until it was too late. Once you think it’s time to get out of the market, make your move and don’t look back. Trying to time the market is a mug’s game.
Roger Moore
@H-Bob:
The market functioned just fine before high-frequency trading was invented; it could continue to function fine if the rules were tweaked to make it unprofitable. They just don’t want to shut it down because our political system doesn’t like the idea of making rules that take profits away from rich people.
BruceFromOhio
@Martin:
I hope you make a handsome killing. I’ll be out driving around in Insane Mode.
beef
@Roger Moore:
I don’t think high frequency trading has significantly changed the nature of stock markets. It’s a bit cheaper to trade now than it was in the days of $0.25 spreads But HFT is basically just market making, and nothing market makers do changes the long-term behavior of stocks. Hard to see how they could. They don’t take directional bets. They don’t even hold positions overnight. Basically, they don’t vote on where markets go on any time frame that matters to investors. With a few peculiar exceptions like RenTec, it’s still humans making the decisions on human time scales.