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A nice post! The initial part of the article with the efficient markets hypothesis (satellite data and app download data are table stakes for investing) rings a

A nice post! The initial part of the article with the efficient markets hypothesis (satellite data and app download data are table stakes for investing) rings a bit hollow for me in a world where bankrupt Hertz is seeing its share price go up though...

QuesnayJr 6y ago
If you sincerely think that Hertz is overvalued, why don't you short it? It seems like an easy money-making opportunity, if so.
- haakonhr 6y ago
  Not if they don't believe that the markets are efficient. It doesn't matter if you are, in some sense, "right" if the market disagrees. Wirecard is a prime example of this: a lot of short-sellers that, in the end, were right about the fact that it seems to have been a house of cards lost a lot of money.
- fancyfredbot 6y ago
  Because the market can stay irrational longer than I can stay solvent
- eru 6y ago
  Unfortunately, it's not that easy. The regulatory environment is not kind to short sellers. Matt Levine's Money Stuff often has examples of how shorting can go wrong. Recently there was a company that was accused of fraud. An obvious target for shorting. But: once the fraud properly came to light, the authorities promptly halted trading in the company's stock. After trading was halted, the shortsellers could not cover their shorts. And of course, in order to shortsell, you always need someone willing to lend you the stock in the first place. In the case of Hertz, https://fintel.io/ss/us/htz https://fintel.io/ss/us/htz does suggest that plenty of shortselling is going on. But https://finance.yahoo.com/news/why-bankrupt-hertz-short-squeeze-173507444.html https://finance.yahoo.com/news/why-bankrupt-hertz-short-sque... suggests that finding Hertz stock to borrow became harder over time.
- TuringNYC 6y ago
  Aside from the other issues (staying solvent long enough to profit), there is another issue - government intervention. You never know if the government will sweep in and save a company [unfairly?] or change terms -- either with a guarantee, bailout, or unlimited loans. Case: Bear Sterns, AIG, GS
  - eru 6y ago
    One of the first things many European countries did to combat (?) the pandemic was to ban short selling. See eg https://www.reuters.com/article/uk-health-coronavirus-hedgefunds-shortse/hedge-funds-target-france-as-short-selling-bans-lifted-idUSKBN2321K7 https://www.reuters.com/article/uk-health-coronavirus-hedgef...
dannyw 6y ago
In the short term, markets are just noise.
- eru 6y ago
  At least they should look like noise. If there was a clear pattern, that means the market doesn't work.
WA 6y ago
I liked the first part for the very reason that it didn’t apply the strict form of EMH. It explicitly says: information that is widely known. Not all information is priced in equally and your edge might be that you assign a different probability to an outcome than the rest of the market. Hertz is mostly trading and speculation right now. But two other examples I found intriguing: 1. Look up the timeline of events with Corona. Late January: millions of Chinese are put in quarantine. Mid February: Apple gives a warning about not meeting guidances. Few days later: Markets reach all-time highs despite the fact that the most-valuable company in the world just told everybody that the supply chain disruption in China is real. That was a good opportunity to go short or buy put options. And I actually did and made a small fortune. 2. Wirecard. The information about the fraud were all known, but the general opinion didn’t price that in (of course, the short sellers did). You could’ve made a killing with that -98% decline in their stock within a week. I missed this opportunity. But both of these events showed me that there are crazy inefficiencies once in a while that can be exploited (obviously with some chance of being wrong, but that’s part of the game and a question of risk management).
- mypalmike 6y ago
  Another good example was the BP oil spill in 2010. It was in the news for a couple weeks before the stock moved sharply down.

QuesnayJr 6y ago

If you sincerely think that Hertz is overvalued, why don't you short it? It seems like an easy money-making opportunity, if so.

haakonhr 6y ago
Not if they don't believe that the markets are efficient. It doesn't matter if you are, in some sense, "right" if the market disagrees. Wirecard is a prime example of this: a lot of short-sellers that, in the end, were right about the fact that it seems to have been a house of cards lost a lot of money.
fancyfredbot 6y ago
Because the market can stay irrational longer than I can stay solvent
eru 6y ago
Unfortunately, it's not that easy. The regulatory environment is not kind to short sellers. Matt Levine's Money Stuff often has examples of how shorting can go wrong. Recently there was a company that was accused of fraud. An obvious target for shorting. But: once the fraud properly came to light, the authorities promptly halted trading in the company's stock. After trading was halted, the shortsellers could not cover their shorts. And of course, in order to shortsell, you always need someone willing to lend you the stock in the first place. In the case of Hertz, https://fintel.io/ss/us/htz https://fintel.io/ss/us/htz does suggest that plenty of shortselling is going on. But https://finance.yahoo.com/news/why-bankrupt-hertz-short-squeeze-173507444.html https://finance.yahoo.com/news/why-bankrupt-hertz-short-sque... suggests that finding Hertz stock to borrow became harder over time.
TuringNYC 6y ago
Aside from the other issues (staying solvent long enough to profit), there is another issue - government intervention. You never know if the government will sweep in and save a company [unfairly?] or change terms -- either with a guarantee, bailout, or unlimited loans. Case: Bear Sterns, AIG, GS
- eru 6y ago
  One of the first things many European countries did to combat (?) the pandemic was to ban short selling. See eg https://www.reuters.com/article/uk-health-coronavirus-hedgefunds-shortse/hedge-funds-target-france-as-short-selling-bans-lifted-idUSKBN2321K7 https://www.reuters.com/article/uk-health-coronavirus-hedgef...

dannyw 6y ago

In the short term, markets are just noise.

eru 6y ago
At least they should look like noise. If there was a clear pattern, that means the market doesn't work.

WA 6y ago

I liked the first part for the very reason that it didn’t apply the strict form of EMH. It explicitly says: information that is widely known. Not all information is priced in equally and your edge might be that you assign a different probability to an outcome than the rest of the market. Hertz is mostly trading and speculation right now. But two other examples I found intriguing: 1. Look up the timeline of events with Corona. Late January: millions of Chinese are put in quarantine. Mid February: Apple gives a warning about not meeting guidances. Few days later: Markets reach all-time highs despite the fact that the most-valuable company in the world just told everybody that the supply chain disruption in China is real. That was a good opportunity to go short or buy put options. And I actually did and made a small fortune. 2. Wirecard. The information about the fraud were all known, but the general opinion didn’t price that in (of course, the short sellers did). You could’ve made a killing with that -98% decline in their stock within a week. I missed this opportunity. But both of these events showed me that there are crazy inefficiencies once in a while that can be exploited (obviously with some chance of being wrong, but that’s part of the game and a question of risk management).

mypalmike 6y ago
Another good example was the BP oil spill in 2010. It was in the news for a couple weeks before the stock moved sharply down.