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The hedge funds vs. common people narrative is ridiculous. There were hedge funds on every side of the trade. I do agree that it would have been unethical (or

The hedge funds vs. common people narrative is ridiculous. There were hedge funds on every side of the trade. I do agree that it would have been unethical (or at least pretty dubious) for the company to sell the stock knowing it’s massively overvalued.

WJW 6y ago
> knowing it’s massively overvalued. Overvalued is in the eye of the beholder, in this case the market. There were people willing to buy the stock at that price, why not sell it to them? If the buyers really believed it was going "to the moon", then you could just as well argue they cheated a lot of potential buyers out of the chance to get in on that action. Finally, if you do think it's overvalued, arguably the best thing to do as a company is sell more stock, to maximize the amount of money per share you get. This is the way Tesla does it for example: they only sell more shares into the market when the stock price is particularly high.
- GordonS 6y ago
  It always boggles my mind when I think about how public companies' shares are valued based purely on "what the market thinks". It just seems so ripe for abuse. And I guess as someone who lived in a world of software, I don't like the lack of "logic" behind valuations. I wonder if there are there any markets anywhere in the world where company shares are publicly traded, valued by a quantitative means, such as a multiplier of revenue or profit?
  - WJW 6y ago
    According to "regular" stock market philosophy, the "correct" price for a company is the sum of all of its future cash flows. However it is not really feasible to predict what the future profits of a company in a free-ish market are going to be, since at any point a new competitor might pop up and take some market share. In addition, you can't predict if a growing company will not start stabilizing at some point in the future, which would affect its future earnings and thus its price. So the answer to your question must be no, there are no stock markets where shares are traded on a purely quantitative base. This is because the only way for price discovery on such a market is by perfectly predicting the future, which is not (as far as we know) possible.
    - GordonS 6y ago
      I meant based on reported actual figures, rather than predicted ones. It was just a random thought though - the way our financial markets work is so entrenched that I'd be very surprised if anything like it did actually exist anywhere.
      - WJW 6y ago
        It doesn't matter whether the rest of the world will do anything with it if we enjoy theorizing about it on the internet in our free time :) I don't think reported actual figures are enough to form a good enough image of the worth of a company. The proverbial example would be of buggy whip companies (selling whips for horse drawn carts) reporting record profits the year that Ford opened his first automobile factory. Clearly the buggy whip companies did not have a bright future ahead of them, but you wouldn't be able to tell from reported figures.
      - elindbe3 6y ago
        Reported figures happened in the past though, it's the future cash flows which affect the price of a company and no one knows what those cash flows will be exactly, not even the company itself.
mschuster91 6y ago
> The hedge funds vs. common people narrative is ridiculous. Is it? Without the retail investors (gamblers) nothing of that would have happened. And Melvin Capital lost a couple billion dollars while quite a number of Redditors got a massive payout, so a net win for society. Side note: As an European, the amount of GME-related "paid my student loan" and "paid my medical bill" posts on Reddit are heartbreaking to read.
- fractionalhare 6y ago
  Quite a number of redditors lost a lot of money too. If you sorted by new on WSB last week when GME plummeted, you could see lots of posts with 5, 6 and even 7 figure losses. Given that 6 million of the current 8.5 million WSB subscribers joined after GME popped, I think most retail investors probably lost money. At this point it's a minority who got in early and made a lot of money.
- dcolkitt 6y ago
  > And Melvin Capital lost a couple billion dollars while quite a number of Redditors got a massive payout, so a net win for society. And quite a lot of Redditors suffered massive losses. There's not shortage of WSB posts with 7 figure losses. Overall it's pretty hard to assess whether on net "Wall Street" made or lost money to retail. Melvin certainly wasn't the only player here. It's likely that other funds jumped in on the squeeze, and were much better in terms of timing their exit. Some funds may have shorted on the way back down, and made a killing. But most importantly, intermediaries like HFTs, option market makers, internalizers, and stat arb funds made a killing. Almost entirely at the expense of retail flow. It's like a casino. Some win, some lose, but the house rake always wins. But even if retail on net made money, it probably wasn't a benefit to society. 20 people losing their life savings so that /u/deepfuckingvalue can become a multimillionaire isn't exactly a heartwarming story.
  - jki275 6y ago
    Especially when you look at who that dude actually is...
sodality2 6y ago
It's like a battle between 2 humans and the ants are on one side. Retail traders may have started this, but they certainly didn't make up most of the shares holding. This is why the short squeeze is unlikely.
- jcfields 6y ago
  The short squeeze happened two weeks ago when the stock ballooned from $20 to $480. That's a 24x increase; VW's "infinity squeeze" comparatively only grew 5x from $200 to $1000. People on WSB had some arbitrary price targets in mind and are in denial that the stock hasn't squeezed yet because they haven't hit those (completely made-up, with no basis in anything) targets.
  - JumpCrisscross 6y ago
    > The short squeeze happened two weeks ago when the stock ballooned from $20 to $480 Almost certainly not. We will learn, in time, how much of the run was shorts closing out and how much of it was momentum. Keep in mind, too, that most institutional short sellers hedge their risk with out of the money calls. Given the increase in volatility, those calls would have more than covered the short losses.
  - sodality2 6y ago
    True. I mean the short squeeze the redditors are hoping for ("100k is not a meme guys just hold lool!!!!")
- soneca 6y ago
  Well, ants do kill humans by themselves. Edit: I was just nitpicking the analogy, I agree that the “common folk vs hedge fund” narrative is totally delusional.
rchaud 6y ago
It's similarly unethical for companies to be able to borrow at 0%, then use the money to conduct stock buybacks, but I guess the S&P500 and DJIE don't have to be tethered to economic reality anymore.
- umanwizard 6y ago
  Why is that unethical?
  - rchaud 6y ago
    Because the purpose of state-sanctioned cheap capital is to defray the cost of investing in your business...hiring people, buying capital equipment, investing in R&D. Not spiking your own share price by bidding it up on public markets. That does nothing except help managers' stock options more profitable.
christophilus 6y ago
I think it’s unethical for a highly overvalued company NOT to issue shares. Good capital allocation means issuing shares when you’re at an insane valuation and buying them in when you’re severely undervalued. They could have issued shares, paid off debt, or used the cash to launch new products, etc.

WJW 6y ago

> knowing it’s massively overvalued. Overvalued is in the eye of the beholder, in this case the market. There were people willing to buy the stock at that price, why not sell it to them? If the buyers really believed it was going "to the moon", then you could just as well argue they cheated a lot of potential buyers out of the chance to get in on that action. Finally, if you do think it's overvalued, arguably the best thing to do as a company is sell more stock, to maximize the amount of money per share you get. This is the way Tesla does it for example: they only sell more shares into the market when the stock price is particularly high.

GordonS 6y ago
It always boggles my mind when I think about how public companies' shares are valued based purely on "what the market thinks". It just seems so ripe for abuse. And I guess as someone who lived in a world of software, I don't like the lack of "logic" behind valuations. I wonder if there are there any markets anywhere in the world where company shares are publicly traded, valued by a quantitative means, such as a multiplier of revenue or profit?
- WJW 6y ago
  According to "regular" stock market philosophy, the "correct" price for a company is the sum of all of its future cash flows. However it is not really feasible to predict what the future profits of a company in a free-ish market are going to be, since at any point a new competitor might pop up and take some market share. In addition, you can't predict if a growing company will not start stabilizing at some point in the future, which would affect its future earnings and thus its price. So the answer to your question must be no, there are no stock markets where shares are traded on a purely quantitative base. This is because the only way for price discovery on such a market is by perfectly predicting the future, which is not (as far as we know) possible.
  - GordonS 6y ago
    I meant based on reported actual figures, rather than predicted ones. It was just a random thought though - the way our financial markets work is so entrenched that I'd be very surprised if anything like it did actually exist anywhere.
    - WJW 6y ago
      It doesn't matter whether the rest of the world will do anything with it if we enjoy theorizing about it on the internet in our free time :) I don't think reported actual figures are enough to form a good enough image of the worth of a company. The proverbial example would be of buggy whip companies (selling whips for horse drawn carts) reporting record profits the year that Ford opened his first automobile factory. Clearly the buggy whip companies did not have a bright future ahead of them, but you wouldn't be able to tell from reported figures.
    - elindbe3 6y ago
      Reported figures happened in the past though, it's the future cash flows which affect the price of a company and no one knows what those cash flows will be exactly, not even the company itself.

mschuster91 6y ago

> The hedge funds vs. common people narrative is ridiculous. Is it? Without the retail investors (gamblers) nothing of that would have happened. And Melvin Capital lost a couple billion dollars while quite a number of Redditors got a massive payout, so a net win for society. Side note: As an European, the amount of GME-related "paid my student loan" and "paid my medical bill" posts on Reddit are heartbreaking to read.

fractionalhare 6y ago
Quite a number of redditors lost a lot of money too. If you sorted by new on WSB last week when GME plummeted, you could see lots of posts with 5, 6 and even 7 figure losses. Given that 6 million of the current 8.5 million WSB subscribers joined after GME popped, I think most retail investors probably lost money. At this point it's a minority who got in early and made a lot of money.
dcolkitt 6y ago
> And Melvin Capital lost a couple billion dollars while quite a number of Redditors got a massive payout, so a net win for society. And quite a lot of Redditors suffered massive losses. There's not shortage of WSB posts with 7 figure losses. Overall it's pretty hard to assess whether on net "Wall Street" made or lost money to retail. Melvin certainly wasn't the only player here. It's likely that other funds jumped in on the squeeze, and were much better in terms of timing their exit. Some funds may have shorted on the way back down, and made a killing. But most importantly, intermediaries like HFTs, option market makers, internalizers, and stat arb funds made a killing. Almost entirely at the expense of retail flow. It's like a casino. Some win, some lose, but the house rake always wins. But even if retail on net made money, it probably wasn't a benefit to society. 20 people losing their life savings so that /u/deepfuckingvalue can become a multimillionaire isn't exactly a heartwarming story.
- jki275 6y ago
  Especially when you look at who that dude actually is...

sodality2 6y ago

It's like a battle between 2 humans and the ants are on one side. Retail traders may have started this, but they certainly didn't make up most of the shares holding. This is why the short squeeze is unlikely.

jcfields 6y ago
The short squeeze happened two weeks ago when the stock ballooned from $20 to $480. That's a 24x increase; VW's "infinity squeeze" comparatively only grew 5x from $200 to $1000. People on WSB had some arbitrary price targets in mind and are in denial that the stock hasn't squeezed yet because they haven't hit those (completely made-up, with no basis in anything) targets.
- JumpCrisscross 6y ago
  > The short squeeze happened two weeks ago when the stock ballooned from $20 to $480 Almost certainly not. We will learn, in time, how much of the run was shorts closing out and how much of it was momentum. Keep in mind, too, that most institutional short sellers hedge their risk with out of the money calls. Given the increase in volatility, those calls would have more than covered the short losses.
- sodality2 6y ago
  True. I mean the short squeeze the redditors are hoping for ("100k is not a meme guys just hold lool!!!!")
soneca 6y ago
Well, ants do kill humans by themselves. Edit: I was just nitpicking the analogy, I agree that the “common folk vs hedge fund” narrative is totally delusional.

rchaud 6y ago

It's similarly unethical for companies to be able to borrow at 0%, then use the money to conduct stock buybacks, but I guess the S&P500 and DJIE don't have to be tethered to economic reality anymore.

umanwizard 6y ago
Why is that unethical?
- rchaud 6y ago
  Because the purpose of state-sanctioned cheap capital is to defray the cost of investing in your business...hiring people, buying capital equipment, investing in R&D. Not spiking your own share price by bidding it up on public markets. That does nothing except help managers' stock options more profitable.

christophilus 6y ago

I think it’s unethical for a highly overvalued company NOT to issue shares. Good capital allocation means issuing shares when you’re at an insane valuation and buying them in when you’re severely undervalued. They could have issued shares, paid off debt, or used the cash to launch new products, etc.