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God bless them. Take so much flak yet are inarguably the backbone of our society.

by donaldo 6y ago

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LordOfWolves 6y ago
Given your username, bio, and the article itself, you’d think your comment is sarcastic, though it does not come off as such.
bhupy 6y ago
You’re being downvoted, but hedge funds’ positive impact on price discovery is under-rated. Matt Levine (Bloomberg’s extraordinary finance opinion writer / jokester) had a pretty good articulation of this in a recent post about GameStop and Melvin Capital (https://www.bloomberg.com/opinion/articles/2021-01-28/knowing-when-to-sell-gamestop-stock-at-the-top-is-impossible https://www.bloomberg.com/opinion/articles/2021-01-28/knowin...): “The point of the stock market is to Enable Price Discovery or Encourage Capital Formation or something boring like that. Stock markets exist so that companies can raise money to fund their projects, and so that the smartest analysts of companies can work diligently and compete fiercely to put the proper value on those companies so that we as a society can know what projects are most valuable. Stock markets exist so that regular people can invest their savings in those companies, making everyone better off: Companies get funding to pursue socially beneficial projects; regular people get an ownership stake in economic growth. Or whatever. This theory has some obvious flaws in its real-life application, but it’s a decent theory. It is, if not exactly true, true-ish; it describes the fundamental underpinnings of the market if not necessarily its everyday operation. It posits a social purpose for financial markets, beyond making funny memes on Reddit. It is just the case, just inevitably the case, that if you are going to have financial markets that are optimized for those purposes—that are liquid and complete, that attract smart people, that are open to everyone—they are also going to have a certain amount of nonsense. It’s not like WallStreetBets invented financial nonsense! Financial-market nonsense is, like, 70% of what we talk about around here on a normal day. How many times have I written about hedge funds tricking each other using credit default swaps? Financial markets exist to foster price discovery and capital formation, but the way they do that is mostly by letting smart people mess with each other all day. WallStreetBets is a new class of smart people messing, quite effectively, with the old ones.”
- fulafel 6y ago
  (quoting your quote) "Stock markets exist so that companies can raise money to fund their projects" This is said a a lot but surely things like it just exist, and any purpouses we assign are stories. The majority of the effect on the world of the stock market seems to be what happens with existing stocks and not IPOs & share issues.
  - bhupy 6y ago
    In the same post I linked, Matt Levine actually provided an example of exactly that happening to another similarly over-hyped company, AMC: “In talking about GameStop, I have occasionally tried to tie the goofy stock-price dynamics to corporate finance. I suggested that maybe GameStop could sell stock at these absurd prices and use the money to, you know, be a better company. It’s tricky, selling stock at these prices, but in theory that’s what the prices are for: People are telling you that they want to buy your stock to fund your projects, so you might as well sell them the stock and do the projects. AMC has done that! On Monday it announced that it had raised $506 million of equity (and another $411 million of debt) in various transactions that “should allow the company to make it through this dark coronavirus-impacted winter.” Good work. Even better, that same day AMC launched an at-the-market offering to sell up to 50 million shares into the market at prevailing prices, allowing it to sell opportunistically to any redditors who wanted to buy. Yesterday it announced that it had finished the offering and raised $304.8 million from that and a previous stock sale, at an average price of about $4.80 a share. Of course yesterday the stock closed at $19.90, so AMC would have done better to wait a day, but nobody’s perfect. When redditors are clamoring to buy your stock you should sell it to them before it’s too late; there’s no reason for the company to try to time the endgame perfectly. Also yesterday holders of $600 million of AMC convertible bonds converted them into stock at a conversion price of $13.51 per share. Six hundred million dollars of debt, vaporized by Reddit enthusiasm. “In the absence of significant increases in attendance from current levels, there is substantial doubt about our ability to continue as a going concern for a reasonable period of time,” AMC warned investors on Monday; four days and a billion dollars later, there is somewhat less doubt. A week ago it was not crazy to think this company was doomed; now it is entirely possible that it will survive and thrive and show movies in movie theaters for decades to come because everyone went nuts and bought meme stocks this week. Capital formation!”
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God bless them. Take so much flak yet are inarguably the backbone of our society.

deleted 6y ago

[deleted]

deleted 6y ago

[deleted]

LordOfWolves 6y ago

Given your username, bio, and the article itself, you’d think your comment is sarcastic, though it does not come off as such.

bhupy 6y ago

You’re being downvoted, but hedge funds’ positive impact on price discovery is under-rated. Matt Levine (Bloomberg’s extraordinary finance opinion writer / jokester) had a pretty good articulation of this in a recent post about GameStop and Melvin Capital (https://www.bloomberg.com/opinion/articles/2021-01-28/knowing-when-to-sell-gamestop-stock-at-the-top-is-impossible https://www.bloomberg.com/opinion/articles/2021-01-28/knowin...): “The point of the stock market is to Enable Price Discovery or Encourage Capital Formation or something boring like that. Stock markets exist so that companies can raise money to fund their projects, and so that the smartest analysts of companies can work diligently and compete fiercely to put the proper value on those companies so that we as a society can know what projects are most valuable. Stock markets exist so that regular people can invest their savings in those companies, making everyone better off: Companies get funding to pursue socially beneficial projects; regular people get an ownership stake in economic growth. Or whatever. This theory has some obvious flaws in its real-life application, but it’s a decent theory. It is, if not exactly true, true-ish; it describes the fundamental underpinnings of the market if not necessarily its everyday operation. It posits a social purpose for financial markets, beyond making funny memes on Reddit. It is just the case, just inevitably the case, that if you are going to have financial markets that are optimized for those purposes—that are liquid and complete, that attract smart people, that are open to everyone—they are also going to have a certain amount of nonsense. It’s not like WallStreetBets invented financial nonsense! Financial-market nonsense is, like, 70% of what we talk about around here on a normal day. How many times have I written about hedge funds tricking each other using credit default swaps? Financial markets exist to foster price discovery and capital formation, but the way they do that is mostly by letting smart people mess with each other all day. WallStreetBets is a new class of smart people messing, quite effectively, with the old ones.”

fulafel 6y ago
(quoting your quote) "Stock markets exist so that companies can raise money to fund their projects" This is said a a lot but surely things like it just exist, and any purpouses we assign are stories. The majority of the effect on the world of the stock market seems to be what happens with existing stocks and not IPOs & share issues.
- bhupy 6y ago
  In the same post I linked, Matt Levine actually provided an example of exactly that happening to another similarly over-hyped company, AMC: “In talking about GameStop, I have occasionally tried to tie the goofy stock-price dynamics to corporate finance. I suggested that maybe GameStop could sell stock at these absurd prices and use the money to, you know, be a better company. It’s tricky, selling stock at these prices, but in theory that’s what the prices are for: People are telling you that they want to buy your stock to fund your projects, so you might as well sell them the stock and do the projects. AMC has done that! On Monday it announced that it had raised $506 million of equity (and another $411 million of debt) in various transactions that “should allow the company to make it through this dark coronavirus-impacted winter.” Good work. Even better, that same day AMC launched an at-the-market offering to sell up to 50 million shares into the market at prevailing prices, allowing it to sell opportunistically to any redditors who wanted to buy. Yesterday it announced that it had finished the offering and raised $304.8 million from that and a previous stock sale, at an average price of about $4.80 a share. Of course yesterday the stock closed at $19.90, so AMC would have done better to wait a day, but nobody’s perfect. When redditors are clamoring to buy your stock you should sell it to them before it’s too late; there’s no reason for the company to try to time the endgame perfectly. Also yesterday holders of $600 million of AMC convertible bonds converted them into stock at a conversion price of $13.51 per share. Six hundred million dollars of debt, vaporized by Reddit enthusiasm. “In the absence of significant increases in attendance from current levels, there is substantial doubt about our ability to continue as a going concern for a reasonable period of time,” AMC warned investors on Monday; four days and a billion dollars later, there is somewhat less doubt. A week ago it was not crazy to think this company was doomed; now it is entirely possible that it will survive and thrive and show movies in movie theaters for decades to come because everyone went nuts and bought meme stocks this week. Capital formation!”

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