4 ms·

No, that's irrational. Stock opens at X, you buy at 0.5X, you sell at 0.9X, it goes back to X. Then the exchange breaks the 0.5x trade. Now you still have to

No, that's irrational. Stock opens at X, you buy at 0.5X, you sell at 0.9X, it goes back to X. Then the exchange breaks the 0.5x trade. Now you still have to deliver the order you sold at 0.9x, but you're buying it at X, so you've earned a neat loss. The rational thing to do is to get a cup of coffee. Unless you enjoy losing tons of money, in which case your idea is great as well.

vasilipupkin 11y ago
you are confusing various scenarios with the expectation. If you believe that a 50% decline is not justified rationally, meaning by expected future cashflows of this asset, then the asset is by definition underpriced and you should buy it. Or, stop claiming that the decline is irrational. Or, define better what you mean by irrational
- eogjnjoeg 11y ago
  You missed the key point of my post which is that your purchase at 0.5x will almost certainly be broken by the exchange, so the odds aren't what you naively pretending they are. This ignorance on your part means that you misunderstand what would be rational. And the arrogance on your part means that you felt it appropriate to be a dick to somebody who understands the problem space better than you do. You are an ignorant and arrogant fool who is dunning-kreugering himself. Don't bother responding; I already know that you're an arrogant asshole who is not interested in a conversation, isn't capable of admitting error, and who won't ever be worthy of any form of respect. You're whale shit.
  - monochromatic 11y ago
    > Be civil. Don't say things you wouldn't say in a face-to-face conversation. Avoid gratuitous negativity. > When disagreeing, please reply to the argument instead of calling names. E.g. "That is idiotic; 1 + 1 is 2, not 3" can be shortened to "1 + 1 is 2, not 3." https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
  - vasilipupkin 11y ago
    right. The scenario you described becomes irrelevant if you wait 2 days to sell.
lotharbot 11y ago
why are you selling at 0.9X? Why are you assuming everyone is a day-trader trying to immediately cash out? If you believe the stock is worth a lot more than 0.5X and you're generally a buy-and-hold type investor, buy it at 0.5X and wait. If the exchange chooses to break the 0.5X trade it costs you only the opportunity cost of being able to buy something else at a good price during the next few days. And if they allow the trade, you got a great security for half price -- so you can be patient and sell at a later date, or hang on to the asset for whatever dividends it might pay out.
PhantomGremlin 11y ago
Then the exchange breaks the 0.5x trade Yeah, this can't be overemphasized. When some widow or orphan (or more likely GS) is on the other side of the trade, then clearly it should be broken. Wouldn't want them to lose any money. /sarcasm As you say, the rational action is not to play. Other people have opined on this and said that, if the "clearly erroneous" rules are properly defined, then a trade should never never never be broken. It should simply not be allowed to go thru. That makes more sense to me. Edit: And for those who think this is merely hypothetical, or just whinging, you should read this: http://www.ft.com/cms/s/0/37fff9c6-0b36-11e3-bffc-00144feabdc0.html http://www.ft.com/cms/s/0/37fff9c6-0b36-11e3-bffc-00144feabd... GS trades were broken. Hopefully the FT paywall won't block that link, it worked for me when I searched for the story. So who knows.
- lotharbot 11y ago
  > "the rational action is not to play" The rational action is not to attempt a short-term play. Having one side of your two-sided trade broken is a very bad outcome. But if you're making a long-term play, that consideration is irrelevant. There's no "other side" of the trade for you to match up with. If you get an asset at 0.5X and then don't sell it and then the exchange breaks the trade, you get your money back and you're no worse off than when you started. But if you happen to grab an asset at 0.5X and the exchange doesn't break the trade, then you gained an asset for half of what it's worth. Now you've got a great asset in your portfolio, only you have twice as much as you should have been able to afford. That's a great move!

vasilipupkin 11y ago

you are confusing various scenarios with the expectation. If you believe that a 50% decline is not justified rationally, meaning by expected future cashflows of this asset, then the asset is by definition underpriced and you should buy it. Or, stop claiming that the decline is irrational. Or, define better what you mean by irrational

eogjnjoeg 11y ago
You missed the key point of my post which is that your purchase at 0.5x will almost certainly be broken by the exchange, so the odds aren't what you naively pretending they are. This ignorance on your part means that you misunderstand what would be rational. And the arrogance on your part means that you felt it appropriate to be a dick to somebody who understands the problem space better than you do. You are an ignorant and arrogant fool who is dunning-kreugering himself. Don't bother responding; I already know that you're an arrogant asshole who is not interested in a conversation, isn't capable of admitting error, and who won't ever be worthy of any form of respect. You're whale shit.
- monochromatic 11y ago
  > Be civil. Don't say things you wouldn't say in a face-to-face conversation. Avoid gratuitous negativity. > When disagreeing, please reply to the argument instead of calling names. E.g. "That is idiotic; 1 + 1 is 2, not 3" can be shortened to "1 + 1 is 2, not 3." https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- vasilipupkin 11y ago
  right. The scenario you described becomes irrelevant if you wait 2 days to sell.

lotharbot 11y ago

why are you selling at 0.9X? Why are you assuming everyone is a day-trader trying to immediately cash out? If you believe the stock is worth a lot more than 0.5X and you're generally a buy-and-hold type investor, buy it at 0.5X and wait. If the exchange chooses to break the 0.5X trade it costs you only the opportunity cost of being able to buy something else at a good price during the next few days. And if they allow the trade, you got a great security for half price -- so you can be patient and sell at a later date, or hang on to the asset for whatever dividends it might pay out.

PhantomGremlin 11y ago

Then the exchange breaks the 0.5x trade Yeah, this can't be overemphasized. When some widow or orphan (or more likely GS) is on the other side of the trade, then clearly it should be broken. Wouldn't want them to lose any money. /sarcasm As you say, the rational action is not to play. Other people have opined on this and said that, if the "clearly erroneous" rules are properly defined, then a trade should never never never be broken. It should simply not be allowed to go thru. That makes more sense to me. Edit: And for those who think this is merely hypothetical, or just whinging, you should read this: http://www.ft.com/cms/s/0/37fff9c6-0b36-11e3-bffc-00144feabdc0.html http://www.ft.com/cms/s/0/37fff9c6-0b36-11e3-bffc-00144feabd... GS trades were broken. Hopefully the FT paywall won't block that link, it worked for me when I searched for the story. So who knows.

lotharbot 11y ago
> "the rational action is not to play" The rational action is not to attempt a short-term play. Having one side of your two-sided trade broken is a very bad outcome. But if you're making a long-term play, that consideration is irrelevant. There's no "other side" of the trade for you to match up with. If you get an asset at 0.5X and then don't sell it and then the exchange breaks the trade, you get your money back and you're no worse off than when you started. But if you happen to grab an asset at 0.5X and the exchange doesn't break the trade, then you gained an asset for half of what it's worth. Now you've got a great asset in your portfolio, only you have twice as much as you should have been able to afford. That's a great move!