7 ms·

The whole Nikola situation was fascinating to me at the time. I shorted the shares and bought puts in the days to couple of months following the Hindenburg pub

The whole Nikola situation was fascinating to me at the time. I shorted the shares and bought puts in the days to couple of months following the Hindenburg publication. I was surprised at how long the shares held up; they were still trading around $10/sh when I closed the last of my shorts at the end of 2021 (~15 months after the publication which was never substantially refuted and never substantially in doubt as far as I could tell). I would have expected a much quicker and less orderly collapse of share prices and the absence of that made me question my understanding of the stock market entirely, specifically my previous belief that “all public information is quickly priced in.” (That is still not entirely resolved for me.)

bobthepanda 3y ago
Public information is quickly priced in, when it is decided that it is important. For when it's important, the market can stay irrational longer than you can stay solvent, and all that.
mdon 3y ago
I think this is similar to LTCM in the 90s, which reminded people of the depression era quote: “Markets can stay irrational longer than you can stay solvent”
- lofatdairy 3y ago
  How so? I mean, you can argue that Russia defaulting was (arguably) irrational, but the market response to it was fairly textbook. I might be wrong, but even if they didn't get killed by margin calls, weren't the losses on their bad bets enough to wipe out any profits the company ever made?
MVissers 3y ago
“The market can stay irrational longer than you can stay solvent.” Eventually- Markets go back to the mean, but predicting when is the hard part.
- kwertyoowiyop 3y ago
  “It’s very lonely being the only correct investor on Wall Street”
tony69 3y ago
Part of the story is how passive index ETFs work. https://www.etf.com/stock/NKLA https://www.etf.com/stock/NKLA sort by # shares owned, you'll see the biggest owners of NKLA stock are ishares funds, vanguard etc. These funds buy based on market cap of the stock. Anyone with a retirement account that holds passive etfs (or things like target date retirement funds) is a stockholder in NKLA, a stock which no active fund manager would touch with a 10foot pole. As passive accounts for more than half of the total market funds/flows, blatant frauds that somehow manage to be included in these funds have an easier time surviving (and the larger the market cap, the more inflows their shares receive). In the 2021 stock mania there were other factors at play too.
- hunter2_ 3y ago
  Are these ETFs, target date retirement funds, etc. protected against class action lawsuits from shareholders who end up holding the bag due to the inclusion of fraudulent stocks like this? Obviously waivers are signed about how performance is never guaranteed, but that's a bit different from a need to timely exit positions in fraudulent companies.
  - zozbot234 3y ago
    The whole point of passive investing is to not pick winners and losers, to leave that part of the job to professional speculators (including, yes, short sellers). Because you aren't going to do any better than them on average, even if they do on occasion pick some duds (like Nikola).
    - bsdpufferfish 3y ago
      Imagine you invested in the index minus Nikola. This isn't improbable as several hours of due diligence would have raised concerns. This shows that the choice of stocks included in an index is not arbitrary. You don't get "better on average" automatically just by buying the 500 stocks on a list someone sold to you.
      - 3y ago
nprateem 3y ago
> all public information is quickly priced in Yeah this theory is bollocks. Priced in by whom, Wall St or Redditors? This theory may have been relevant before retail investors were a large force, but now it's irrelevant. I mean, if it worked, you'd never have meme stocks.
- zozbot234 3y ago
  If you look at actual cases of "meme stocks", they happened because the meme factor could actually help the underlying business. GameStop was one famous example of that - if a meme makes the company more popular with the general public, that translates to better forecasts for business outcomes.
  - nprateem 3y ago
    Citation needed. If that were the case, meme stocks would have been embraced by Wall St instead of heavily shorted (IIRC BB & B was) because a pump and dump doesn't in fact materially improve the underlying business.
    - fsckboy 3y ago
      economic and finance theory is based on some clear assumptions. if those assumptions are violated, the theory predicts that the theory cannot predict. "meme stocks" attract a small amount of capital (, large only) to a small number of stocks whose price becomes inflated. Given the nature of memes, this will rarely happen to the whole market. If you owned a broad index fund, your portfolio would inflate along with the meme stocks, and it will deflate along with them later. If it turned out that GameStop was an actual runaway hit, you would participate in it. If it turned out it was just a fad, you participate in that also. There's no place in this story for broad index funds to be a bad idea. Investing directly in the meme stocks carries a huge amount of diversifiable risk, and the market rewards risk, but not diversifiable risk. I said "rarely" to the whole market above because one could consider the .com boom a whole market meme. But you would have been worse off if you stayed out of the market through that bubble.
bhasi 3y ago
> Hindenburg publication I have not been following the Nikola story, and the fact that the founder has now been convicted of fraud came as news to me. I also was not aware that Hindenburg had published anything on Nikola - reading that now: https://hindenburgresearch.com/nikola/ https://hindenburgresearch.com/nikola/
rthkljlkrj 3y ago
[flagged]
ProjectArcturis 3y ago
Interesting -- I made quite a lot on NKLA selling put spreads. It was obvious that they were a fraud. But the market was full of obvious frauds that didn't collapse. GME and AMC had scared the short-sellers out of the market. Idiots were pouring money into NFTs. I just made a bet that NKLA wouldn't fall apart right away, and it paid off very well.
- hef19898 3y ago
  Well, in the end all the short sellers profited hugely from Gamestock, the hodld crowd was left holding the bag. That's what happenes if, as part of a pump and dump, you forget to dump.
fsckboy 3y ago
> belief that “all public information is quickly priced in.” if you actually believed that all public information is quickly priced in, why did you short or buy puts? Did you have non-public information? Being bearish is expressing doubt that the information is priced in. What subsequently happened (nothing) is confirmation that the information was priced in, and should reinforce your stated belief.
- sokoloff 3y ago
  Obviously, I believed that there was significant uncertainty around the validity of the Hindenburg information at the moment of its release, but my reading led me to a conclusion that Nikola was very likely not a viable company, likely not a viable company at the then-existing market cap, and that the balance of investor sentiment wasn't likely to tip towards the buy-side. My surprise wasn't that that it took weeks to sort out (and for Nikola to issue comically terrible responses) but rather that, after making the judgment and investment, that it took well over a year to 75% complete with no credible (to me) positive news from the company. Differences of opinion about the future are what makes a market. I'm puzzled at who was holding the opposing opinion and why... > What subsequently happened (nothing) I invite you to take a look at a 40 month (or just a 5 year) chart of $NKLA and decide if nothing happened to the shares.
lazide 3y ago
Tether is transparently BS, but as long as the consensus is that it’s worth pretending it’s not, it will continue on regardless of the facts. It’s rabbit holes all the way down.

bobthepanda 3y ago

Public information is quickly priced in, when it is decided that it is important. For when it's important, the market can stay irrational longer than you can stay solvent, and all that.

mdon 3y ago

I think this is similar to LTCM in the 90s, which reminded people of the depression era quote: “Markets can stay irrational longer than you can stay solvent”

lofatdairy 3y ago
How so? I mean, you can argue that Russia defaulting was (arguably) irrational, but the market response to it was fairly textbook. I might be wrong, but even if they didn't get killed by margin calls, weren't the losses on their bad bets enough to wipe out any profits the company ever made?

MVissers 3y ago

“The market can stay irrational longer than you can stay solvent.” Eventually- Markets go back to the mean, but predicting when is the hard part.

kwertyoowiyop 3y ago
“It’s very lonely being the only correct investor on Wall Street”

tony69 3y ago

Part of the story is how passive index ETFs work. https://www.etf.com/stock/NKLA https://www.etf.com/stock/NKLA sort by # shares owned, you'll see the biggest owners of NKLA stock are ishares funds, vanguard etc. These funds buy based on market cap of the stock. Anyone with a retirement account that holds passive etfs (or things like target date retirement funds) is a stockholder in NKLA, a stock which no active fund manager would touch with a 10foot pole. As passive accounts for more than half of the total market funds/flows, blatant frauds that somehow manage to be included in these funds have an easier time surviving (and the larger the market cap, the more inflows their shares receive). In the 2021 stock mania there were other factors at play too.

hunter2_ 3y ago
Are these ETFs, target date retirement funds, etc. protected against class action lawsuits from shareholders who end up holding the bag due to the inclusion of fraudulent stocks like this? Obviously waivers are signed about how performance is never guaranteed, but that's a bit different from a need to timely exit positions in fraudulent companies.
- zozbot234 3y ago
  The whole point of passive investing is to not pick winners and losers, to leave that part of the job to professional speculators (including, yes, short sellers). Because you aren't going to do any better than them on average, even if they do on occasion pick some duds (like Nikola).
  - bsdpufferfish 3y ago
    Imagine you invested in the index minus Nikola. This isn't improbable as several hours of due diligence would have raised concerns. This shows that the choice of stocks included in an index is not arbitrary. You don't get "better on average" automatically just by buying the 500 stocks on a list someone sold to you.
    - 3y ago

nprateem 3y ago

> all public information is quickly priced in Yeah this theory is bollocks. Priced in by whom, Wall St or Redditors? This theory may have been relevant before retail investors were a large force, but now it's irrelevant. I mean, if it worked, you'd never have meme stocks.

zozbot234 3y ago
If you look at actual cases of "meme stocks", they happened because the meme factor could actually help the underlying business. GameStop was one famous example of that - if a meme makes the company more popular with the general public, that translates to better forecasts for business outcomes.
- nprateem 3y ago
  Citation needed. If that were the case, meme stocks would have been embraced by Wall St instead of heavily shorted (IIRC BB & B was) because a pump and dump doesn't in fact materially improve the underlying business.
  - fsckboy 3y ago
    economic and finance theory is based on some clear assumptions. if those assumptions are violated, the theory predicts that the theory cannot predict. "meme stocks" attract a small amount of capital (, large only) to a small number of stocks whose price becomes inflated. Given the nature of memes, this will rarely happen to the whole market. If you owned a broad index fund, your portfolio would inflate along with the meme stocks, and it will deflate along with them later. If it turned out that GameStop was an actual runaway hit, you would participate in it. If it turned out it was just a fad, you participate in that also. There's no place in this story for broad index funds to be a bad idea. Investing directly in the meme stocks carries a huge amount of diversifiable risk, and the market rewards risk, but not diversifiable risk. I said "rarely" to the whole market above because one could consider the .com boom a whole market meme. But you would have been worse off if you stayed out of the market through that bubble.

bhasi 3y ago

> Hindenburg publication I have not been following the Nikola story, and the fact that the founder has now been convicted of fraud came as news to me. I also was not aware that Hindenburg had published anything on Nikola - reading that now: https://hindenburgresearch.com/nikola/ https://hindenburgresearch.com/nikola/

rthkljlkrj 3y ago

[flagged]

ProjectArcturis 3y ago

Interesting -- I made quite a lot on NKLA selling put spreads. It was obvious that they were a fraud. But the market was full of obvious frauds that didn't collapse. GME and AMC had scared the short-sellers out of the market. Idiots were pouring money into NFTs. I just made a bet that NKLA wouldn't fall apart right away, and it paid off very well.

hef19898 3y ago
Well, in the end all the short sellers profited hugely from Gamestock, the hodld crowd was left holding the bag. That's what happenes if, as part of a pump and dump, you forget to dump.

fsckboy 3y ago

> belief that “all public information is quickly priced in.” if you actually believed that all public information is quickly priced in, why did you short or buy puts? Did you have non-public information? Being bearish is expressing doubt that the information is priced in. What subsequently happened (nothing) is confirmation that the information was priced in, and should reinforce your stated belief.

sokoloff 3y ago
Obviously, I believed that there was significant uncertainty around the validity of the Hindenburg information at the moment of its release, but my reading led me to a conclusion that Nikola was very likely not a viable company, likely not a viable company at the then-existing market cap, and that the balance of investor sentiment wasn't likely to tip towards the buy-side. My surprise wasn't that that it took weeks to sort out (and for Nikola to issue comically terrible responses) but rather that, after making the judgment and investment, that it took well over a year to 75% complete with no credible (to me) positive news from the company. Differences of opinion about the future are what makes a market. I'm puzzled at who was holding the opposing opinion and why... > What subsequently happened (nothing) I invite you to take a look at a 40 month (or just a 5 year) chart of $NKLA and decide if nothing happened to the shares.

lazide 3y ago

Tether is transparently BS, but as long as the consensus is that it’s worth pretending it’s not, it will continue on regardless of the facts. It’s rabbit holes all the way down.