Originally published at: https://boingboing.net/2021/01/27/social-capital-ceo-chamath-palihapitiya-praises-redditors-for-buying-gamestop.html
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Live by the “free” market, die by the “free” market. People like the show’s host had no problem with the casino when only the whales were allowed to gamble, but they get butthurt the minute the hoi polloi pool their money and start placing bets.
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He sounds like such an idiot.
And mega whiney too.
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He’s one of those “journalists” who thinks that just because he covers ultra-wealthy people and corporations that their interests are his interests. He may make a good salary, but at the end of the day he’s as much a member of George Carlin’s “big club” as any of us are: not at all.
The reason that this courtier is so discomfited and struggling is not only because the same neoliberal bromides he parrots day after day are being turned against him, but because the person doing it is a member of the club he fancies himself part of.
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1%'er tears, delish.
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I can tell from context they’re arguing about class war, but the specific mechanisms they’re discussing sound like gibberish to me. Is there an annotated version of this, for people who don’t know the first thing about day trading?
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Yeah I don’t know if it’s right or wrong but it sure feels good to watch hedge fund shorts eat their shorts.
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The host (Scott Wapner, no relation to the judge) is claiming that the reddit gang’s actions exposed a flaw in the markets for publicly traded stocks. The venture capitalist he’s interviewing (Palihapitiya) says that the flaw in the system was there before, namely the ability for Melvin Capital to do “naked” short selling* and destroy reasonable businesses in the process of making risky bets.
The outraged host says that real investing in a company is based on examing a company’s “fundamentals” (e.g. price-to-earnings ratio, year-on-year performance, growth potential, etc.). The VC says that, no matter how much research one does, it’s really all ultimately the opinions of participants in the market (e.g. Tesla stock’s value appreciating 1000% in a few months) and that the actual value at any given time, now or in the future, is unknowable.
The host sputters about Tesla having more potential than GameStop, and the VC basically says "every investor – large or small – is allowed to make his own decision about the value of a company because that’s how the market works (unsaid: “you boob”). He adds that if an investor makes a decision that doesn’t pan out – for any reason – he shouldn’t get bailed out, because that’s also how the (supposedly) free market works.
The host can’t argue with this, so he grinds his gears and then asks if the short-sellers actually made a bad decision re: GameStop, goes back to talking about “the fundamentals” and complains that GameStop is just going up because of “momentum” (i.e. all the reddit tr0lls piling on and driving the price higher). The VC comes back saying “why is that so bad when you’re cool with automated/algorithmic trading by the Wall Street Big Boys that does exactly the same thing?”
[* described in earlier topics here. Basically, a very risky and debt-driven bet that a public company’s stock value will go down]
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In college, I had a professor who would often say, “If you want to make money on the stock market, don’t study finance; study psychology.” I should have taken them up on that…
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how about have a lot of money and connections. those seem to be the real measure of how to make money on the markets.
the other big way is by being really good at math, writing computer programs to assess coming changes in the market, and doing second by second trades on the edges. ( though it’s probably a little late to get into that game now. at one point companies were fighting over how close they could get equipment to the stock floor to decrease latency of their trades 
)
the other big way is to mitt romney them, buy good companies up, saddle them with debt, pay you and your investors with a big bonus, then watch the company crash. ( short selling i guess is a virtual way of doing the same. selling derivatives and crashing the whole economy is another varient. )
long gone i think are the days of investments based on the fundamentals or the psychology of the markets. ( if they ever existed. ) im sure some people still trade that way, but it’s not where the (big) money is.
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True dat, but I don’t think my professor was talking about that kind of money. I think he just meant in terms of building up a nest egg through day-trading. This was also almost 20 years ago.
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Also good luck and good timing. Not being greedy helps, too.
You don’t build up a nest egg through day-trading unless that’s all you do (and even then it’s very risky, slots-addict stuff). If you’re going to invest, the best way to do it is to buy low- or no-fee set-it-and-forget-it index funds in a diverse and age-appropriate allocation, keep contributing at least 20% of your after-tax income every month (if you can – fewer and fewer can), and wait a few decades.
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Yeah, maybe it is best that I never took him up on that. Still, I sometimes fantasize about setting a thousand or two aside (I can afford to lose about that much) to play with on the stock market. As for index funds, it gets a little complicated because I am not living in the States anymore, but I probably should get on that sooner rather than later…
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My trading education stopped with playing Stock Ticker as a kid. Explanations by smart folk like you really help my understand this stuff.
One thing I don’t understand: I’ve read something like “Given that 120% of GameStop shares were shorted at one point…”. How can this be possible? Doesn’t the “market” or whatever run out of something when it hits 100%.
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There’s two possible ways that this could happen.
Shorting a stock works like this- you borrow the stock from its current holders, sell it today with a promise to give it back at a future date. If the price declines between these two dates, then you make money, as you can buy it back for less than you sold it for.
So to get over 100% of outstanding stock sold short, the hedge funds were either selling stock that they hadn’t propely borrowed (this can happen if traders abuse the stock clearing system that works out transfers between people) OR you were getting the same share sold short multiple times- B borrows the share from A, sells it to C, then borrows it again from C and sells it on to D. Normally, this won’t cause an issue, as with lots of shares available, B can just buy enough to return them when the contract falls due.
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I don’t get it. To force the price up the reditors have to keep buying overpriced stock. Isn’t that the definition of a Ponzi scheme?
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We do have index funds in the rest of the world.
And that includes ones that track the US indices.
And it bears repeating, far better to dripfeed funds in on a regular basis than try to buy stocks “at the right time”. And avoid fees. Fees are what kills most people’s returns.
And oddly enough buying and selling individual stocks involves lots of fees. Which is money someone else is making but not you. Which has nothing to do with investment firms telling you which stocks are hot right now, which stocks to sell now! and so on. At all. /s
Boring as it sounds @gracchus just set out probably the best investment advice for regular folks.
Well a Ponzi scheme requires those involved not knowing/understanding what is happening.
And more specifically a Ponzi scheme is where an “investment manager” funds payments to one set of investors from the money he receives from new investors rather than from actual profits. This is not that.
If I’ve understood it correctly, the mechanism here is that the hedge fund people shorted the stock to such an extent that they are contractually obliged to buy all the shares that exist in the company if the price rises rather than falls.
So once that is known, people can basically buy shares at pretty much any price knowing that the hedge fund is obliged to buy them.
The only way that fails to make money is once the hedge funders decide it’s better to default on their obligations under their short contracts than buy shares.
So it’s a war between how greedy the hedge funders are versus how willing redditors are to take a bath.
I think that’s right, maybe those more knowledgeable can confirm/correct?
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I have no doubt that this is part of it, but I wonder if there’s a bigger factor at play, which the Social Capital CEO got to the heart of it when he mentioned the “transparency” of the Redditors.
It is interesting to get on the WSB subreddit and read posts there for even just 10 minutes. There are a huge number of posters who are just egging each other on to hold their positions and resist the temptation to sell. There’s a clear sense of solidarity among them, and a feeling of “we can all make money if we just stick together!” And - here’s the thing - they are doing it all in the open. What’s to stop WSB from replicating this behavior over and over again with other stocks? I imagine doing this could represent a real threat to established players on Wall St. That’s my sense of it anyway.
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It occurred to me halfway through that interview that basically Scott Wapner was taking the role of a poker player that folded holding three kings and found out the person who won his money had a pair of twos.
He’s basically saying “Those poors shouldn’t be allowed to stay on a pair of twos, because if I hadn’t folded, they’d have lost their money! He should know a pair of twos is a losing hand!”
He’s facetiously ignoring the point. The players in this case weren’t basing their bluff on the value of the cards, they were basing it on the other poker players behaving so outrageously and irresponsibly that they were certain of the outcome. There was no question of a big buyback, regardless of the objective value of the stock.
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You answer your own question:
This will stop it. NPR reported this morning that “investigations are beginning” which means “new rules will be enacted” to stop the “lower sorts” from doing this again.
ETA: From Reuters: "GameStop’s interstellar surge has sparked calls for regulatory scrutiny. "
ETA2: TD Ameritrade restricts trading of GameStop, AMC stock. A good lesson in the power of the elite–they can just stop you from trading until you get over your nonsense.
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