AMC, GameStop Give Hedge Fund Mudrick Capital $200M in Gains
bloomberg.com
bloomberg.com
I think HN likes to believe it is evidence based and rational instead of emotional and greedy. A more enlightened and civilized corner of the internet. I have not been seeing much of that lately. It turns out the promise of riches is enough to make any community lose it's collective mind.
Here is a truism for you all: In any casino the players may win or lose, but the house always wins. If you think any bet is a guaranteed win, you have lost your rationality.
Were people skeptical of Moodys A+ ratings of subprime mortgages conspiracy theorists? And that’s far from the only example of financial fraud . There’s a lot of money at stake.
Citadel is most of Robinhoods revenue, they put money on the opposite side of the trade via Melvin, and Robinhoods decision to restrict trading benefited the short position of the trade . The stock markets been around for over a century and online trading around over 20 years, with many volatile stocks and bubbles, yet restricting trading in one direction has no precedent. The conflict of interest Robinhood had is crystal clear and at a minimum calls for a deep investigation. Accepting their PR, which has barely explained anything is about as far from rational as possible. They described the collateral requirements as “opaque” and “pretty technical” with no real clarity, and never explained other details such as why they restricted fully cleared non-margin cash accounts or why they removed tickets from their search bars.
I’m not saying with any confidence there was foul play, but there’s more than enough conflict of interest and unprecedented behavior to call for an investigation far more than what we’re getting. Especially with regards to who was buying when so many retail traders were unable to.
Financial markets should be open and transparent. They are not supposed to be casinos with arbitrary hedge funds playing the house. To resign yourself to that idea is far more irrational than calling for openness and investigation into the many unanswered questions around what happened.
In terms of more popular accusations of wrongdoing among brokerages as they shut down the buy side, that seems plausible but hard to prove coordination unless someone recorded the conversation in a smoke filled room. If there was big money to make and a way to get away with it, I assume most corporations would engage in illegal activities.
It is a fact that the relevant ticker symbols were hidden in Robinhood UI during the restrictions. This could simply be because the UI always hid symbols with restrictions, but that would be a strange decision in the first place (why not just always show the tickers info?) and in context is another oddity worth looking into.
My suggested middle ground is, call for investigation. Maybe there’s no smoking gun but if, for example, it was uncovered that a huge amount of institutional short covering took place during the restrictions that would be more hints that foul play occurred and justify more investigation.
In the future, if we don’t get answers , well connected players can manipulate markets by blaming opaque clearing house requirements unless more transparency is added.
My concern is that by being too dismissive of calls for investigation, we lose the political steam to at least try and get better answers that we deserve.
I don't think it's fair to draw an equivalence between the two theories.
It's pretty easy for a large market participant to impact the bid/offer when there isn't much liquidity, especially if the natural buyers are restricted from trading. The price moves because of supply and demand.
The WSB perspective is perhaps a bit uninformed, but it's not particularly bizarre (unlike the QAnon garbage). They're just asking "when will the price reflect our pent-up demand rather than artificial supply?"
Unfortunately, the reality is that prices get set during these moments of absolute craziness. That's why you sometimes see hedge funds reload after hours after an earnings miss on one of their long positions. They want to absorb the supply so the stock doesn't crash lower.
Look at GME today. The price moved a couple of percent even though nobody has the slightest reason to believe that GME stock is worth this particular price. Some say it should be higher due to flows around positioning, and others say it should be lower because of fundamentals.
Fair. I don't think anyone is reasonably calling for investigations to be halted. At the very least, there is public education required.
But there is a difference between saying "whoah, that's weird" and the combination of trading on it, encouraging others to trade on it, spreading one's hypothesis with zero facts and calling everyone who points out the issues with one's argument [1] a shill. There was a lot of the latter.
[1] With respect to why "fully cleared non-margin cash accounts" got restricted, it's because the bottleneck was clearing collateral. Not Robinhood's margin risk. Clearinghouses don't care about how a trade was financed. They care about the risk of (a) the broker going under and (b) the collateral being insufficient to settle the trades. When their risk limits get hit, the broker has to reduce flow and/or pony up.
Whoa whoa whoa. This is a slippery slope argument.
If everybody is holding their shares as in your scenario, then the only way to buy shares would be to get them from a short seller. Market-makers typically have an obligation to maintain continuous and two-sided quotations, but there are exceptions to this rule in mitigating technical or legal circumstances (solvency risk seems like it would be a valid exception).
If nobody is selling and everyone is buying, the price ought to go higher. That is what happens in unadulterated markets. But the price won't go to "infinity." Rather, it will go to the level at which long holders decide the payoff for selling is irresistible. They will begin to sell. A new price will be set.
It is true that some hedge funds (including Melvin) would potentially have been ruined if the natural buyers had been permitted to bid for the stock. However, exchanges don't halt securities just because a hedge fund is about to go under. That is a fundamentally unfair practice. Hedge funds have failed in the past, too; not every market participant is Too Big To Fail. Their PB would be left to cover the short position, and would be responsible for whatever loss remains after the hedge fund goes broke.
This is not good logic. There may be a lot of dodgy stuff going on and there may even be conspiracies, but even if you accept that there is a conspiracy that doesn't make it any more likely that the conspiracies being peddled by WSB are correct.
It's like I pick a card out of a deck, I tell you my card is 7 of spades but I have a history of lying. Most likely, the card isn't the 7 of spades. But that doesn't mean it's likely that the card is the 9 of diamonds. That's what this logic is saying - that it must be the (often clearly wrong) assertion simply because the only specific alternative is from someone you don't trust.
"I tell you my card is 7 of spades but I have a history of lying. Most likely, the card isn't the 7 of spades. But that doesn't mean it's likely that the card is the 9 of diamonds."
I suggested that such reasoning could, in a nutshell, be summarized as "ad hominem".
Conspiracies happen everywhere, all the time, but you need to avoid applying a bias because of political implications. I highly doubt there are more conspiracies happening anywhere in the private sector than in most large governments.
To offer a hopeful counterpoint, informed comments and rebuttals were honestly engaged with throughout the fiasco. There was active learning, from somewhat experts seeing cracks that hadn't been so apparent before, to novices seeing the magnificent and horrifying complexity behind our abstractions.
I don't see that on Reddit. I don't see that on Twitter. I barely see it in print media, where the focus is on stoking schadenfreude and counting up who's losing to whom and by how much.
Oh, HN is more enlightened and civilized. It's just the bar is incredibly low.
In seriousness, I've received a lot of wisdom on HN, it's just I have to approach it (as I do with any data) with a jaundiced eye, and keep in mind the community: a lot of very experienced software types, from all over the industry. On software topics, I can usually trust HN. Diet/nutrition, philosophy and finance discussions on HN, I take a much more careful view of.
If someone sees that shorts in GME are over leveraged, well in hindsight they were absolutely right to buy in to this "gambling".
I find the most irrational actors with regards to investing are the people who only do "safe" bets and feel like that carries zero risk profile.
The short squeeze wasn't a complete failure. It happened, it was just much smaller than many predicted. I still wonder what would've happened if Robinhood didn't shut off demand by preventing people from buying shares. My investment thesis didn't foresee this happening. I don't think anyone did.
The other large part of the problem was that a lot of people, including myself, were going off of stale short interest data. Updated estimates for GME were reported to be 39% of float vs +100% on 1 Feb [1]. Hedge funds pay for more accurate data which us retail investors don't get visibility on.
It's over for now, but please bear this in mind when talking to people that may have lost money on this. Some people did some research, knew the risk and allocated money they were willing to lose. I learned a lot along the way, it might make some hedge funds think twice about aggressively shorting a stock, and it was just plain fun to be part of it.
[1] https://www.bloomberg.com/news/articles/2021-02-01/gamestop-...
Edit: updated short interest data stats and link.
Big players know that when they plan big market moves, they need to notify their brokers in advance, so the broker can prepare.
What we had here was a bunch of retail investors who are somewhat more informed than the average retail investor, but not well versed in the nuts and bolts of the maneuver they were involved in, and therefore the executed it without sufficient planning.
I think what is required is that you control long interest of 100% or more of the net shares (or float). (The shorts being > 100% is neither necessary nor sufficient for that.)
That's... just not true? Many things have non-arbitrary value. You need dollars to pay taxes. You need real estate to sleep and work. You can make pretty things that last a long time from gold.
My cheeseburger with one bite out of it has a market value of 0.
That scenario is pretty dissimilar to something like the value of a currency, which has value in proportion to the participants' trust in its stable value and how easily they can trade it for goods and services.
So to standardize on terms, I mean "bet" like I am betting on roulette, not "bet" as in I bet my bank will still be solvent tomorrow.
Like convincing the world that 'short ladder attacks' were a thing.
https://money.stackexchange.com/questions/135807/closing-sho...
While wsb is on the verge of going full Q'Anon, I find it equally curious how people seem to be willing to deny foul play when you have people like Jim Cramer confessing/bragging to it.
Beyond that, the burden of proof is clearly on the "short ladder"-believing crowd, and so far what they have come up with is frankly embarasing.
I have zero problem believing that hedge funds would be more than willing to engage in shady behaviour if it can save them a billion or two, but screaming the nonsensical "SHORT LADDER" every time a highly pumped stock drops is ridiculous.
The fact that retail was restricted to selling and hedge funds were not, further corroborates foul play.
This sounds like the interaction between run-of-the-mill execution algorithms.
Bidding algo is likely a market maker putting out small quotes (100 shares is a standard lot) and adjusting down (up) the price each time the bid (offer) is hit (lifted). Selling algo trying to liquidate a larger block without moving the market. It is hitting the top bid from time to time. If those two are the only market participants talking for a few milliseconds, they'll walk down the price in 100-share increments. Given how volatile GameStop was, I suspect the predatory algorithms, who sniff out this sort of stuff, were offline.
One of the things I'm realizing from all this is there aren't many good, succinct sources on market microstructure. It's complicated. But it's not that complicated. (It's just usually boring.)
The best I can recommend is how I learned it. Start with a respected paper [1]. Trace through the references until you find something you understand. Then work your way forward.
[1] https://www.smallake.kr/wp-content/uploads/2016/03/optliq.pd...
It was not. Only retail that played in a couple of YOLO gamified market brokerages that was restricted.
This morning there were two opposing top posts. 1) summarized as gamble your apes, 2) summarized as manage your risk and don't buy stocks with debt.
There was also a post by a legit investor claiming they covered their losses by selling at peak and everyone should have done this explaining the benefits.
Single stock trading is always a gamble, you should spread your risk and manage your losses in such a way that you win in the end (by selling losses to cover taxes on gains etc).
If you want good financial advice you can find it on WSB, but in general (imo) you should go there to make yourself feel good about your index fund or bad about your index fund. Either way, don't get caught up in the fervor.
There were massive gaps of knowledge, sure, but I think the discussion contributed to reducing that.
> If you think any bet is a guaranteed win, you have lost your rationality.
True, but there are of course better and worse opportunities, and occasionally excellent ones. For example, IPO pops are on average a risk-adjusted win, and for good (and well understood) institutional reasons.
I'm currently awaiting 9 February for the shorts interest to be released, to see if they are right or wrong. I think it's really interesting what's happening/happened.
I'm not sure if I see a fallacy, that if you can hold a squeeze that another squeeze could happen if enough shorts stay open. Anyone can elaborate on that?
Taking into account that shorting costs money ( 30% interest at a certain moment, mentioned by S3 partners ), people can hold longer than shorts. And buying them would make the available pool to buy back much smaller.
What is wrong with that theory? It's similar to cornering the market ( if the stocks aren't tradeable again by the brokers) and GME doesn't have that much shares.
Ps. Only put some play money in it, practically nothing. Just curious what the odds are.
And I don't think I'm a meme guy, but to my perception there is logic in it. ( Eg. I'm not buying conspiracy theories about RH, because the flow was logical that they just needed money. ).
For reference, Data from an stock analysis firm https://twitter.com/ihors3?s=09
> Taking into account that shorting costs money, people can hold longer than shorts. And buying them would make the available pool to buy back much smaller.
The volume being traded has been incredibly high, the available pool to buy hasn't been small. More than the total number of outstanding shares has traded per day over the last 10 days. https://finance.yahoo.com/quote/GME/key-statistics
The short interest likely isn't constant, either. Some people probably got out and took a bath on old positions, and others got in with new ones when it was super high. Anyone who started shorting at 300 or 400 is feeling pretty good.
This is important, but more important is what percent of those were used to cover shorts. If a large portion wind up in retail's hands or are part of the theory of hedge funds selling back and forth (I haven't seen much concrete evidence of that), that volume doesn't change the math much.
Definitely, but I haven't seen any data sources that tell us exactly that. We see that retail bought a bunch, sold a bunch, institutions bought a bunch, sold a bunch... but we don't know the full path.
And not knowing that is what makes it a huge, at-this-point-irresponsible gamble, in my mind.
9 february is the date the short numbers are released for publication. Why would it be 29 january?
It's not a final date either, it's a date that more is known and people can act on that info.
You can always check the link I gave to see why... Since you obviously didn't.
That's an official date to release short interest.
And I don't disagree with feeling good with shorting at 300-400. But none of the info you just gave me invalidates my reasoning.
Considering there were 139% shorts which is way higher than the normally available pool, which we'll see on the 9th February ( as stated before)
edit: we may be talking about different things here. You're suggesting that if there are still funds very exposed on shorts in the info disclosed 2/9, then there's a potential for trying to make the stock rally again later this month? Vs that anything is already due this month? (I'm just skeptical still because the turnover is so high - I doubt the remaining interest has as high exposure cause I would guess they got in at higher prices.)
What's your formula to state a lack of people holding vs. the amount of shorts that were outstanding?
I don't see how you can easily come to that conclusion with 139% shorts outstanding at a certain moment.
If the amount of shorts were lessened to 50%, which we'll know on 9 February i can agree.
But I can't know for sure now and i want to know with what logic "you can" be sure.
Edit: Yes, I'm suggesting that there are "possibly" still a large amount of shorts and that I can't know till 9 February to see what could happen.
If the amount of shorts is low, than GME will continue to drop to a normal value.
If it's high, it depends on when the shorts were initiated, so it's still unclear then.
There's just a higher possibility to dismiss a potential squeeze on the 9th of February.
So I'm looking for additional info why people can already dismiss this reasoning.
Edit 2: ( can't reply on your comment)
I agree, there's a lot of uncertainty in it... A lot of "unknowns" for now.
I'm just careful dismissing it as a pure meme though. Since I can't fully dismiss it as such and I'm open to additional info surrounding this ( hence my original question).
I think we agree on where the uncertainty is, I just initially read you as saying you believed there was a definite ongoing squeeze, vs a possibility of continuing the play. And I just want to caution people against believing there's any sure things going on here; we don't have enough data in real enough time to know exactly. What we do have data on is that a LOT of shares are being sold every day, more than 100% of outstanding shares, so those could've been used to close out short positions, or they might not have been. And it could've been a few sellers selling a lot, or tons of sellers selling small amounts, etc. We can't know for now.
For example, if you post that putting high efficiency solar panels on an EV could significantly offset the need for charging infrastructure people will respond very differently depending on what the original topic was. Aesthetics, implementation, practicality, cost, and your specific calculation etc go from critical to unimportant depending on the topic.
“I personally am low risk so...”
“Actually I don’t need to wear a mask when I do this in public because...”
“My political leader disagrees with public health officials so...”
when lives are at stake is exactly when we should 'hyper-rationalize' (which doesn't mean don't consider emotion at all). we don't build bridges, go into war, or write aircraft control software thinking we'll wing it.
by your definition, that's hyper-rationalized (missing forest for trees) and exactly the kind of othering belief being highlighting: let's ignore actual risks and shared goals, and instead try to outwit those damn fools that are surely out there trying to kill us.
masks worn outside are largely for signaling (as your example admits) and self-mollification rather than infection reduction. it's unlikely that outdoor mask-wearing has reduced spread meaningfully or measurably.
but outdoor mask-wearing in turn gives us permission to not wear them at home or at private gatherings, because we've already 'done our part' against those selfish others, and this lowering of the guard in private does measurably increase spread. if you're really concerned about spread, you'd focus solely on minimizing close (<3ft) and prolonged (>15min) shared breathing indoors, not showing others outdoors how conformant and fearful you might be.
It seems like something is only a "conspiracy theory" when it contradicts ones priors.
Is that really news? I am fairly certain that has been true ever since humans had a currency.
Wall Street is not a casino in this regard. There is no “house edge”.
They have the odds stacked in their favor by nature of the size of their pockets and the ease by which they can flex this muscle to manipulate stocks in the direction they choose.
Sure, individuals could coordinate to flex similar levels of funds but even ignoring legality it's still difficult.
You either didn't trade options or didn't play casino games. Any trader knows he takes a gamble(calculated but still a gamble) and if something unexpected happens(i.e your stock buying is being halted and people panic for various reasons) you just made the wrong bet. Regardless if you are right you still loose.
Rational and evidence driven? Did HN became a scientific forum while I wasn't looking? This is a social network, which makes it opinion driven. Rationality and evidence are important, but they come second.
Hell, some of us don't even read articles before opining.
The WSB moderators really did everyone a disservice by letting obvious misinformation flood the subreddit. It’s hard to view the later stages of the GameStop phenomenon as anything other than a Reddit-fueled pump and dump scheme.
The past few days they've shared not only the largest long holders of these stocks, but also the pension funds that were boosted as well. A few teacher pension funds got a good uptick and they were sharing that around.
The cats at wsb might be self proclaimed retards, but they're not that stupid. They know lots of other folks are going to make money off of them. You know, if you actually visit the sub, you'd know that.
The sub you seem to like so much died last week. Whatever is left of it has been diluted when literally millions of people flooded it. "Eternal September" hit them hard.
Right now it's filled with Q-level conspiracy theories, they parrot each other's talking point without understanding any of it ("short ladder" being the most funny and telling example of this). I can assure you that the vast majority of these people are wildly clueless about what's happening right now, they just keep telling each other that they're going to be rich.
Look at this nonsense for instance: https://www.reddit.com/r/wallstreetbets/comments/lboqwm/yet_...
Admittedly there are a few voices of reason being upvoted in this thread, but they're still hidden underneath the baseless "hype" claims.
I've been subbed to WSB for about 5 years, ever since someone at work (prop trading) mentioned it as basically being a bunch of 25-30 yo finance people hanging out and doing dumb shit in their personal accounts for fun. I'll admit, I did some dumb stuff myself, trying to time UVXY/TVIX plays. (Basically netted 0 of course). But it was fun to shitpost about it. This is astrology for finance bros.
And it'd been going a bit down-hill already, but most people were still that same description: young blood, day job in finance, knows what they're doing at both a mechanical and risk level, etc. And the content reflected it.
Then somehow, one of those internet things happened. WSB became a hit, people flooded in, the mod team was overwhelmed, media attention flooded in making everything worse, etc. I feel like this is what a lot of /r/the_donald people ended up now that they're looking for a new cause. So much of the rhetoric I saw once the WSB Old Guard had been overwhelmed mirrored the kind of stuff you saw out of the_donald back in 2016.
But yeah, a lot of the comments are just one liner garbage memes: HODL! TO THE MOOOOOON! FISTS ON CHEST NO FEAR! TO VALHALLA! DIAMOND HANDS! As well as echo chamber "encouragement" to HODL! until $1000/$9000/the moon because Mark Cuban is on our side!
From what I’ve seen thus far is the media trying to use the Q / Trumper angle against this community to tarnish its public perception and recent novelty.
I am happy to be proven wrong though, I just don’t see it.
They push a lot of very strong and completely unsubstantiated conspiracy claims in particular, and they'll quickly accuse anybody dissenting of being a shill or having an ulterior purpose.
Here's a good example I think: https://www.reddit.com/r/wallstreetbets/comments/l93d18/gme_...
This is good OG WSB content, written by one of the users that was in on the play from the very start.
But there's the problem: since he knew what he was doing, he managed to sell at the right moment and make huge benefits. That doesn't fit the narrative nu-WSB wants to push. So this very good old-school WSB post can't even get half a thousand upvotes.
Meanwhile post some vaguely conspirationist anti-wall street article and skyrocket to the top of the frontpage.
So yeah, it's not The_Donald, but there's definitely this strong anti-system, populist, "everybody is out to get me" conspirationist, fact-adverse mindset that you find in these types of communities.
Note in particular that, somewhat ironically, WSB calls itself "4chan with a bloomberg terminal", so it seems fitting that it's following a similar trajectory of ironic edgyness turning genuine as new people get in and take it at face value.
He is one of the few people that used a LIMIT order.
That said, there are sure to be a large portion of "the right", on the sub, as the fact of the matter is that a significant percentage of the US is!
As for what caused the influx, I think you can blame reddit for getting rid of all the edgier communities, and lots of people like that sort of thing, so over the years as a wsb post hit /all the numbers would jump because people would say " hey, I like this place, its edgy and self-deprecating" and over time it changed the demographics. I think back then though people mostly lurked, this influx has caused a lot more mime-posting.
I'm seeing it implied fairly regularly here and on Reddit that journalists are somehow anti-WSB, but I just don't see it, and I don't know why it would ever be the case.
Maybe people are mixing up market analysts (who work for financial institutions) with finance journalists (who work for news organisations)?
Maybe people think journalists are afraid of losing valuable sources in big banks if they don't denigrate the day traders (even though all those big firms also made a fortune in this mess)?
What am I missing?
Just as an illustration, a number of /r/wallstreetbets/ subscribers:
26/1: 2,390,238
27/1: 3,336,749
28/1: 5,036,912
29/1: 6,317,967
30/1: 6,965,330
31/1: 7,508,966
1/2: 7,977,780
2/2: 8,278,750
3/2: 8,427,584
(via https://archive.md/https://www.reddit.com/r/wallstreetbets/ )
I think the point being made here is that the whole narrative of "average people beating wall street" is pretty naive and quite bullshit. All in on, maybe a few handful of people got 10x or even 100x their money, but most of the gains were most likely made by hedge funds and with the exception of one or two hedge funds who were squeezed, the majority of losses will probably be by average people.
Even if that fabled squeeze was to take place I'm sure many of them would still be left holding the bags because they wouldn't know when to sell. And again, at this point I'm really not sold on that squeeze theory at all, it seems very plausible that it ended last week and now we're just seeing a good old pump-and-dump taking place.
In the end some people are going to be very lucky and some others are going to learn a very expensive lesson about the dangers of gambling.
Can you provide a single case of someone losing their entire life savings by YOLOing it on GME at the top?
> The Reddit poster Volkswagens1, who declined to give his name but said he lives in the Pacific Northwest, showed The Washington Post an image indicating roughly $400,000 in potential GameStop losses from the day but insisted he would not sell.
> He said he’s poured most of his saving and checking accounts into the stocks and spent the last week “doing as much research as possible,” including sacrificing sleep and calling in sick to work, to make sure he was staying on top of the market’s moves.
(There's also a quote about him doing this because he's been poor for too long, but my take is that if you have enough assets to face a $400k loss, you weren't poor before you entered that position, even if you may now be).
It’s not clear to me this has sunk in w ‘Volkswagens1 nor the loss has really been faced. I’d bet the sober second thought will come after this article was published
Still not a great move to dump your entire worth into meme stocks.
That could be a lot of money to him, but it is not a lot of money compared to what an average worker earns in a year. A probably-young guy losing $6k on a risky stock bet is not life-destroying.
Also, depending on when he bought he could actually be up. And even if he bought at the top, it would still be worth something like 40% of that.
[0]: https://www.reddit.com/r/PersonalFinanceCanada/comments/lavx...
A 21-year-old soon-to-be software engineer losing $25k is not a life-changing tragedy.
That's kind of worse than YOLOing your life savings, because if this prevents them from continuing their education, it just fucked their life.
Most of "average people" entered at or near the top. The ones that did not were so engaged in gambling that they did not sell when it did 20x return. Call it what it is: fear of missing out.
Even DeepFuckingValue, who sold at least some of this position and netted a lot of money after taxes was not smart enough to say that 20x return in a few months is a time to pack the toys and go home so he could fight another day, leaving millions on a table in a futile hope that it would do much, much better.
Better to take $15M of profit than to gamble $35M on the SEC deciding not to prosecute.
Especially when the newspapers decided to plaster his real identity all over the place.
Let's hope that Congress doesn't try to bail these people out!
(Ontario Teacher’s Pension Fund sold almost 25M shares, for example https://www.bloomberg.com/news/articles/2021-01-29/reddit-fe...)
Without knowing when they entered their position. It was hovering around $4 for a long time last year.
Even if they bought in at $5, selling at $20 is absolutely a win. Yes, they could have gambled and HODL'd, but there's no reason to gamble after seeing a 4x increase on a stock very few people expected would ever break $10.
Pensions dont make short term investments, they already had GME shares since a long time ago. They do sell when extraordinary circumstances happen and buy other stocks to hold long term again.
The sub count increased 8-fold. Any prior culture it had has been overwhelmed.
I'm not sure this part is needed for you to convey your point.
The Ontario Teachers Pension Plan, who was holding GME, is one of the largest hedge funds in existence, worth over 200 billion dollars. For comparison, Maverick Capital is worth only $15 billion. That is not a case of some little guy teachers making out well, it is the rich (if not the richest) hedge funds getting richer.
That is what the OTPP does. That the hedge fund exists to fund pensions is irrelevant. If you dig into the investors behind other funds, you are likely to find that they are also investing to help fund their own retirement.
OTPP is a pension fund. Hedge funds are a different beast.
https://www.otpp.com/investments/performance/investment-stra...
"Additionally, we complement our efforts by using external hedge fund managers, which gives us access to unique approaches that both add performance and diversify risk."
OTPP invest in hedge funds. But they aren't one themselves. Hedge funds are a specific creature. Legally. And in terms of how they trade.
The political opposition to hedge funds has to do with the fact that they often cater (or are assumed to cater) to the 1%. Who cares if it is 200B? It probably represents the financial interests of tens-of-thousands of teachers.
They are the 1% you are talking about. I expect what you're really saying is that the political opposition opposes strangers who are perceived as being different, whereas the top 1% comprised of teachers are relatable and maybe even your close friends so you can be happy for their success.
The Ontario Teacher's Pension Fund averages member 600k per member in assets (200B divided by 330k members). I don't know the Canadian stats but having around 1M in assets as a 60 year old places them around the top 20% or 10% cut-off - not the top 1%.
https://dqydj.com/top-one-percent-united-states/
Regardless, I don't care if people get rich but it is clear that occupy Wall Street was a movement against the perceived notion that billionaires were exploiting the rules - not that teacher's pensions funds were gaining 2% per year more than an index fund.
That we agree on. Just like the OTPP has been known to do.
https://financialpost.com/news/fp-street/ontario-teachers-pe...
This isn't some teachers trying to eek out a retirement. It is one of the most prolific hedge funds in existence. They are literally what the movement was against, but the movement only served to help them.
Not that I expect anyone thought that they were buying up shares from retail investors to put the movement in motion. They had to know they would help other funds to hurt the one fund being targeted. It shouldn't surprise anyone that hedge funds have made out like bandits in this.
John Simon's personal $1B fund is far more rich than a 10000-member $100B pension fund.
Well, on the flip side a lot of redditors learned from the school of hard knocks, which is the best teacher in a lot of ways. Moderators suppressing posts won't teach a lesson you can only learn by losing money.
It’s extremely difficult to find any posts or comments critical of GameStop in the sub right now. If you sort by new, the critical comments are quickly removed.
Moderators aren’t just letting Redditors figure it out. They’re shaping the conversation into the illusion of a consensus.
Edit: looks like emojis are stripped
But maybe non frontpage posts are better.
We remove far more pro-"meme stock" content than anti-"meme stock". Your anecdote is just that, a single data point. All you need to do is pull the data yourself and you would see that, but instead you are taking personal offence to your content being removed.
At this point, almost all content that is removed, is done automatically, either using Reddit's crowd control algorithm, or using our (countless) content flags.
We also revised posting requirements countless times. You may very well have been cleared to post yesterday, but not today.
If you are willing to post your username, I can look into it for you.
The past two weeks were very difficult but the entire moderator team has stepped up to the challenge, in particular u/zjz.
Unfortunately, the stress of moderation continues even away from reddit. Even during social events at work, WSB comes up frequently. Personally, I took a few days off.
Sure, there's a large contingent that denies this and holds onto their wishful thinking of a $10,000/share price, but you can't fix stupid.
They seem to monitor this threads on HN and downvote anything that doesn't fit their HF "deep state" narrative.
OR its likely that "smart" HN users bought into the hype and they are fully bought into the narrative that blames external factors than their own due diligence.
I skimmed your comment history. Many of your comments are creating narrative from thin air - no different from the worst Qanon offender where there might be some fact but your spin is not. Tying in political arguments (like I just did) is also poor form IMHO. Many of your comments mention downvoting, which is a seriously bad smell to me. At the level of an individual comment, mentioning voting is usually an automatic downvote from me, and I presume others. Relevant HN guidelines: “Please don't comment about the voting on comments. It never does any good, and it makes boring reading.”, “Please don't post insinuations about astroturfing, shilling, brigading, foreign agents and the like. It degrades discussion and is usually mistaken. If you're worried about abuse, email hn@ycombinator.com and we'll look at the data.”
Edit: I am not saying your comments lack truth, I am just saying that it matters how you write it down.
That seems very risky. The mods are certainly identifiable, and the SEC will be investigating.
However, when to they’ve become completely invested (some times literally) in the narrative that GME was going to make them all rich while the hedge funds went bankrupt, it’s difficult to admit that they were wrong.
And if you think that these firms weren't already feeding every single post and comment on reddit into their HFT algorithms, you better at least believe that after this whole thing, they're gonna be doing that, and adding some extra weight to `if subreddit === "wallstreetbets"`.
From that point of view, WSB is rather icky; its people who know what they're doing (most of the time) subtly and anonymously impersonating an idiot to influence the actual idiots.
At most that’s the first or second “Why?” but there is surely a deeper issue.
Participants will willingly acknowledge that the behavior is destructive or reckless. But they do so in a way that glorifies it. "Woah, I totally blacked out again last night. So crazy. High Five". When the most self-destructive member receives the most attention that acts as a pretty powerful incentive.
Humans are social animals. And the way most of us avoid bad decisions day-to-day is to look at our peer group and think "would this be something that a normal, respectable person would do". When you create a subculture filled with self-destructive people, it normalizes and encourages self-destructive behavior, even when people rationally know they shouldn't be engaging in it.
Honestly lots of investing communities are like this - do your own due diligence, etc. It is surprising how _much_ misinformation is being spread in WSB as of late, and feels like a weird cult more than ever, but WSB was never about heavy moderation.
There are a very select few retail investors that really made a lot of money from this hype.
There were a TON of professional traders that probably thought this was like shooting fish in a barrel.
I suspect they didn't do a disservice to their own bank accounts. Random internet strangers care as much about you as do politicians and hedge fund owners.
As if "Wall St." is one giant conspiracy. What happened to criticizing "Wall St." for treating the economy like a casino and driving the stock market into a giant bubble? Where are all those complaints about how "Wall St." is recklessly risking our retirement accounts? The contradictory conspiracy theories are astonishing.
But I worry that like a lot of heated populist rhetoric it is misguided, or even entirely dishonest.
We just went through a presidency with someone who loved populist rhetoric, but whose actions were anything but. It happens a lot sadly.
My pet conspiracy theory is that WSB is just a cat's paw for another hedge fund that saw an opportunity to make money and wanted to try out a new approach.
As to the scam aspect, I give it a 50/50 chance that someone saw an opportunity to pump-and-dump some symbols with very high short interest. I doubt it was a hedge fund, it was probably an individual, probably someone living outside the reach of US law enforcement. The alternative is that a bunch of idiots actually came up with the idea that they could take on "Wall St." and managed to trigger a short squeeze, many of whom have yet to realize that the party's over.
Many other scams (or, for example, theft and robbery) destroy value (as, for example, a stolen wallet is a much bigger loss to the owner than it is a gain for the thief). Or, say, the 2008 GFC made a few people extremely rich (unscrupulous mortgage peddlers, investment bankers creating "complex, highly leveraged, exotic trades [...] without necessarily understanding all of the implications of those monstrosities", etc.), while wreaking havoc orders of magnitude greater on the entire world.
I don't see why everyone is against pump and dump schemes yet the system is literally designed for them to happen. It's an inevitable fact that they will happen when you set up a free market and a bunch of (stupid) humans from the general public, as also clearly demonstrated in the crypto scene.
If people don't want them to occur, the short-term incentives, market, and exchanges themselves need to be re-structured in a way such that takes into account what a group of humans with free communication would do.
Markets exist to solve problems of valuation and capital allocation. Pump-and-dump schemes distort valuations in very extreme ways and work against the purpose of equity markets. That is a basic reason why they should be banned. Another reason is that scams introduce unnecessary risk to someone making an investment decision; ideally investors should only focus on risks related to a company's business, not the risk that the information they were given about that company is false. The extra risk will drive away investors and the result will be less capital available to otherwise promising ventures, which again works against the goals of capital markets.
It is not really possible to restructure markets in a way that would avoid pump-and-dump schemes, because the problem with a pump-and-dump scheme is not actually related to the rules governing the market. The problem is that the pump-and-dump scheme involves deliberately spreading false information; yet it is equally possible that investors hear true information and rush to buy, and the market should allow for that situation.
It's because we base pricing based on a simple free market order book algorithm.
If the markets enforced a pricing algorithm that included certain time-based functions instead of basing it purely out of the order book, and mandate that all transactions happen at the algorithm's determined price (instead of the free market price), a lot of problems including pump-and-dump schemes and insider trading could be theoretically eliminated. We could completely legalize insider trading, for example, if we technologically mandated that large orders took weeks to execute while single shares traded in milliseconds.
(I'm an engineer, not a financial expert; I view this problem as very similar to e.g. API limits and firewalls that implement rules to prevent abuse.)
How would an algorithm determine the price? The whole point of the equity markets is price discovery. The price should rise when people rush to buy, and it should fall when people rush to sell. In many cases that is the "right thing," in the sense that the rush to buy/sell is in response to a real change in a company's circumstances (e.g. an outstanding earnings report, a natural disaster that harms the business, etc.).
Limiting the execution of a large order would not stop insider trading, because you do not need to go to equity markets to buy/sell stock -- you can enter into a private agreement with someone to transfer shares in exchange for money. Limiting large order executions would also make index funds impossible -- index funds have to trade the stocks that make up the underlying index when customers buy or sell, and a large fund may have many individual customers buying or selling on any given day.
Not all problems can be solved with technology.
Except for the HFT firms and market makers, who basically own the Robinhood flow and who thrive in foolish volatility. Guess who's paying so that r/WSB bros pay zero commisions? It's not the Red Cross.
Everyone knew who stood to gain and who stood to lose in the short squeeze.
WSB crows was going after the short squeeze, anyone that got gains just rode the wave and knew when to step off or not.
Everyone loves the David defeating Goliath at his own game narrative. I only worry that we are going to forget all of the times that David gets slain.
Deviating from buy-and-hold indexing is mathematically a zero-sum game. Winning this game is also one of the most monetarily rewarding games on Earth. It's extremely unlikely that you're anywhere near good enough to win this game. If you don't know who the fool at the table is, it's probably you.
It's a tough lesson to learn. When I realized, I think last Wednesday evening, that intelligent people honestly believed Ken Griffin was ordering Robinhood to block traders from buying GameStop stock so a short of his could make money, I started pricing out puts. (Didn't do anything.)
I burned my hands with thankfully little money in the '08 crisis. It chastened me, and I've been more disciplined since. And I was a professional options market maker. (It's a bit of a running joke: sell-side traders running godawful personal accounts with a handful of hero trades and boatloads of losers.)
I'm not sure I would have been more disciplined had I entered the markets at the tail of a 10-year bull market. Certainly not if the most-accessible trading app encouraged me to day trade. And if my financial identity was largely based on a subreddit that egged me on. It's a difficult problem, and I don't think there are easy answers.
(Counterfactual: individual investing is not hopeless. There is ample evidence that individual investors can and do generate abnormal returns. But it's seldom the people day trading, and when it is, it's not them holding concentrated positions over multiple days.)
I actually agree with this. But didn't want to put it in, because so many people hear this qualification and just assume it means they can be the next /u/deepfuckingvalue.
To put it in the larger framework, I would say individuals can win in opportunities that are too awkward for institutions. Like patiently holding beaten down value stocks. But there's two caveats. One, is that most times this style of investing is painful, with long periods of underperformance. Two is that the outperformance is reasonably capped. Maybe an extra two or three percent a year. It's not going to catapult you to /u/deepfuckingvalue levels. For large enough opportunities, the institutions will swallow the awkwardness. That only leaves small rewards for a lot of pain.
Thanks. I do appreciate you bringing this point up.
If they've found some pattern that very reliably makes 40k to 50k a year on a 300k investment, with downside semivariance similar to the S&P 500, they're beating the market, but maybe the pattern will never make more than 80k a year, even with infinite bankroll.
This being a zero-sum game doesn’t matter, if you have either an edge or are simply lucky. So instead of saying it’s all bullshit, it probably makes more sense to put 90% in index funds but expose yourself to a bigger upside with stock picking.
> it probably makes more sense to put 90% in index funds but expose yourself to a bigger upside with stock picking.
Does it though? Unless you are an experienced professional financial trader (or are in possession of inside information), you are almost certain to have higher gains over time with indexed funds. If you really want to gamble on individual stocks, you may as well put 90% in index funds and put the rest on a roulette wheel.
A few more thoughts:
- Maybe you don’t have to be THAT smart to beat the index.
- Maybe you don’t have to be consistently good or right or lucky, but only once or twice, because money has a nonlinear utility. If you strike it big in your early thirties, you have a different life than if you consistently save up till 65.
- Of course, gambling away your small investment in the beginning might give you less to compound over the years, which results in significant less money at age 65.
- Maybe stock picking helps you better to stay invested during booms and busts.
I have no answers to these questions and I’m in the process to figure things out for myself right now. However, buying puts on DAX and SPX in February 2020 made me a small fortune, which is now a very real house I just bought.
YMMV
Picking stocks is basically "I'm feeling lucky".
People do win the lottery and not buying a ticket prevents you from ever winning it.
The upside definitely exists, but you get emotionally invested rather than financially.
Picking stocks is good for your sense of agency in investment & feeling connected to the results of your actions - the emotional part of that shouldn't be ignored.
Trading stocks at that risk level is very much a tribal gladiatorial feeling, rather than actual financial sense.
We're actually seeing that in action recently - poor financial sense, massive entertainment value.
10% in a stock that has a 50% chance of better performance than the SPX? Sounds reasonable.
Or an event-driven trade where you do a short-term bet on a thing. These opportunities don't come very often, but once in a while, they do. Why not expose yourself to them?
If buy and hold indexing is not mathematically zero (which I agree it is not), then plenty of deviations from it are also not zero sum (which is empirically true).
Any stock gives partial ownership of a (hopefully) productive asset. Larger collections of them (like index funds) provide some reduction in volatility, but index funds are by no means the only way to structure risk/volatility tradeoffs.
But the probability that that the average WSB retail investor reconstructs a Robinhood account with superior mean-variance optimization than an index fund, is about the same chance that my dog builds a fusion reactor after getting into my toolbox.
At some point I was > 1200% with GME, but, I got greedy. I could have made bank in nearly every swing but hindsight is 20/20.
The goal is to outpace the market even with small amounts while investing most of the portfolio at safer stocks/long term plays. Ended up my GME saga at > 300%.
I am not suggesting to do that instead of index funds, I suggest doing both, throwing a small portion of your portfolio in meme stocks before they gain traction, this is where sentiment analysis comes in, can yield very good results. As long as you get out fast enough.
By fast enough, I do not suggest chasing old returns, that is, returns like TSLA/GME. You only need to outrun the market at that particular day, do it often enough whilst throwing profits in index funds and you are getting ahead.
I am willing to bet (hah), and I will try to verify (at least in virtual) that after GME, sentiment analysis on WSB, r/stocks, r/investing and news can provide good enough yields by exploiting people's FOMO, in particular the chase for TLSA/GME returns and the belief that we are in control. The goal is to track potential trends in WSB, observe them getting traction in r/stocks and r/investing, and once they are mentioned on the news to start getting out.
Hypothetically let’s say analyzing sentiment on some narrow range of data like WSB reliably produced outsized returns, that will very quickly self correct as people catch on.
I suppose if you are the only one that has the secret sauce then sure. But if that’s the case you probably should’ve be posting it here.
Unfortunately, I have heard of several people[1] that have switched from passive funds to research and stock picking. One week of market silliness may have un-did decades of teaching the public to not pick individual stocks.
While it's nice that more people are going to start reading 10-Qs and learning what a put is, it's almost certainly going to be a net-negative.
Melvin Capital was a big loser with their fund down 50%, but the funds that held GameStop made out fine. A lot more of the volatility was probably driven by hedge funds than people think, and a lot less driven by Redditors. A billion dollars is an insane amount of money and even 6 million wallstreetsbets members working together can barely make a dent in these prices.
At the end of the day hedge funds will be fine and retail investors will be left holding the bag. Their very real anger is valid, but should be turned toward the actual causes of financial injustice and not playing into the hand of hedge funds.
Ironically, the shorts who have been blamed for much of this mess are the only ones screaming about the broken regulatory system, including the toothless SEC, and warning about asset bubbles driven by low interest rates that are making it very difficult to responsibly invest. If average investors would listen to these contrary voices instead of breathless longs on CNBC they would have a more complete view of what’s happening in markets today.
So far as I can tell, there's no political way to meaningfully touch that segment of society. Politicians can't be trusted to regulate such a complex system, even if they could be trusted not to be bribed into compliance. The existing regulatory institutions seem captured. Even poking at the hive with $gme seemed to cause institution involved to close ranks, and try to delegitimize retail traders, even discounting all brokerage's decision to limit trading on the stocks.
A lot of people want their pound of flesh for '08, especially young folk who's families lost everything.
Is it? I've heard a lot of talk like this. The last decade has been spectacular in the markets. I know plenty of average investors who've outperformed the S&P by investing in tech, TSLA, etc. Real estate is on fire. I think a lot of average people are in dire straights right now, while a lot of average investors are doing quite well. And then there are the top 0.1+% who are doing disproportionately well, perhaps that is the larger source of the problem?
Is it anger motivating people to buy?
I get mixing anger in with the greed and hysteria. Were I to play blackjack with the house being, I don't know, the Sackler family, I'd certainly get a high out of it and I'd certainly bet more. But I wouldn't be at the table because of the anger. The anger would just amplify the other motivations.
You playing at a gambling game with negative expected value against people you hate and you want to give them MORE money? I'm sure they'd love that. Any casino prefers irrational customers over the ones that can do math. (The ones that can do math are still welcome, just not as appreciated)
The GP used to be a professional options trader. I know several professional traders who are very good at counting cards. I wouldn't be so quick to assume they have negative expectation in blackjack.
That same volatility is brutal to small investors, again on average - lack of information and high latency isn't your friend here.
> In December, AMC signed a commitment letter with Mudrick Capital that called for the hedge fund to buy $100 million of new secured bonds that pay 15% cash or 17% deferred interest. In exchange, Mudrick received a commitment fee equal to about 8 million AMC shares.
ie, this firm indirectly bet on an AMC recovery, investing in them as “distressed debt”, but the recovery in their stock came true suddenly.
When the media, celebrity-billionaires, politicians, other hedge funds, and early investors support you, that's confirmation that you were right. There's no way they could be motivated by other incentives like money or free publicity.
In hindsight it's easy to give numbers like $300 or $350.
But I agree, for a lot it turned into pump and dump.
This became the goal for some people. The original goal (way back when nobody knew who /u/deepfuckingvalue was) was to get rich on a short squeeze, because the counterparty on that trade had made a dumb gamble. If it had been some pension fund or even just retail investors on the other side that would have been fine too.
You can still see people "just pumping their life savings" into GME on there. I sincerely hope that they know what they're doing.
The two "vols": volume and volatility are the corner stones of all market making performance. Bonuses are mighty fine this year, that is for sure.
Regardless if they were tipped off about the restrictions in advance or not I think they were good citizens taking risks and helping two companies found in distress due covid.
It is no shock at all that a cheap broker with a million new clients wasn't sufficiently well capitalized for a big kids play.
"Short sellers, who have an incentive to push negative propaganda about a company they are invested in (regardless of whether or not it is true), are bad."
This is self-evidently incoherent and is actually being too generous to Musk, who in real life is even stupider than my strawman[1]. And Elon Musk obviously has a creepy grudge against short sellers, as evidenced by his disgraceful comments in a 2018 analyst call[2]. The only thing approaching a principle that Musk has bothered to offer is that short sellers can hurt companies by artificially pushing the stock price down. But long buyers can hurt competitors by artificially pushing a stock price up! There's no "moral" difference. Musk just has absolutely no leg to stand on here - which is why he's myopically focused on Reddit and Twitter instead of people who are actually competent about finance.
The only reason Elon Musk is "morally" opposed to short sellers is that they are hurting his personal bank account, and he's not satisfied with being merely the richest person in the world. And the only reason you share his opinion is that you are caught up in his cult of personality. Looking at your comment history: read more news and less Reddit.
[1] https://twitter.com/elonmusk/status/1354890601649610753
[2] https://financialpost.com/investing/musk-takes-aim-at-analys...