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Your investment thesis would then be that GME becomes a token of value independent of the underlying business, dividends, and so on. More of a collector's item.

by FabHK 6y ago

Your investment thesis would then be that GME becomes a token of value independent of the underlying business, dividends, and so on. More of a collector's item. Intriguing, and (lamentably) not entirely impossible. But, you know: bubbles do have the habit of bursting.

throwaway-571 6y ago
Aren't we in a bubble since march 2020, if not sometime in 2018?
- hahajk 6y ago
  I guess you have to ask what gives stocks value in the first place... especially tech stocks that don’t issue dividends.
  - chii 6y ago
    dividends are irrelevant when valuing a stock - it's the company's earnings (and margins etc), and the future expected earnings that matter.
    - shanusmagnus 6y ago
      Unless there are dividends, all the factors you mentioned are purely symbolic. The fact that this symbolic -> monetary imputation is now the dominant determinant of stock price was the parent's point.
      - chii 6y ago
        it's not symbolic - the value of a company (i.e., their share price, if public) can be exchanged with money by selling the share. This is true regardless of the actual dividend payouts. Irrelevancy of dividends is not the same as not _being able_ to pay dividends. Paying dividends is just one way a company returns profits - but there are plenty of other ways, such as share buy backs, or reinvestments in the company (thus making future returns higher).
        shanusmagnus 6y ago
        It's symbolic in the same way that value accrued by trading pet rocks or beanie babies is symbolic -- the fact that someone will pay money, at some particular point in time, for the asset is irrelevant. It is not generative of money returns on its own. Dividends, like rents generated by real estate, accrue based on the financial performance of the underlying asset. Dividend payout is the only way valuation has any real basis in financial performance of the underlying business. No dividend = something else is afoot. Most stocks right now are baseball cards.
        bluecalm 6y ago
        You're missing several points: 1)Possibility of issuing dividends means the valuation can't be too low. If it's too low you can just buy it out and issue dividends next year making bank. 2)The the company may hold assets valuable to other (maybe dividend paying) entities. If the valuation is too low they will just buy it out and pay out more dividends. 3)The company may buy its own stock. If the value is too low they will buy a lot of it and issue dividends later at big multiplier. I am not sure why you're feeling so strongly about that point. It's about the first thing you learn when dealing with equities. If anything paying significant dividends right now means the business is unlikely to grow anymore.
      - danhak 6y ago
        Not symbolic at all. Stock confers legal ownership of a company. Why is ownership of a company's assets any less valuable than ownership of cash dispersed to your personal account?
      - bluecalm 6y ago
        Man, it really doesn't matter if they pay out money or store it in a box. The box still belongs to the company. They can always pay out later or someone else may need a box full of money. Of course it's even better if they do something more useful with the money than just storing it in a box.
        shanusmagnus 6y ago
        They can pay out later, sure. But they needn't pay out anything, ever. They could make a zillion dollars next year and you'd get none, directly. That's the point. Whatever you could get by trading the share is based on somebody's belief in its value, for some definition of "value" (see e.g., Tesla.) People trade stock as if the companies were yielding something to the stock owners. Many don't. Acting "as if" the company is making those payments -- imputing a price to the stock according to the underlying fundamentals, or some temporally discounted variant -- is a fantasy. It is a symbolic act. An exercise in recursion, anchored in nothing. The story the market is telling is a very different kind of story, now.
      - grey-area 6y ago
        What’s the difference between dividends and selling a portion of a holding every year?
    - FabHK 6y ago
      > dividends are irrelevant when valuing a stock Aka the Modigliani–Miller theorem. https://en.wikipedia.org/wiki/Dividend_policy#Modigliani%E2%80%93Miller_theorem https://en.wikipedia.org/wiki/Dividend_policy#Modigliani%E2%...
  - grey-area 6y ago
    Future earnings over the next few decades is the traditional definition of value (returned as dividends, or price increase, doesn’t matter which). Periodically people lose sight of that and start talking about a new paradigm and new valuations (usually because using that metric means prices are insane), but it always returns to future earnings. All indicators are we are near the top of a spectacular bubble in assets from bitcoin to spacs to tech stock prices the red signs are flashing. Who knows how or when it ends though.
aphextron 6y ago
> Your investment thesis would then be that GME becomes a token of value independent of the underlying business, dividends, and so on. More of a collector's item. Yes, that's basically the point we've reached with the stock market as a whole right now. Nothing is tied to any kind of fundamentals. It's all about "we like the stock".
- FabHK 6y ago
  > Yes, that's basically the point we've reached with the stock market as a whole right now. Not really, though. GME and other meme stocks might be out of whack a lot, temporarily, and stocks generally might be overvalued somewhat (and, I’d say, harder to value because rates are so low, making the horizon longer), but I’m pretty sure that the mechanisms are still there that fundamentals will reassert themselves.
  - stickfigure 6y ago
    At the very least, GME can print as much stock as they want and sell it into the market. They'd be crazy not to.
    - dreamcompiler 6y ago
      As Matt Levine pointed out in his columns this week, GME would likely attract a huge amount of SEC scrutiny if they tried to take advantage of this obvious insanity. That doesn't mean they would ultimately be found guilty of anything, but it would be a huge distraction from, you know, adding shareholder value by selling video games.
      - dougmwne 6y ago
        But that's the thing here. The reason their fundamentals are so terrible is that their business model is going the way of Blockbuster. Selling disks is distracting them from reinventing themselves. Many people buying GME are doing so because they don't want to see a company they have some sentiment for be destroyed by Wall Street. I think of this like a last-ditch public offering or a Kickstarter Hail Mary. They have an opportunity to raise the capital they need to reimagine the company and become worthy of their new valuation and continued existence.
quercusa 6y ago
Once the race for the exits begins, the price will drop the way it rose.
brightball 6y ago
It’s as if it is a cryptocurrency all its own at this point.
- anonisko 6y ago
  Except that it can be arbitrarily inflated.
  - sverhagen 6y ago
    Asking in earnest: how's that not true for crypto, like what Musk did to Doge?
    - girvo 6y ago
      I think they mean more stock can be issued, rather than the value being driven up.
    - anonisko 6y ago
      Musk didn't inflate Doge. He tweeted about it and a bunch of get rich quick folks scrambled to buy, driving the price up like a penny stock. A share of stock represents a tiny percentage share in a company's assets and profits. For simplicity, let's say a company has 100 shares, and you own 1 share or 1%. If they then issue 100 new shares and sell them on the market to raise cash, your ownership in the company has been diluted from 1% to 0.5%. That's why company shares will never be safe as an arbitrary store of value like bitcoin is. No one can arbitrarily dilute your share of the bitcoin pie.
uyt 6y ago
That's disturbingly intriguing indeed. In theory, what is stopping any stock from being a cryptocurrency (minus the crypto part)? Can anything tradeable with a fixed supply become a currency? What other magic requirement is missing?
- Jtsummers 6y ago
  Ease of exchange. I can’t (easily) give you 100 GME to buy a new car. We’d need a particular arrangement which isn’t easy to come by in the current setup.
  - bobthepanda 6y ago
    If anything, cryptocurrencies are becoming more like illiquid equity rather than a currency. I can't exactly go to the store and exchange BTC for milk. Interestingly, local dispensaries at one point entertained the idea of BTC ATMs to get around the fact that they have no ability to take credit cards due to the illegal state of pot at the federal level, but this was abandoned after a bit because the volatility was too expensive to make this a worthwhile proposition.
    - rorykoehler 6y ago
      What I do is use the virtual crypto wallet in Revolut. Keep money in BTC and when I want to buy something move the exact amount across to the FIAT currency account and tap to pay. I keep a small float in FIAT so I only do this when it’s the cheaper option.
- brmgb 6y ago
  > Can anything tradeable with a fixed supply become a currency? Yes, very much so (including something with unpredictable supply). Through history, diverse things were used as currency including shells, salt, silver and gold. The commonly used definition of a currency was coined by Aristotle and is that it's an asset fulfilling three requirements: - being an intermediary of exchange; - being a store of value; - being a unit of account. You might notice that most cryptocurrencies are not actually currency owning to the first point.

by FabHK 6y ago

throwaway-571 6y ago

Aren't we in a bubble since march 2020, if not sometime in 2018?

hahajk 6y ago
I guess you have to ask what gives stocks value in the first place... especially tech stocks that don’t issue dividends.
- chii 6y ago
  dividends are irrelevant when valuing a stock - it's the company's earnings (and margins etc), and the future expected earnings that matter.
  - shanusmagnus 6y ago
    Unless there are dividends, all the factors you mentioned are purely symbolic. The fact that this symbolic -> monetary imputation is now the dominant determinant of stock price was the parent's point.
    - chii 6y ago
      it's not symbolic - the value of a company (i.e., their share price, if public) can be exchanged with money by selling the share. This is true regardless of the actual dividend payouts. Irrelevancy of dividends is not the same as not _being able_ to pay dividends. Paying dividends is just one way a company returns profits - but there are plenty of other ways, such as share buy backs, or reinvestments in the company (thus making future returns higher).
      - shanusmagnus 6y ago
        It's symbolic in the same way that value accrued by trading pet rocks or beanie babies is symbolic -- the fact that someone will pay money, at some particular point in time, for the asset is irrelevant. It is not generative of money returns on its own. Dividends, like rents generated by real estate, accrue based on the financial performance of the underlying asset. Dividend payout is the only way valuation has any real basis in financial performance of the underlying business. No dividend = something else is afoot. Most stocks right now are baseball cards.
        bluecalm 6y ago
        You're missing several points: 1)Possibility of issuing dividends means the valuation can't be too low. If it's too low you can just buy it out and issue dividends next year making bank. 2)The the company may hold assets valuable to other (maybe dividend paying) entities. If the valuation is too low they will just buy it out and pay out more dividends. 3)The company may buy its own stock. If the value is too low they will buy a lot of it and issue dividends later at big multiplier. I am not sure why you're feeling so strongly about that point. It's about the first thing you learn when dealing with equities. If anything paying significant dividends right now means the business is unlikely to grow anymore.
    - danhak 6y ago
      Not symbolic at all. Stock confers legal ownership of a company. Why is ownership of a company's assets any less valuable than ownership of cash dispersed to your personal account?
    - bluecalm 6y ago
      Man, it really doesn't matter if they pay out money or store it in a box. The box still belongs to the company. They can always pay out later or someone else may need a box full of money. Of course it's even better if they do something more useful with the money than just storing it in a box.
      - shanusmagnus 6y ago
        They can pay out later, sure. But they needn't pay out anything, ever. They could make a zillion dollars next year and you'd get none, directly. That's the point. Whatever you could get by trading the share is based on somebody's belief in its value, for some definition of "value" (see e.g., Tesla.) People trade stock as if the companies were yielding something to the stock owners. Many don't. Acting "as if" the company is making those payments -- imputing a price to the stock according to the underlying fundamentals, or some temporally discounted variant -- is a fantasy. It is a symbolic act. An exercise in recursion, anchored in nothing. The story the market is telling is a very different kind of story, now.
    - grey-area 6y ago
      What’s the difference between dividends and selling a portion of a holding every year?
  - FabHK 6y ago
    > dividends are irrelevant when valuing a stock Aka the Modigliani–Miller theorem. https://en.wikipedia.org/wiki/Dividend_policy#Modigliani%E2%80%93Miller_theorem https://en.wikipedia.org/wiki/Dividend_policy#Modigliani%E2%...
- grey-area 6y ago
  Future earnings over the next few decades is the traditional definition of value (returned as dividends, or price increase, doesn’t matter which). Periodically people lose sight of that and start talking about a new paradigm and new valuations (usually because using that metric means prices are insane), but it always returns to future earnings. All indicators are we are near the top of a spectacular bubble in assets from bitcoin to spacs to tech stock prices the red signs are flashing. Who knows how or when it ends though.

aphextron 6y ago

> Your investment thesis would then be that GME becomes a token of value independent of the underlying business, dividends, and so on. More of a collector's item. Yes, that's basically the point we've reached with the stock market as a whole right now. Nothing is tied to any kind of fundamentals. It's all about "we like the stock".

FabHK 6y ago
> Yes, that's basically the point we've reached with the stock market as a whole right now. Not really, though. GME and other meme stocks might be out of whack a lot, temporarily, and stocks generally might be overvalued somewhat (and, I’d say, harder to value because rates are so low, making the horizon longer), but I’m pretty sure that the mechanisms are still there that fundamentals will reassert themselves.
- stickfigure 6y ago
  At the very least, GME can print as much stock as they want and sell it into the market. They'd be crazy not to.
  - dreamcompiler 6y ago
    As Matt Levine pointed out in his columns this week, GME would likely attract a huge amount of SEC scrutiny if they tried to take advantage of this obvious insanity. That doesn't mean they would ultimately be found guilty of anything, but it would be a huge distraction from, you know, adding shareholder value by selling video games.
    - dougmwne 6y ago
      But that's the thing here. The reason their fundamentals are so terrible is that their business model is going the way of Blockbuster. Selling disks is distracting them from reinventing themselves. Many people buying GME are doing so because they don't want to see a company they have some sentiment for be destroyed by Wall Street. I think of this like a last-ditch public offering or a Kickstarter Hail Mary. They have an opportunity to raise the capital they need to reimagine the company and become worthy of their new valuation and continued existence.

quercusa 6y ago

Once the race for the exits begins, the price will drop the way it rose.

brightball 6y ago

It’s as if it is a cryptocurrency all its own at this point.

anonisko 6y ago
Except that it can be arbitrarily inflated.
- sverhagen 6y ago
  Asking in earnest: how's that not true for crypto, like what Musk did to Doge?
  - girvo 6y ago
    I think they mean more stock can be issued, rather than the value being driven up.
  - anonisko 6y ago
    Musk didn't inflate Doge. He tweeted about it and a bunch of get rich quick folks scrambled to buy, driving the price up like a penny stock. A share of stock represents a tiny percentage share in a company's assets and profits. For simplicity, let's say a company has 100 shares, and you own 1 share or 1%. If they then issue 100 new shares and sell them on the market to raise cash, your ownership in the company has been diluted from 1% to 0.5%. That's why company shares will never be safe as an arbitrary store of value like bitcoin is. No one can arbitrarily dilute your share of the bitcoin pie.

uyt 6y ago

That's disturbingly intriguing indeed. In theory, what is stopping any stock from being a cryptocurrency (minus the crypto part)? Can anything tradeable with a fixed supply become a currency? What other magic requirement is missing?

Jtsummers 6y ago
Ease of exchange. I can’t (easily) give you 100 GME to buy a new car. We’d need a particular arrangement which isn’t easy to come by in the current setup.
- bobthepanda 6y ago
  If anything, cryptocurrencies are becoming more like illiquid equity rather than a currency. I can't exactly go to the store and exchange BTC for milk. Interestingly, local dispensaries at one point entertained the idea of BTC ATMs to get around the fact that they have no ability to take credit cards due to the illegal state of pot at the federal level, but this was abandoned after a bit because the volatility was too expensive to make this a worthwhile proposition.
  - rorykoehler 6y ago
    What I do is use the virtual crypto wallet in Revolut. Keep money in BTC and when I want to buy something move the exact amount across to the FIAT currency account and tap to pay. I keep a small float in FIAT so I only do this when it’s the cheaper option.
brmgb 6y ago
> Can anything tradeable with a fixed supply become a currency? Yes, very much so (including something with unpredictable supply). Through history, diverse things were used as currency including shells, salt, silver and gold. The commonly used definition of a currency was coined by Aristotle and is that it's an asset fulfilling three requirements: - being an intermediary of exchange; - being a store of value; - being a unit of account. You might notice that most cryptocurrencies are not actually currency owning to the first point.