The Investment Thread

[homer]

There is nothing illegal about what's going on. It is simply a large group of individuals buying a few select stocks to drive the price up so that the hedge funds that shorted them lose a boatload of money (while making bundles themselves assuming they sell before the inevitable crash).

Not necessarily. It's not that dissimilar from other pump and dump schemes orchestrated by private parties who buy a bunch of a cheap stock and then use various media channels to try to get others to buy the stock to get it to go up and then sell.

 

The dividing line typically is whether it is an individual entity or multiple entities, and whether it is a coordinated event among multiple entities. It is legal if it is one entity doing it, or multiple entities doing it independently without knowledge of others doing it. Broadcasting the intentions on any type of media is where it gets into a very gray area because it is no longer a single entity or multiple entities doing it independently. It is not known if the people on Reddit bought the stock before or after they announced their intentions; if it was before, then it is probably not legal.

 

"Investment houses" (let's not generically call them "hedge funds" because hedge funds hedge their bets to take bigger risks but also limit their losses) cannot legally coordinate an effort like this with other investment houses; that's where it becomes illegal because that is market manipulation. What's the difference between two investment houses in a coordinated effort (which is illegal) and 200,000 individuals coordinating an effort on Reddit? Both have the same buying power, and both are attempting to manipulate the market for profit.

 

 

The other problem is individuals who are buying the stock without access to/knowledge of what is being broadcast on Reddit. If they miss a sell signal from the coordinated effort, then they are the ones left holding the bag. This does not just affect big investment houses; this can also cost individuals (just like every market crash in history). Big losses on one investment lead to selling another... which leads to more losses, and more selling, and that's how crashes start. Also, big investment houses aren't the only ones shorting stocks; individual investors do that too.

 

This wasn't a backroom deal though. That Reddit page was open to anyone and they made very clear to the public what they were doing. There is no coordinated effort for everyone in the Reddit group to sell and they aren't pooling their money.

[LouisEly]

This wasn't a backroom deal though. That Reddit page was open to anyone and they made very clear to the public what they were doing. There is no coordinated effort for everyone in the Reddit group to sell and they aren't pooling their money.

How do you know that they didn't take positions before they broadcast their intentions on the internet? How do you know that there wasn't backroom conversation offline before they posted or about when to sell? Because they said so? Because it's on Reddit?

 

They certainly don't have to pool their money for it to be illegal.

[Brewers Numbers]

This wasn't a backroom deal though. That Reddit page was open to anyone and they made very clear to the public what they were doing. There is no coordinated effort for everyone in the Reddit group to sell and they aren't pooling their money.

How do you know that they didn't take positions before they broadcast their intentions on the internet? How do you know that there wasn't backroom conversation offline before they posted or about when to sell? Because they said so? Because it's on Reddit?

 

They certainly don't have to pool their money for it to be illegal.

The person who proposed it had positions already and is mainly holding. He made an argument, people thought it made sense, and it took off. There is no sell signal - they are not coordinating when to sell.

[OldSchoolSnapper]

This wasn't a backroom deal though. That Reddit page was open to anyone and they made very clear to the public what they were doing. There is no coordinated effort for everyone in the Reddit group to sell and they aren't pooling their money.

How do you know that they didn't take positions before they broadcast their intentions on the internet? How do you know that there wasn't backroom conversation offline before they posted or about when to sell? Because they said so? Because it's on Reddit?

 

They certainly don't have to pool their money for it to be illegal.

 

This has been going on since the fall of 2019 and the original poster was talking to almost nobody for the first year. It's not until very recently that this took off. He's held the stock in the face of millions of dollars of daily losses. There isn't a sell signal. I noticed he sold some today to prevent being at a total loss but he's consistently held or purchased. You're reaching here.

[Brewers Numbers]

Famed GameStop bull 'Roaring Kitty' is a Massachusetts financial advisor: This is the guy who started it.

[JosephC]

Unfortunately I think this will all go away in a week, but the media and public really needs to continue to turn the screws on some of these brokerage firms. My goodness, how crooked do you have to be to get Ted Cruz, Alexandria Ocasio-Cortez, CNN and Fox News all on the same page!?!??!

 

 

https://www.cnn.com/videos/business/2021/01/29/robinhood-ceo-vlad-tenev-gamestop-stock-cpt-vpx.cnn/video/playlists/business-markets-investing/

 

[nate82]

They have a former chairperson from the SEC on their side so pretty corrupt.

[owbc]

Despite all of the jokes and crude humor, the reddit wallstreetbets page has been a really good resource for a long time now. Their moderation techniques are state of the art, the top rated posts are usually excellent content. I've learned a ton about investing just from reading it and have been entertained at the same time. I don't participate much myself but I feel like I understand the basics of options trading. Much of the discussion is at a very high level--but when you actually look at the math it has made it clear to me that there really is no secret behind what the hedge funds are doing and anyone who has basic college-level training in mathematics and statistics can make informed trades. And people are very good at giving TLDR/ELI5 summaries that anyone can understand. That's the true reason why GME became a popular stock--because contributors on the forum explained what was happening and why at a level that I think is equivalent to what is discussed at the hedge funds (minus whatever insider information they have). None of that is going away after this--if anything even more people will realize that trading at a high level is within their reach.

 

The fun part is speculating on what will happen on a regulatory level now that it's clear that the hedge funds can't get away with manipulating the market as easily as before. Regardless of what happens in the next week or two, their potential for future profits has been greatly reduced. They will have to be more conservative because of this new X-factor introduced into the market. Or they will have to come up with new and dirtier tricks--which will be difficult given all of the scrutiny right now. It's exciting to watch.

 

There are also fun side effect such as the fact that AMC was able to pay off $600 million in debt the other day. It might have saved movie theatres.

[GAME05]

I had some throwaway money so gambled on an OTC penny stock. 0.04 to 0.09 that day and then I jumped out. So now obviously I've convinced myself that they're always a winning bet /s. Of course it's at 0.4 now. I don't have fear of missing out so much as I often have regrets about getting out and then seeing it go up.

 

You could always put a sell stop order in. For example if you bought stock A at $50 and then it runs up to $75 a share you could put a sell stop order in at $75 and if the stock keeps on going up it won't trigger but once it gets within a few fractions of $75 it will trigger that sale thus locking in your $25 per share gain.

 

Kinda slapped my forehead in reading that:) Thank you for that advice. Yeah, no reason I couldn't set up a trailing stop order with anything.

[thebruce44]

I think most people are understating how big of a deal this is. Here is a post from WSBs, edited so it can be posted here. Of course its overly dramatic, but interesting none the less. At this point, you've got millions under 40 who have been screwed over repeatedly and with nothing to lose. Their spite can outlast these hedge funds. There doesn't need to be an actual end goal besides stirring the pot.

 

Let me explain to you what happened, play by play. I will give you a spoiler up front: We were within approximately 30 seconds of triggering a nuclear bomb that would have blown up the market. Do I have your attention? Here goes:

 

Yesterday, new call option strike prices were added all the way up to $570. Do I have to go over gamma squeezes again? Really? We've been over this: when deep out-of-the-money call options start being gobbled up and the price starts moving towards being in-the-money, the call writers have to hedge their risk of having their sold calls exercised, typically by buying stock. This creates upwards pressure on the market. We've been seeing these movements all week.

 

Yesterday after market, you probably saw that coordinated effort to drive the price down and spook retail investors into a mass sell-off. It didn't work.

 

Last night, Robinhood sent out a message to users: you could no longer enter into new options. You could exercise them if you had the collateral (money in the account) to do so. Very interesting and the first sign of fear.

 

Today, the market opened very strong. It opened so strong that we were looking at a self-perpetuating gamma squeeze all the way up way past $570.

 

At approximately 9:58 am, the stock had reached $468 in a parabolic move.

 

Two minutes earlier, at 9:56 am, Robinhood tweeted that they were not allowing users to buy GME stock, but they would allow selling.

 

The trend instantly halted and started a collapse downwards, before picking up a bit, especially after some retail was allowed back in.

 

Okay, now that you are clear on the facts, understand this: The market ran out of liquidity today, or was threatening to get close enough that they killed it. What does that mean? It means they ran out of shares and/or capital. They wouldn't let you buy new shares because we were burning through all the shares on the market. I saw an unsubstantiated post from a user who said a small sell limit order executed at $2600 for him. Do you get the severity of the situation, if that's true? It means the buying was getting to the point where it was just about to put INFINITE pressure on the price of the shares. It means virtually any ask was getting bid.

 

How do you get infinite upwards pressure? A gamma squeeze triggering the mother of all short squeezes, just like we predicted. The call writers need shares to hedge. Retail is still buying more. The short sellers need over 100% of the float back. Add these together. There were more shares needed than existed on the open market. That's what a liquidity crisis is.

 

Listen to this remarkable (if infuriating) interview where the chairman of Interactive Brokers admits that they didn't have the capital to pay out the winners (us), so they took their ball and went home. DO YOU GRASP HOW INSANE IT IS THAT HE SAID THEY NEEDED TO SHUT DOWN BUY ORDERS TO "PROTECT THE MARKET"? Hello! He's not talking about the market for GME shares. He's talking about the entire market! The New York Stock Exchange. The NASDAQ. All that.

 

Remember the movie Snowpiercer? Do you remember that scene where the lower class people realize the soldiers who oppress them have no bullets? Go to the 1:00 minute mark of this link:

It kick starts a full blown rebellion. They have no bullets. It's the exact same in this market: No capital. No shares. Infinite losses inbound.

 

TL;DR: For all you who will just skip to the bottom to ask, "Do I get my tendies now?" the answer is this: they NEED NEED NEED your shares. Do you get that? HOLD. Like the guy in the movie, scream, "They're out of bullets!" and create a stampede. That's how we win.

 

They needed your shares so badly that they literally risked PRISON TIME to get them. They tried robbing you, and I'm not even exaggerating. They were within 30 seconds of all being wiped out today.

[homer]

This wasn't a backroom deal though. That Reddit page was open to anyone and they made very clear to the public what they were doing. There is no coordinated effort for everyone in the Reddit group to sell and they aren't pooling their money.

How do you know that they didn't take positions before they broadcast their intentions on the internet? How do you know that there wasn't backroom conversation offline before they posted or about when to sell? Because they said so? Because it's on Reddit?

 

They certainly don't have to pool their money for it to be illegal.

 

This has been going on since the fall of 2019 and the original poster was talking to almost nobody for the first year. It's not until very recently that this took off. He's held the stock in the face of millions of dollars of daily losses. There isn't a sell signal. I noticed he sold some today to prevent being at a total loss but he's consistently held or purchased. You're reaching here.

 

Yeah they were all making fun of him for owning GME all of 2020.

 

And if this is a pump and dump scheme then so is a hedge fund announcing that they are shorting a stock.

[nate82]

Not only did the hedge fund short the stock but they also shorted it for more than there are available shares on the market. I think it was something like 150% of the total shares that can be bought and sold on the market.

[LouisEly]

And if this is a pump and dump scheme then so is a hedge fund announcing that they are shorting a stock.

The hedge funds aren't asking others to short the stock as well to drive up their profits; they don't announce anything. They're doing it independently.

 

Their trades may be publicly available information, but they aren't promoting them.

[Brewers Numbers]

And if this is a pump and dump scheme then so is a hedge fund announcing that they are shorting a stock.

The hedge funds aren't asking others to short the stock as well to drive up their profits; they don't announce anything. They're doing it independently.

 

Their trades may be publicly available information, but they aren't promoting them.

Pretty sure hedge funds publicly bash the company they are shorting. Citron has been generating these reports for 20 years.

[RobDeer 45]

And if this is a pump and dump scheme then so is a hedge fund announcing that they are shorting a stock.

The hedge funds aren't asking others to short the stock as well to drive up their profits; they don't announce anything. They're doing it independently.

 

Their trades may be publicly available information, but they aren't promoting them.

 

They do promote their trades many times. They will short a stock, go on tv and tell whoever that the company is not a good investment and that's why they sold or are shorting it. It is also public information.

 

That's all fine, the reason this got out of hand is because the shorts were beyond 100% of the outstanding shares. That was a signaling that people were going have to do a lot of buying in order to satisfy all the shorts.

[igor67]

My experience would suggest the answer can't possibly be that simple, but perhaps an easy place to start on the regulatory side is preventing anyone/thing from betting more shares than what actually exist.

[LouisEly]

Pretty sure hedge funds publicly bash the company they are shorting. Citron has been generating these reports for 20 years.

If by "publicly bash" you mean publish opinions based on thorough research on the financial performance, financial stability, competition, and industry, then I guess you can say they "publicly bash" the company they are shorting.

 

Citron Research has one of the best track records of exposing fraud in the corporate sector, and many of the companies that they have recommended shorting were because they were engaging in fraud (including bulletin-board pump-and-dump schemes). Is that "publicly bashing"?

[nodakfan17]

I wonder how many novice investors bought GameStop at $300 because they thought it was going to the moon?

[thebruce44]

Pretty sure hedge funds publicly bash the company they are shorting. Citron has been generating these reports for 20 years.

If by "publicly bash" you mean publish opinions based on thorough research on the financial performance, financial stability, competition, and industry, then I guess you can say they "publicly bash" the company they are shorting.

 

Citron Research has one of the best track records of exposing fraud in the corporate sector, and many of the companies that they have recommended shorting were because they were engaging in fraud (including bulletin-board pump-and-dump schemes). Is that "publicly bashing"?

 

This certainly isn't my area of expertise, but how do you reconcile what you are saying with this interview? It definitely sounds like manipulation and like it happens all the time.

 

 

"What's important when you're in that hedge fund mode, is to not do anything remotely truthful. Because the truth is so against your view, that it's important to create a new view, to create a fiction."

 

"Then you call the (Wall Street) Journal and get the bozo reporter in Research in Motion and you would feed that (rival) Palm's got a killer it's going to give away. These are all the things you must do on a day like today, and if you're not doing it, maybe you shouldn't be in the game."

 

“It might cost me $15 million or $20 million to knock RIM down but it would be fabulous because it would beleaguer all the moron longs who are also keying on Research in Motion."

 

"A lot of times when I was short at my hedge fund ... meaning I needed (a stock) down, I would create a level of activity beforehand that could drive the futures. It’s a fun game and it’s a lucrative game."

 

"Who cares about the fundamentals? The great thing about the market is that it has nothing to do with the actual stocks."

 

- Jim Cramer, hedge fund manager from 1987-2001, Dec 2006

 

https://www.youtube.com/watch?v=CpMEFtPZJLc

[nate82]

Uggg I really hate Cramer as he is one of the biggest market manipulators.

[LouisEly]

This certainly isn't my area of expertise, but how do you reconcile what you are saying with this interview? It definitely sounds like manipulation and like it happens all the time.

Because Cramer was a hedge fund manager 20 years ago? Data is much more available and transparent now, and regulations were passed after the late 2000's financial crisis that increased government oversight and eliminated some regulatory gaps of hedge funds.

 

The definition of "hedge fund" and how it got it's name is because they hedge their bets to create less volatility in expected returns compared to other retail funds with high exposure to the market. They make more extensive use of leverage and derivatives, riskier bets, but hedge those bets to reduce volatility.

 

What I linked to was what is being said by others about Citron, not me.

[RobDeer 45]

This certainly isn't my area of expertise, but how do you reconcile what you are saying with this interview? It definitely sounds like manipulation and like it happens all the time.

Because Cramer was a hedge fund manager 20 years ago? Data is much more available and transparent now, and regulations were passed after the late 2000's financial crisis that increased government oversight and eliminated some regulatory gaps of hedge funds.

 

The definition of "hedge fund" and how it got it's name is because they hedge their bets to create less volatility in expected returns compared to other retail funds with high exposure to the market. They make more extensive use of leverage and derivatives, riskier bets, but hedge those bets to reduce volatility.

 

What I linked to was what is being said by others about Citron, not me.

 

People go on CNBC, talk to reporters, or go on social media all the time about the companies they are buying or shorting. It's to get the hype going to help them out. Just watch CNBC for a few days. There is more regulation on what you can and can't do, but it's still happening all the time.

 

As for hedge funds definition, that is partially accurate but hedge funds have taken on many more forms now. Some hedge their bets like you mentioned but some don't. Essentially hedge funds are for investors wanting to hedge against their other investments because the fund hopes to make money in any market condition. Some can all be long, some all short, and some in between. They can essentially do whatever they want (within the regulations) and take on more risk because investors are wealthier and are made aware of the risky nature.

[LouisEly]

People go on CNBC, talk to reporters, or go on social media all the time about the companies they are buying or shorting. It's to get the hype going to help them out. Just watch CNBC for a few days.

I've been watching CNBC for over a decade; almost daily since the pandemic began. I have Jon Najarian's personal cell phone number, and I've been on Mad Money twice.

 

No, it's not to get the hype going. It's to recruit clients. If you watch, they always explain the reasoning (financial and technical analysis) behind their positions. One of the biggest financial mistakes I've ever made was because I missed an analysis by Jim Cramer of the balance sheet of one of my investments which he recommended selling; a year and a half later the company filed bankruptcy. That's not hype.

[homer]

For most people you will come out far better with traditional vs Roth. Just look at the cumulative effect of taking that money pre-tax every year for decades. That growth will far out-weigh whatever the tax changes may or not be in retirement. Again, for MOST people.

 

not true at all. If you look at a calculator that does this, it all is dependent on your tax situation. If your tax rate is the exact same at the time of contributing and when withdrawing, they will result in exactly the same amount of money. However, I think nearly everyone agrees that taxes will not be going down long-term...if anything they may go up. Therefore, it's better to pay the taxes at a lower rate now than later in life at a higher rate. Even beyond that, it's nice to look at the balance in my Roth 403b and know that the balance is what I'll get, whereas the balance in my 403b will lose a chunk to the gov't--that's the emotional/optical aspect.

 

I've done some calculators on this and IF you invest the money you save on taxes by using a traditional 401K you come out ahead (obviously it depends on tax brackets). The problem is not many people do this I'd imagine.

 

I think there's certainly some benefit/comfort to seeing a balance and knowing that's what you'll have when you retire.

[adambr2]

I am assuming that I am a big idiot, because no matter how many times someone explains Bitcoin to me, I still don't really get it.