Investing Thread

[The Hippie Satan of Hyperbole]

I'm sure everyone who works at a hedge fund is a saint

Hedge funds aren’t illegal. They are even immoral on their face. People just don’t like them because they seem shady and are run by wealthy people.

[jesmu84]

Hedge funds aren’t illegal. They are even immoral on their face. People just don’t like them because they seem shady and are run by wealthy people.

I didn't say they were.

But if you're (plural) going to condemn everyone who participates in r/wsb because of actions/words of some, then I assume you'll do the same for hedge funds.

[Hards Alumni]

I'm sure everyone who works at a hedge fund is a saint

Good to hear that she sees the world for what it is.  Men in big buildings producing nothing robbing the average person blind on a daily basis.

[Lennys Tap]

That’s why I’ve been bemused in this thread earlier about people fawning over them and their “crusade”.  They are out to make money and screw those against them, in this case it’s hedge funds which make them media darlings.  It’s certainly not altruistic or with any greater sentiment of “good”

There is some good insight from some people, like DeepValue quoted earlier. But most threads and most members are like any gambling subreddit. They call any bearish investors or positions a “(rainbow emoji)(bear emoji)”. It’s exceptionally juvenile, crude, and antagonistic.

It’s hilarious to see AOC jumping on board their “mission” cause ive seen that sub absolutely brutalize her repeatedly in a pretty harsh manner, and that’s coming from someone who largely can’t stand her

While I agree with you pretty much 100%, the fact remains that millions in this country feel the wheel is rigged against them and when those who benefit from the rigged wheel get their comeuppance people those folks will celebrate. The enemy of my enemy is my friend syndrome.

[jesmu84]

While I agree with you pretty much 100%, the fact remains that millions in this country feel the wheel is rigged against them and when those who benefit from the rigged wheel get their comeuppance people those folks will celebrate. The enemy of my enemy is my friend syndrome.

Also true: the wheel IS rigged

[forgetful]

Hopefully this opens the eyes of the brokerage firms and the regulators and forces them to address these kinds of possibilities in the future. If this article is accurate, though, I'm guessing any investigations into the decisions made this week won't find anything to punish the brokerage firms for.

https://finance.yahoo.com/news/robinhood-dash-cash-traders-took-053007442.html

Edit - here's another story with the CEO of Webull explaining their decision to stop allowing trading yesterday. I doubt many people will end up reading through these kinds of articles because they're not nearly as flashy as most of the headlines, but sharing this information is important. There's a lot to be learned before people wind up on CNBC and demanding prison time for the heads of these brokerages.

https://finance.yahoo.com/news/we-bull-ceo-explains-why-trading-was-restricted-amid-the-game-stop-market-mania-172539318.html

I looked over these today, because I was curious as to the logic why the heads of these companies were not out of line, acting illegally.

Two things caught my attention. The first article notes that the requirement for more collateral in the central clearing house resulted around 10 AM on Thursday after GME started to crater. It cratered because RH and others blocked all buys of GME before the open on Thursday. So RH and others created the collateral problem. You can't use a situation you caused as justification for a possibly illegal action.

Second, they could have taken different actions. They could have blocked margin buys across the board, for instance. But they didn't take other more universal actions, rather they explicitly targeted buys of companies, whose stock price increases were crippling their biggest revenue stream (e.g. hedge funds). So their actions were designed to benefit their largest patrons (Citadel), at the expense of their clients, and despite the fact it would create a large capital call on them...which was bailed out by venture capital.

On its face, it definitely appears illegal, and even if it isn't criminal, they are liable for damages, because running a company poorly does not acquit you for your actions.

[skianth16]

I'm sure everyone who works at a hedge fund is a saint

That doesn't have anything to do with how toxic WSB is.

[skianth16]

Hedge funds aren’t illegal. They are even immoral on their face. People just don’t like them because they seem shady and are run by wealthy people.

I think most people who are rooting against Melvin right now don't have any idea how hedge funds actually work or what kind of people work there. A lot of the animosity comes from a lack of understanding and/or negative assumptions. To be clear, there's plenty to dislike about big money pushing people around, but I don't see many people talking about WHY they have a grudge against the hedge funds outside of the fact that they have a lot of money.

With all this fallout, I'm curious to see if any of the big investors in these fund will face any pushback from their client bases to pull their money out. I know unions and endowment funds tend to put a chunk of their assets into more aggressive investments like hedge funds. I wonder how these typically liberal members feel about their money being run by these guys who tend to be viewed so negatively.

[The Hippie Satan of Hyperbole]

I think most people who are rooting against Melvin right now don't have any idea how hedge funds actually work or what kind of people work there. A lot of the animosity comes from a lack of understanding and/or negative assumptions. To be clear, there's plenty to dislike about big money pushing people around, but I don't see many people talking about WHY they have a grudge against the hedge funds outside of the fact that they have a lot of money.

With all this fallout, I'm curious to see if any of the big investors in these fund will face any pushback from their client bases to pull their money out. I know unions and endowment funds tend to put a chunk of their assets into more aggressive investments like hedge funds. I wonder how these typically liberal members feel about their money being run by these guys who tend to be viewed so negatively.

As far as endowments go, I doubt it will have much impact. Hedging is important and the people making those decisions aren’t as liberal as you think.

[skianth16]

I looked over these today, because I was curious as to the logic why the heads of these companies were not out of line, acting illegally.

Two things caught my attention. The first article notes that the requirement for more collateral in the central clearing house resulted around 10 AM on Thursday after GME started to crater. It cratered because RH and others blocked all buys of GME before the open on Thursday. So RH and others created the collateral problem. You can't use a situation you caused as justification for a possibly illegal action.

Second, they could have taken different actions. They could have blocked margin buys across the board, for instance. But they didn't take other more universal actions, rather they explicitly targeted buys of companies, whose stock price increases were crippling their biggest revenue stream (e.g. hedge funds). So their actions were designed to benefit their largest patrons (Citadel), at the expense of their clients, and despite the fact it would create a large capital call on them...which was bailed out by venture capital.

On its face, it definitely appears illegal, and even if it isn't criminal, they are liable for damages, because running a company poorly does not acquit you for your actions.

I didn't see anything in those articles, or any of the others I've read, that would suggest Robinhood caused the collateral call. It happened to several brokerages, and it seems like this is a highly unusual circumstance. Maybe they should have seen this coming, but I'm getting the impression that this past week included a lot of unprecedented events.

As to halting the trading of specific securities, the articles below make it seem like the specific trades taking place have an affect on the collateral requirements. With that in mind, it does make sense to limit specific trades that are creating the most risk. It sucks, but I haven't seen anything that sounds like this is illegal. Further, RH did take additional broader measures by restricting the purchases of fractional shares and crypto. And then while these restrictions were in place, they were also raising capital to begin covering the capital requirements so they could resume trading.

I understand why people are upset, but I don't see anything here that seems illegal. I do think we'll see some changes in regulation proposed as a result of this fallout, though. And as to running a business poorly - this affected all the big brokers in the same way. The DTCC made the collateral call, which forced the hands of RH, E-Trade, Ameritrade, and others. If the scenario was unique, then maybe more blame could fall on RH, but it wasn't.

https://www.bloomberg.com/news/articles/2021-01-29/what-s-the-dtcc-and-how-did-it-stop-gamestop-mania-quicktake

https://www.bloomberg.com/news/articles/2021-01-29/clearing-firms-prevent-cascading-failures-q-a-with-larry-tabb

[skianth16]

As far as endowments go, I doubt it will have much impact. Hedging is important and the people making those decisions aren’t as liberal as you think.

I would imagine a lot of the people making the investment decisions for big funds may have some different views than the broader memberships they represent. That makes sense. But with the rise of socially conscious investing, I can see there being some vocal opposition from university stakeholders - professors, alums, even students - to the university putting money into certain funds or investments.

Or maybe this all blows over next week as we move on to the next news cycle. This might just end up being a flash in the pan.

[JWags85]

I'm not defending them, but I'm surely not going to lump them all into a group.  Quite a bit of money has been donated from people's gains.  Generally, their 'schtick' is awful.

I think it's okay to defend what they are doing and not condone their juvenile pathetic behavior.  They all think they're Jordan Belfour.  They have nothing in common.

That’s fair. And I’d wager, knowing what I know about WSB and judging from my experience and knowledge in the past, the donations are largely coming from those who came in later. If the core of WSB is, say, 2000 people and the WSB fueled trading cabal in GME and others is, say, 10000, is wager the donations are coming from that additional 8000.  Aka I’m not saying everyone short squeezing GME, or even posting on WSB about it right now, is toxic or juvenile, but the historical core group and most active users certainly are

I'm sure everyone who works at a hedge fund is a saint

The difference is both WSB and hedge funds are doing the EXACT same thing. Trying to exploit market inefficiencies and situations to make as much money as possible. The difference is hedge funds are being made out to be evil capitalist sharks while WSB is the noble do-gooders who are fighting for the little guy.  Which is just silly media spin.

Hedge funds aren’t illegal. They are even immoral on their face. People just don’t like them because they seem shady and are run by wealthy people.

I’d argue that, even moreso, most people that “don’t like them” don’t understand them. They see finance people making billions while not producing a tangible good or product, combined with the memory of 2008, and they assume it’s ALL shady and underhanded.

Everything isn’t black and white, it’s shades of grey, but that’s not as easy to draw sides on

[forgetful]

I didn't see anything in those articles, or any of the others I've read, that would suggest Robinhood caused the collateral call. It happened to several brokerages, and it seems like this is a highly unusual circumstance. Maybe they should have seen this coming, but I'm getting the impression that this past week included a lot of unprecedented events.

The first article you linked in the original post indicated the collateral call after 10 AM Thursday was driven by the volatility in GME falling from the $400's to the $100s. That drop occurred because RH and others blocked all buys for GME before the open on Thursday.

They acted before the collateral call, and their actions caused the drop that upped the collateral requirements.

At least that is how that first link read. Maybe they are miss reporting the timeline.

[Frenns Liquor Depot]

The difference is both WSB and hedge funds are doing the EXACT same thing. Trying to exploit market inefficiencies and situations to make as much money as possible. The difference is hedge funds are being made out to be evil capitalist sharks while WSB is the noble do-gooders who are fighting for the little guy.  Which is just silly media spin.

85% of the stock market is owned by the top ten percent of households by net worth - top 1% own half.  I think you are underestimating this fact when dismissing the issue as 'media spin'. 

David vs. golliath is always an interesting story -- even more-so in the time when populism is on the rise.

[muwarrior69]

I thought they were talking about an episode of Showtime's Billions when I saw the news.

[JWags85]

85% of the stock market is owned by the top ten percent of households by net worth - top 1% own half.  I think you are underestimating this fact when dismissing the issue as 'media spin'. 

David vs. golliath is always an interesting story -- even more-so in the time when populism is on the rise.

I wasn’t dismissing the issue. I wasn’t even dismissing the reason for the interest in it beyond active market followers. I was objecting to what people claim WSB’s motivation is/was, and ascribing excess meaning to it, cause it’s a bit off base

[Coleman]

There’s 6 million people on WSB. It runs the gamut from professional traders to college students. There is no single motivation. Most of the people just want to make money. Sure, there are some who want to make a political statement but they are honestly in the minority.

 There are some creeps with toxic behavior but there’s also threads of people donating to children’s hospitals with their proceeds.

You really can’t paint an entire subreddit with a broad brush.

BTW I joined WSB like 3 years ago when it was under one million. I mostly just lurk. But there’s good and bad in every online forum, including Scoop

[StillAWarrior]

Here's another chance for me to illustrate my ignorance, and hopefully someone on here can answer a question for me.

Regarding the GameStop situation, assuming those who shorted GME have already covered their margin calls, is there any reason that they can't just sit on their paper losses and wait out the investors? I assume that absent any real business performance revelations which might result in investment, the only way the stock continues to climb is if people continue buying. But I think that "normal" investing at this point is unlikely because I think everyone can probably agree that the stock is overvalued based upon any normal valuation.

So, can the hedge funds just wait out the WSB investors? Or are there time limits by which they have to cover those shorts? I suspect in the coming days and weeks, the hysteria over GME will die down, the number of new GME investors will dwindle, and a lot of the people who threw cash at it will start looking for an exit strategy. I acknowledge that some of the WSB investors say that they are going to hold to stick it to the man, but I suspect as time goes by, the number willing to do that will dwindle and people will be looking to either lock in their gains or cut their losses.

Thanks.

[cheebs09]

Here's another chance for me to illustrate my ignorance, and hopefully someone on here can answer a question for me.

Regarding the GameStop situation, assuming those who shorted GME have already covered their margin calls, is there any reason that they can't just sit on their paper losses and wait out the investors? I assume that absent any real business performance revelations which might result in investment, the only way the stock continues to climb is if people continue buying. But I think that "normal" investing at this point is unlikely because I think everyone can probably agree that the stock is overvalued based upon any normal valuation.

So, can the hedge funds just wait out the WSB investors? Or are there time limits by which they have to cover those shorts? I suspect in the coming days and weeks, the hysteria over GME will die down, the number of new GME investors will dwindle, and a lot of the people who threw cash at it will start looking for an exit strategy. I acknowledge that some of the WSB investors say that they are going to hold to stick it to the man, but I suspect as time goes by, the number willing to do that will dwindle and people will be looking to either lock in their gains or cut their losses.

Thanks.

My uneducated understanding (based on just reading WSB and a few podcasts) is that they are being charged a ton of interest to hold onto those shorts. I think they can wait them out, but at a point, it gets pretty expensive to do that.

I also think some believe while they publicly say they covered the shorts, I don’t know that it’s necessarily true.

[JWags85]

GME sub-200, 170 level is BIG for support and not further downside.

So interesting thoughts about other squeezes. We’ve been over the uniqueness of GME. AMC has not been able to sustain the big upswings cause they have been issuing shares like crazy at these higher levels. That dilution makes MUCH harder to squeeze anything sharply upwards.  But I would imagine a lot of the people that are talking about holding with diamond hands don’t realize that.

Silver is another animal entirely. I’ve seen people speculate about it being a Wall Street engineered counter to make back losses. But if it is indeed another retail/WSB driven idea. Metal prices that a driven by actual supply and demand for physical goods is way different than pushing metaphorical paper around. Also, if they succeeded, there are everyday consumer ideas like electronics that can be negatively affected, from a consumer price perspective, by jacked up silver prices

[Skatastrophy]

The silver thing didn't start on WSB. It sure did take over the news cycle though, pretty wild. WSP is 100% GME right now. AMC/BB/PLTR have all faded into the background in the past week.

I bought a bunch of IPOE today.

NET earnings in just over a week and I'm looking forward to seeing the numbers, I'm long either way.

[forgetful]

The silver thing didn't start on WSB. It sure did take over the news cycle though, pretty wild. WSP is 100% GME right now. AMC/BB/PLTR have all faded into the background in the past week.

I bought a bunch of IPOE today.

NET earnings in just over a week and I'm looking forward to seeing the numbers, I'm long either way.

I thought about buying it about a week ago. I didn't, and regretting it now.

Considering buying it still, as it was going to be a long play anyway.

[cheebs09]

Just took a stroll past WSB this morning. It is not a pretty sight this morning.

[JWags85]

Everything is so juiced. April $45Ps are $16.  That’s insanity, the IV is out of a control. The stock takes a 50% haircut and you are still very red on those puts.  Just not worth playing outside of commons right now.

Fun to revisit, posted this when GME was over $100 last week. Then reposted saying the stock was $150 higher (in the $250+ range) and the price of the puts hadn’t moved. So you could get April 45P for $16 when GME was over $250. Today it’s fallen almost $200 from there, barely any time decay on options expiring in 2+ months...and those outs are around $18.  That’s the very definition of bad risk reward

[TSmith34, Inc.]

Just took a stroll past WSB this morning. It is not a pretty sight this morning.

Lots of bagholders amongst the new members I'd bet.