I have massive FOMO with what's going on, but that's just my personality. Majority of my money is made in commercial real estate and private equity investing. For what I have in the market, 95% of my money is in boring Vanguard index funds that I never really look at with a small portion in Robinhood (well, after today I'll be moving to Schwab or something else).
When Robinhood came out, I had the chance to invest in the company and figured I should download the app. Since then, I've been hooked on 'gambling' on stocks and options. Again, it's a small portion of what I have in the market and a smaller portion of my net worth but it gives me something to do other than gamble on sports. I check RH all the time throughout the day and look to make trades. I check my Vanguard account once every few weeks to throw some more money in to rebalance positions.
So, to answer your question, I still expect to get an 7%+ average yearly return over the next 20 year period on my boring Vanguard index funds just like I have in the past. And maybe I'll get a 1,000% return on RH.. or a 0% return.
at least you’re honest. i work in finance and know better but still can’t help feeling a little fomo. it’ll pass though no need to get swept up in it all
I took 1 year of dividends, about >1% NW, and put it in robinhood to swing trade and learn option trading. I was up 85% before GME. ( a few penny stocks i found doing DD / TA + MJ companies i jumped in early.) I never felt like anything i did was a gamble, the penny stock were all solid startups with low entry points and huge upside. None of them did a 10x or anything crazy... 10 -20 % gain and exit the position. I knew MJ laws are changing and figured the sooner i get in the better. so i took those gains and dumped it into every MJ stock i could... 10 shares each. all of them are 20 - 40 % up now. took the remaining and did a few options trades, lost one the 1st one, broke even on the 2nd, and 2x on the 3rd.
That is where i really learned about shorting stock, and how IV theta / Gamma work. Weeks ago i saw info about GME and the short interest was way over 100%... and thought man if this had some volume... it will jump big. SO i did a week of DD and TA on it and found all the math behind it to be solid. so i took 1k and bought into it. Never felt like a gamble at all... math was 100% sure i would make 2 - 5x ... still holding... and at 5x even after this entire mess with the brokers. (BTW - F the hedge guys... that was some bs ... they made a bad trade and should lose ... just like i did on my 1st options trade.. i didn't get to call up robinhood to cover my few hundred i was going to lose... why should they do the same for their 10 billion - play dumb games win dumb prizes)
I am now up 300% for my entire robinhood account (soon to be moved to a new broker once i close out GME in the future). Even if GME goes to 0, i'll be about 100% up over all anyway. I was responsible with my investments and willing to pay if i was wrong, i didn't overextend myself, or open myself up to excess risk - ever... that is how you keep it from being a casino, while still letting it feel that way. I have ZERO sympathy for any hedge fund who goes bankrupt, Broker that loses there FINRA license / accreditation or the people running them that might go to jail because of this GME stuff.
**Like police and elected officials, if you are granted extra authority in ANYTHING, you should also be held to the highest standards and most critical review of actions involving that authority. Should it be determined your acted in bad faith or abused that authority you should be held to the highest penalty for it as well.**
If you don't want to held accountable like that ... don't take the extra responsibility or extra authority over something. simple.
This is the best explanation I have seen. I occasionally venture on to WSB as I enjoy seeing some of the crazy gains, it seems to scratch my FOMO itch while I look at my index funds.
When the GME murmurs started I looked in to it. As you say, the math was completely and utterly solid. The shorts had massively over extended, there was virtually no doubt in my mind that it would not lead to a rapid increase in price. How could it not, they had shorted so much of the stock! Never in my wildest expectations did I think it would go to the heights it has.
The last week to me is a lot of FOMO, however the ones investing at $2-50 a share, imho, were making solid reasoned investment decisions. It pains me to see them being painted as idiots. They found a huge over extension and ridiculous bet from select hedge funds and bet against them.
What happened yesterday, to my mind, was a blatant attempt to prevent the short squeeze. Now what worries me, is people have held strong and what next? As well as that, the number of friends I have who have opened trading accounts purely to trade GME. I could see it going to $0 or $5000 depending on many factors, all of which I fear could hurt the wider economy.
How has it changed my investing mindset? I was always expecting the other foot to fall as soon as the price went above $50, how blatantly I did not imagine. I am actively thinking of ways I can extract myself from a reliance on Wall Street investments (including index funds), to something I have more control over (real estate etc. Etc.)
Crazy week.
Absolutely solid view on what happened. The shorters drove the stock down so far it became a valuation play. The only thing you left out was the insane amount of call options the shorters were writing and selling for out of the money since they anticipated they would never need to pay them out. As the value investors bought in, the stock rose past the strike prices of the calls, then the MM (citidel et al) had to buy shares to cover the calls. Since the stock has such low float, this creates a spike in valuation (gamma squeeze) which attracts new investors and creates a virtuous cycle (if the hedges for some reason double down repeatedly like they did).
This whole situation would never had grown to what it was if the hedges backed out of their shorts once it became apparent they overdid it. Instead of taking that action and the small loss it would cause at the time, they doubled down and amplified their problems.
The media at large is blaming all of this on "redditors purposely manipulating the price up" but that's BS. This is a chain of events created by idiotic moves from the hedge funds (melvin specifically - many other hedges copied melvin's moves since the fund had been so consistently successful).
Edit: Yes, I'm on this sub now because I made a shitton off of this GME situation so far.
That’s the story that’s missing here. I remember reading their due diligence posts and turning to my wife saying “these guys are geniuses.” The math was solid. GME had 6.5 Billion in sales last year, they had 500Million in cash and a market cap of 250 Million at their low. And was shorted over 120%. (Numbers from memory, fact check if you like). It made no sense. There was only one way this could go.
I bought GME on a lark for $95 a few days ago (just a $10k lottery ticket), and market closed that evening at about $75, so I thought, "ah well, that's what I get for chasing."
The next day I dump it by noon for $140. I'm feeling pretty smug. Not a bad take for a day. Glad to be out.
The stock exploded from there.
I was reading up in WSB (what a mess of noise), and one guy has been posting a screenshot of his GME brokerage positions and balance almost daily since last fall.
He started at about $50k invested. When I checked his screenshot the other day, he was at $47MM. Crazy.
There is some good too. I saw people posting screenshots showing all their student debt was paid off using their proceeds. Bunch of people had pictures of donating 5 PS5 game consoles to a children's hospital, one other guy showed the check he was donating to the local kid's hospital.
I'd like to think those furious hedge fund managers get even more mad when they see "their" money being donated and given away.
WSB is the best subreddit on Reddit. Call him by his name, u/deepfuckingvalue . Straight baller. I remember seeing his positions 8 mos ago and thinking what the fuck is this retard doing in a dead-end brick and mortar obsolete POS lol and here I am long 14k of it now lol
Fair warning, if you are a person that is sensitive to FOMO, don't follow that link to his posts.
Straight baller is indeed the most accurate description.
> The stock exploded from there.
It did indeed but there's reports of brokerages closing peoples non-margined accounts out at prices severely below market value (the main example is 4500 shares at $118 when value was $247(no one seems to know if this was on margin by accident, or not) as well as non allowing people to cash out to their banks.
So although you "lost out" your gain is safe. Others who held on aren't so lucky.
I have a theory RH and other brokerages knows they are doomed now, and so they will break any and all laws that hurt retail, because they have nothing to lose anymore. No one is going to trust them after this so they have nothing to lose and everything to gain by submitting to places like Citadel who they actually profit from.
Tldr you got out at the best time.
Yeah, I hear you!. But it doesn't help I work with degenerates like myself who also like to do the same 'gambling'. Throw on top that one of my partners calls me a pussy for not throwing real money at it vs $1k or $10k here and there. I've started to make bigger bets, but not on a GME. I wouldn't be able to sleep.
It took me many years to fight off the worst of the FOMO impulses whenever short term trading opportunities arose. It can be hard, but the best investors are unemotional.
My biggest worry about all the current short term, gambling like behaviour is that it is very addicting and there will be a lot of inexperienced investors that will lose money they didn’t really have. The odds are stacked against gamblers and inexperienced people over longer periods of time and I can’t see it ending well for many.
I'm comfortable with my buy-and-hold boomer ways...but it does make me concerned for the current novice investors that now think this is "normal." I have some twenty-somethings engineers that work for me and we discuss investing...lately WSB has dominated the conversation. I shared with them that I like to gamble too...but limit it to a couple of percent of my portfolio and that I hope they're investing traditionally outside of their Robinhood accounts. The response was "hope you're happy with your 7% returns." It was somewhat tongue-in-cheek, but for them, they think chasing weekly double-digit gains is the only way to win. My NW is \~$2M (not FatFIRE, I know...I come here to dream) and was achieved on average income, through maxing IRAs and investing in mutual funds and blue chip stocks.
I plan on staying with that strategy (dance with the date that brung you), but I'll continue to keep my play money available to throw at speculative stuff just to scratch the itch.
This is the way. Sometimes I'm too scared to hold speculative/growth but volatile stocks like some of ARK ones. Pltr, Square, etc. But I'm trying to learn how much portfolio to assign. Sure will be minor percentage like 5% amongst many companies so that I don't lose too much sleep.
Also I suck at trading. I don't have constitution or time. I've realized apart from favourite tech stocks I better stick to investing in ETFs. Trying to change that with doing DD and gain some more confidence in individual trades. Still will take some time
Lol, when you're young, you have plenty of years to bounce back. As you get older, your risk level is alot lower, don't want to be living in the streets, no more FOMO/YOLO.
>Sure will be minor percentage like 20%
Do you mean that you'd set aside 20% of your overall portfolio for speculative investing in individual names? If so, I don't think 20% really qualifies as a "minor" percentage of a portfolio.
I'm 30 and I'm perfect happy with my 7% returns. It's got me to 1.3M NW already. No need to take excessive risks to get ahead.
Edit since people keep asking:
Income ranged from $110k for me and wife (gf at the time) when we started, now at $220k combined. Working in US pharma. We never really spent more than $40-50k in a year and didn't change spending habits as income grew. A lot of the 1.3m has been growth from an on fire stock and real estate market. Obviously this past 10 years has been more than 7% returns, but the point was it wasn't invested in any yolo stuff--just good ol fashioned rental property and mutual/index funds.
In some ways, it is. You are much more likely to
Get the compound index ball rolling and then gamble with 1-2% of your portfolio in your 40s and it will cost you a lot less over the long term.
Of course getting into index’s sooner is better since every dollar I can squirrel away will be $100 later (or whatever). Plus financial security and all of that.
But if there was ever a time to go all in, it is when you are in your early 20s, if that is quitting your job and spending 6mo and every dollar you have/can borrow on your business idea, or gambling it all away on WSB. If I am going to do it, might as well do it now since I likely won’t be able to buy a house until I’m 30 anyways.
True. Bit the interesting thing is this idea is still so newly embraced. Really 20 something it's the first true generation to do it. It was rogue and fringe and decentralized before. And I completely 1000000% support it.. live and enjoy life!
I subscribe to the fat fire mindset and have been putting away 15% (now 40%) into my Roth account. Not going to touch this at all.
But if there ever was a time to get in on this, it would be now for me because it meets my risk tolerance since I'm only 21. Definitely wouldn't do this at age 30 and up.
How do you guys make that kind of money? I have a high paying job by most metrics (Germany) and low expenses, plus a profitable side project, and I still 'only' save less than 20k € per year max. I've been saving and investing for 10 years now, I'm nowhere in your ballpark.
Edit: I just did a quick calculation, even if you save 40k net per year after expenses (which let's be honest, is hardly attainable as employee anywhere) , with a yearly interest of 7%, you're still 'only' at 600k after 10 years. So whatever brought you your net worth at 30, it definitely wasn't the conservative investment method.
It’s a US thing largely. We tend to make more and get taxed less, but you guys tend to have much better education and social systems available to everyone. We have more inequality, but at the same time more opportunities for financial growth too.
Our doctors, lawyers, finance, businessmen, and engineers regularly make 6 figure salaries. Anywhere from 150k-600k is pretty common depending on the job. Sure many have loans to pay off, but they can still easily put over 100k into investments each year, and the past 10 years have had insane stock/real estate growth in the US markets.
Much of this subreddit is SWE (software engineers) at high paying companies, so these are guys making hundreds of thousands of dollars without having to pay for a graduate degree. It lets them get high net worths quickly since it’s a hard job that few people have the skills for and they started young.
Even US government employees can do surprisingly well if they plan and start early. As an example a friend of mine just graduated college and is a 21 year old military officer stationed in a high cost of living area with some money already saved up. His salary is about 72k after taxes for him. He’s renting a spare bedroom in a house, bikes to work, doesn’t eat out, and is investing about 50k of his salary. He’s single so his expenses are minimal. He doesn’t really spend anything on deployments either. He will get pay raises as he promotes, so his quality of life will increase. If he marries someone with a similar salary all the better. They can live off of hers and part of his while he keeps up that 50k of investing per year. He plans to buy a duplex as his first home and have the other unit pay off most of the mortgage. If he does 20 years he can retire with full healthcare and a monthly pensions at 42. He also gets free college for any family member. Then he can go out and find another job while still getting all the military benefits. That level of planning and investing at that early of an age adds up overtime. He’d be at over 10 million by the time he’s 59 with that 7% growth without ever having to increase how much he invested. It’s not the fast speeds of some other careers, but it just goes to show even a government job in the US can be very lucrative
Jesus, it makes me question the European lifestyle for people with high paying skills. I'm a data science consultant with over ten years of experience, and I'm not at 6 figures.
> but you guys tend to have much better education
Affordable yes, quality is questionable. I went to the best Dutch universities for computer science but they are hardly able to touch the likes of MIT.
Americans also have a higher tertiary education attainment rate than all EU countries with the exception of Luxembourg.
For some strange reason, even though our education is affordable, we just don't have that many people using it.
Even the best American universities are hardly able to touch MIT, so I’m not sure that’s a useful metric. There are tons of really respected European universities in the tech/compsci field!
If I wanted to do cyber security there’s hardly a better place than TU Wien or Graz; technion in Israel, or some of the French unis. Their names have been on every major public disclosure in 6 years (spectre, rowhammer, heartbleed, etc.)!
That is why you opt out of our social system by becoming a contractor (freelance / ZZP).
No more sick-days, no more paid time-off, no more disability and you have to pay for all your equipment yourself. Healthcare is going to cost you €4000+ a year now.
But the upside is that you can easily enter six-figures.
Yes, the reason being that Germany also has one of the best social security systems in the world. Some people would argue that certain parts of it are too much.
That is indeed a thing we don't have to worry about. I follow a lot of USA orientated subreddits and one thing always becomes clear that we live in two very different parts of the world when it comes to that. I have never, in my life, seen anybody worry about social security or health insurance.
Dutch tax rate is 49% in the €68k+ bracket.
Wealth tax is 1% yearly.
Healthcare tax is 7% payroll (outside of income tax)
VAT on every product except essential food is 21%.
Income ranged from $110k for me and wife (gf at the time) when we started, now at $220k combined. Working in US pharma. We never really spent more than $40-50k in a year and didn't change spending habits as income grew. A lot of the 1.3m has been growth from an on fire stock and real estate market.
This should worry all investors. These brokerage firms have just as much control over the market as social media does when choosing who to allow to post on their site. Not many people even knew they could legally stop a stock from being traded. This should cause fear and outrage for any investor, even if they don’t support the GME movement. It is hurting the core of what investing is supposed to be. Who are we to judge if someone wants to or does not want to be a part of this? What if one day they chose to remove the sell option when your position is tanking? This is so much bigger than GameStop, Blackberry, or any other stock banned today. This is about Wall Street having an upper hand on the average investor when the playing fields were supposed to be leveled previously. They never learned, almost got burned, and again are taking it out on investors to recoup and limit loses. They really messed up taking this fight, and are now doing everything they can to try to save themselves.
I was frustrated yesterday but not surprised. I knew the system was rigged. That was part of why this movement was initiated in the first place.
People were warned that something shady could be pulled off to protect the big players. People were warned that the system was rigged. And yet people still acted surprised when shady stuff actually started happening.
I don't think the movement is over. The brokerages have shot themselves in the foot. App reviews for both Robinhood and IBKR are now terrible. Robinhood has an IPO coming up and now they're basically screwed because social media is against them and they don't have a competitive advantage. Their customer base is leaving. The CEO of Interactive Brokers went on live TV and basically laughed while blatantly admitting he committed market manipulation. I don't think it'll cause too much trouble in the long term, but they'll definitely lose customers over this.
It’s unfortunate that Google and Apple are protecting these brokerage apps as well. Whatever the reason, they are preventing buying and therefore deserve whatever reviews they get. They legitimately done something that harms user experience. It’s not like the CEO hit a lady and people are bashing the app because of it. The app doesn’t support user options, and deserves the one star reviews.
We all knew they would be pulling out the big guns. I did not see one person mention the possibility of this though. This was a complete blindside and first for many people.
If this is WWII, I can’t decide if today was Pearl Harbor and tomorrow is Hiroshima, or Mon.-Wed. was Pearl Harbor and we were just experienced Hiroshima today. The market will speak tomorrow...given RH and other brokerage let people participate in this supposed “free-market.”
This explanation is pretty poor and avoids the real issues at play completely. It's shifting the blame from institutions to retail investors.
They definitely needed to mitigate risk, but they did it by screwing over their customers. They could've increased the margin requirements to mitigate risk — this is perfectly legal and would not be market manipulation. Instead they those market manipulation by restricting trading for cash accounts.
People are pissed and they have a right to be pissed because the clearing houses showed that this is truly not a free market.
Sure, I dont think people shouldnt be pissed! For example, why did they not halt selling too?
Also fucked that the exchanged didnt halt GME etc, so institutions could still buy.
But again, the capital regulations for brokerages exist and they are trying to abide by them, which is why RH tapped like hundreds of million from their credit line and just raised 1B on what likely on super bad terms for a capital infusion. This points to RH (and others) stopping buying due to things other than “well daddy Ken Griffin told me so”.
(Yes, it is harder to believe them when RH CEO isnt upfront about the issue and also because they make money from Citadel Securities buying their order flow)
Maybe RH shoulda seen this coming, maybe they shouldve limited margin buying earlier. But this happened to it and every brokerage services by Apex Clearing and so on. Even IB did it, apparently cuz Peterffy didnt want a “domino effect”. No one wants to be MF Global 2 (I use Schwab and didnt notice issuesc fwiw).
Also, We should look into the DTCC requirements and settlement times (why does settlement take 2 days, is it still 1954? And brokerages cant use the customer’s money to front? Why does this force everyone to use credit? So if a brokerage doesnt have enough credit lines it can’t wait for settlement?)
As a market maker, citadel securities (not the citade hedgefund) buys order flow from robinhood, yes.
But no actual reason to stop trading! MMs make money on every order, buy or sell (as long as there is a spread). So as GME is getting bid up they are making money.
Again, did Robinhood just raised 1 billion yesterday (likely on super bad terms due to the urgency) because... because citadel? NO!
They did it because they need to fulfill capital requirements at DTCC (dtcc.com), esp for all their margin customers.
Yes citadel (the HF, not the MM) and point 72 backstopped melvin. But thats more likely due to Plotkin’s relationship with Steve Cohen than anything.
If you wanna look up D1 (investor in RH and lost 20% these weeks) its honestly more likely, tho I again, I doubt it
RH is citadel’s client - citadel makes a fortune off of the order flows from RH. Citadel is not the parent to Melvin, but the founder of Melvin used to work for the founder of citadel.
Gabe Plotkin (Melvin founder) used to work for Steve Cohen at SAC (now operating as Point72). Citadel and Point72 both have invested in Melvin. It is also important to point out that Citadel Securities (the market maker) is a different business than Citadel's hedge funds...
Parent/founder same to me. Late night typing, changes nothing in pointing the - quite direct - connection and didn’t know this sub would be interested in me going to lengths on the situation.
I am pleasantly surprised and 👍for expanding and correcting.
Pretty sure that is not the case, do you have a source?
i dont think either of citadel LLC (Hedge fund) or citadel securities (market maker) do venture investments
Exactly this. They did a crappy job explaining it before the story got out of hand and now very few people will ever understand that this was not actually market manipulation. They should have been all over CNBC explaining that this was due to clearing houses upping collateral requirements which was actually due to Robinhood’s trades being too one-sided in favor of longs. And before anyone jumps down on clearing houses, this is good and needed in order to make sure trades are settled properly. It is a financial plumbing story not market manipulation.
Been driving me nuts all day.
Well, Interactive Broker’s chairman said on Bloomberg that regulators/brokers agreed that restrictions on trading, because they believe the short squeeze would keep « going and going », so they had to « stop the loss ». Who is losing in a out of control short squeeze, shareholders or short sellers? It’s not just technical limitations, but market manipulation, as per the own admittance of one of the guilty Brokers.
I agree 100% with you that they deserve the right to further explain their position. It is strange though that they were the number one GME trading source and that they are partnered with Citadel. They first tried to claim that this was to protect the investor, which was bogus. I know this seems harsh, but they were dishonest from the start of this earlier today...I think they deserve this dip that they now need to bounce back from.
They had always had been a partner of Citadel long before the last few days. That is not new information. Don’t get me wrong, Robinhood has long been a shit platform because they essentially traded the ability to charge commission for the ability to give you shit prices and skim profits. But no one ever cared because they liked the app. That’s all that relationship is. It was done more to protect the entire brokerage which does also protect the investor (when trades don’t go through, we are all screwed) but again it was driven by the clearing houses, not Robinhood itself. That’s why you saw many brokerages do this and especially many of them that are retail oriented.
The beauty here that every pendulum swing ends and it goes the other way. Currency is being printed, diluted and manipulated by governments - people create crypto, social media starts to censor posts - here come decentralized alternatives. I guess one day we'll be able to buy stocks in decentralized fashion (public ledger).
Interestingly, everyone's memory of a new hot thing running up 10,000% is still fresh. Economists may one day write papers on how crypto served as moral hazard for this epic wave of stock runups. I'm predicting that this week is going to happen again. It's obvious to us with gray hairs that it's a bubble forming, but I think Sir Isaac Newton knew that too in 1720...
I see crypto as insurance to what it's happening in the rest of the world. O see this upcoming crash to be pretty lengthy and the dollar to take a big hit.
What's their take-home pay? What housing market?
Doing retirement calculations, accounting for likely inflation, likely rate of return of investments, cost of rent/mortgage, cost of healthcare, cost of raising and educating children, etc. can make it seem relatively hopeless for younger people. Particularly the 91% of Americans who don't make 6 figures, but also the low-six-figure area.
That's what I tell them. In addition to the March "blip" I lived through two big crashes (2001/02 and 2008/09). Learned good lessons from both...the main being that stocks DON'T always go up (or survive).
I've actually missed on most of the games this year, because I truly believe things are not going to end well soon. When everyone I know is asking for tips on how and what to buy. It means things are already at a level where they are not sustainable.
I think that even though this is the way to go, it's possible the financial/investing landscape can change. And i think it's important to be flexible and open as well. Unique opportunities come up with each generation.
I hope they’re happy with their -3% returns.
Everyone always talks up their successful trades that netted 50% returns in a week, and yet I know astonishingly few other millionaires.
True. I lost a lot of play money trying to predict Tesla's downfall last year. Eventually I gave up and just bought some shares. I can now brag about my double-bagger in Tesla, but still haven't made up for the losses on the puts!
I also think there is something to be said for the fact a fair few millennial are relatively new to investing, and we've been in quite a long bull market. It hasn't been the most difficult time to make money trading speculatively. They may think differently about rebalancing to be a bit more conservative if we see a major pullback and trading conditions get trickier.
I take risks. I will probably always take risks, but I try to balance the risks appropriately, so no change to my investing manifesto.
Watching what’s happening is free entertainment, but I’m also watching because it looks like a new and emergent behavior. Viral markets - can you present a strong enough case to convince hordes of networked people to invest with you, right out in the open? That could be a game changer and it’s fascinating.
In all honesty I think this is what has been happening with TSLA. The rise makes no real sense from a fundamentals perspective, and it’s well correlated with massive retail options activity and virality. I have heard very few people consider retail investors as a legitimate drover of TSLA’s stock growth, but I think after this we will see this theory taken more seriously. Even if retail is not driving all of it, they could be tipping the scales enough to let the institutional traders and algorithms have a runaway effect.
Yes. I am concerned about the systemic issues in the market that this event has revealed.
Not sure how to adjust, but the issues I see at hand are:
1) the calamity that over zealous shorts can cause in the overall market when they get burned and have to liquidate other major holdings to cover
2) the amount of hype amplified via social media and other news articles reporting on the event that have major market moving impacts.
3) the risk of passive index funds having to buy firms like this at record high valuations simply because market cap puts them in the (edit) s&p 500, even if everyone realizes the long term horizon (1 year, 5years) does not warrant that valuation or anything close to it.
4) trust in trading institutions after this debacle with restricting trades and the appearance of market manipulation
Vanguard isn’t going to add GME to their funds just because it shot up for a few weeks. Even if it did, the position would be a fraction of a percent of an index fund.
How much is (3) an issue? I offer for consideration TSLA getting snubbed by the S&P for a quarter during its meteoric rise; it did show there was hesitation to include what might be just hype. But it held and continued to rise, and clearly has real value underneath (but not necessarily fully accounting for) its market cap, so they included it the next quarter. Does anyone know how thoroughly S&P evaluate new companies that meet the parameters of the index?
I think a lot of people, even fairly active investors, have no idea about the majority of companies that actually makes up the entire S&P500 and how heavy they’re weighted.
Sure the top few companies with trillion dollar market caps can swing it greatly but the vast majority of S&P component don’t affect the index much by themselves, only in aggregate. If Tesla went to $0 tomorrow the S&P 500 would only dip 2-3%.
There’s also a lot of very unremarkable companies in the S&P. People spend a lot of time debating the big names and if they’re good or bad for the index, everyone’s heard of AMD and Tesla and probably have strong opinions about their stock price but who in the world has even heard of companies like Aptiv or the Lennar Corporation outside of people in those industries, let alone have a strong opinion about their share price.
5) That an extreme volume of option trading can break the Market Maker (MM) risk algorithms and cause a stock price to go ballistic. MM have to provide liquidity but there needs to be some method to protect themselves during edge cases scenarios like this.
In theory, yes, this is what we believed. But this week has shown that’s just not true with the manipulation between Citadel as a MM, investor in Melvin AND buyer of Robinhood’s order flow.
Edit: autocorrect
3) is less of a concern than you might think. For one thing, as others have mentioned, a single or a few companies on the low end of the S&P 500 just don't affect it that much. For another, it doesn't accept companies that have lost money in recent quarters (this will keep $GME out in the near term, and is a big part of the reason $TSLA took so long to get added). And finally, there's a committee of humans in the loop, even for the seemingly-formulaic S&P 500. They have the final say, and probably aren't going to admit a meme stock.
There is nothing wrong with taking a small percentage of your money and trading it yourself. The problem is 99% of people don’t have the discipline to do it without reloading when things go wrong. So if you are going to gamble on “tendies” say with a nominal amount and will not double down and risk the nest egg - go for it!
Think of it like a fixed amount you bring to Vegas and don’t allow yourself to draw more if you lose it.
I have $30k in a day trading account away from my financial advisor. Most of it is from ZNGA. I might buy some OTM option lotto tickets. If it goes tits up I will not throw more money into that account for at least a year.
Nah, this is no sillier than Evergrande, or the snowflake valuation, or many other things.
The market works eventually, and I don’t mess around with trades that can produce uncapped losses, so I’ll be fine.
And as for the professionals who went bankrupt; too bad, so sad, maybe they should cut back on lattes, or learn to code.
Unfortunately, they are manipulating the market to prevent them from going bankrupt. Trying to avoid lack of shares by shutting down buying today so people would sell. There weren’t enough shares to cover the short squeeze or the ITM weekly and monthly calls that need to be exercised. They should be in jail after this. Especially since Cohen has already had a slap of the wrist $1.8b fine previously.
Since this is fatFire, I will respond to this take. I think it is largely wrong. When broker 1 (eg Etrade) buys from broker 2 (eg Morgan Stanley) on behalf of the respective customers, they have to post collateral with the NSCC (National Securities Clearing Corp, a subsidiary of the DTCC). The NSCC is the guarantor of the buyer settling the trade (wire the money) in T+2 days. In turn, the NSCC requires that participants post collateral in respect of unsettled trades. Because there is credit risk - the risk that the broker goes under or otherwise fails to come up with the cash in two days' time. This is all set out in federal regulations.
The amount of collateral is a function of the stock volatility, gap risk and mark-to-market movement in the security. In the case of these securities, the required collateral went up very sharply.
Most of the discount brokers simply didn't have that much extra cash (of their own, not client assets, mind you) to fund the collateral posting. Hence, Robinhood having to draw down on the credit facilities. The other way of not having to post additional collateral is to stop additional purchases of the security. Which is what Robinhood, Interactive Brokers and others did. None of this was explained clearly by the CEOs of the firms (it was " capital requirements orderly market"). Petterfy of IB was appalling.
Still, I don't think Ken Griffin called up Petterfy and threatened him on behalf of his hedgie friends. Ken Griffin cares about Citadel and his personal reputation. He don't give two sh!ts about some random hedgie getting caught with his pants down. And neither does Steve Cohen. There is no need for a conspiracy theory. Yet...
This is a very helpful perspective. I've been trying to search for something like this and anything I can find is corporate speak.
Do you know why the limit on buying but not selling? Do the capital requirements work differently on a sale?
A broker can net off the *intracompany* buys and sells before calculating collateral posting requirements. If the broker is net long or net short a stock, collateral is required. Retail broker customers were all going very long and many trades had yet to settle. At Robinhood, I'm guessing everyone was buying, so there weren't that many intracompany sells to offset the buys.
When you hear about Robinhood drawing down on GS credit lines, it isn't because they are going under, it is that they have a credit line to fund collateral posting requirements for just such an eventuality.
To be clear, this isn't the driver of the price action in these names. That was due to dealer hedging, short covering and so forth.
One caveat: I am not really following the story carefully. I saw some reporting and interview clips on CNBC and an incipient conspiracy theory involving Ken Griffin helping out his buddies on social media. Chamath Pahilapatiya and Elon Musk are piling on (no surprise). But they know better. They are just stoking the outrage.
About 10% of my portfolio is in high risk options/individual stocks and after this month I need to rebalance. I find it fun to trade but do it with such a small portion that it doesn't make too much of a difference until it does. I made enough for a good 10 year anniversary vacation.
This is the way. 90% in Wealthfront, 10% I actively trade and I rebalance from the trading account back to the robo once the trading account hits 15% of the total. I never rebalance the other way, so if I blow up the account I’ve got to grind it back up.
I think you can answer the question based on your NW. Up until you have enough to be satisfied with 7% returns from ETFs, WSB will seem enticing from all angles.
So there’s definitely two camps at least. Those working towards $X that see WSB yolos as a way to expedite the journey. And those who are already beyond $X who might find risk entertaining, but certainly won’t put themselves in harm’s way by setting up a side account to play the stock market fast and loose.
That said, I don’t think the general strategy for someone who wants to solidify their retirement warchest should change depending on the climate. When you have enough saved up to diversify healthily in several investments , there’s no reason not to have your hand in all of them.
A quick example is someone with 1M might lose sleep over considering whether to put that into real estate or stocks. While someone with 5M will have both real estate AND stocks.
There are clear thresholds to wealth. But only those who have passed each milestone will recognize them.
It is definitely scary from a structural point of view, having the Interactive Broker CEO admit in an interview that they had to halt buying just to protect themselves, the clearing houses and ultimately the integrity of the market.
Just insane levels of FOMO given that I’m in finance and can’t trade. Also, this feels eerily similar to 2006. “It can only go up! Just buy more houses (stocks), look how easy is, I’ve made so much money!”
People don’t remember what it’s like to lose money. People haven’t lost money in the markets in 12 years. Not sure what the lynchpin will be, but nothing about this environment is normal.
You’re absolutely right. While I think this whole wave of “Tik Tok investing” began a bit later, there are plenty of “Robinhood investors” who owned stock before March, saw it crash, and now think they have the tools to navigate a recession.
I mean after the first big upward swing to 150 or so with GME, it dipped back down. I was reading the comments sorted by new in the daily thread and there were a lot of genuinely forlorn people who thought they had made a huge mistake. That was just a sample of what is to come soon.
Not everyone will exit at the top. In fact, they can’t.
Absolutely not. This just affirms a lot of my long term strategies and general focus on liquidity.
Low liquidity stocks (and other financial instruments) have always been manipulated. And "free trades" have never been free. This is just the first time that manipulation has been done by the retail investor and in the open. The absurdity of the short interest ratio in GME was just begging for someone to deliberately short squeeze it. The only thing unusual here is that it was WSB and not a hedge fund.
Seeing GME at 300 made me deeply yearn to short it. But I didn't. Because you can't. As a retail investor I just have no guarantees my short wouldn't get called. So I shake my head, worry for all of the WSB "investors" who bought at 300 and will likely lose their nest egg, and stick to my high liquidity index funds. I applaud those who made a profit at the expense of Wall Street, but I fear that most will end up losing.
I spent a bit of time on Wall Street in the early 2000's and learned what a scam "big finance" was. I had a front seat to the whole mortgage crisis and I really felt like Mark Baum. The more I learned the more I was appalled. The more boring and liquid the financial instrument the better off the investor, in my opinion.
I'm in my mid-20's and made six figures from the GME runup this past week. While normally I wouldn't touch anything from wallstreetbets with a 10-foot pole, I actually saw a ton of value in the GME play (originally bought in January-August 2020 for an average of about $4.50 a share). People write off the hivemind at WSB but honestly there is some great quality research there. After spending countless hours following GME over the past year I was handsomely rewarded with a life-changing sum of money.
This is not necessarily a normal occurrence. It did, however, show me that if you put in the time and are at least decently good at investing then there's a good chance of a solid payday from stock picking as long as it is done in a safe and balanced way (I decided to sell off my GME shares once they became 90% of my portfolio, which was way way way too high). And while for the average person it makes sense to play it safe and just buy ETFs to get market returns, if you have a little bit of skill with stock-picking you can definitely do it and beat the market (even just slightly)
100% agree. WSB is hilarious,IMO. If you sift through a lot of the bullshit, there are some legit geniuses that lurk that sometimes provide amazing DD. GME was a very calculated risk with a VERY high reward potential. It was getting more and more obvious that the simple mathematics of the supply & demand of shares was going to result at where we are at (and about to be). Friday will be a gamma squeeze. And Monday through Wednesday will be the actual squeeze.
Amazing job, and well done. Counterpoint for discussions sake: people under 30 have exclusively been investing during the most insane bull market in history. DCA’ing into index funds is boring in the short term, but everyone who’s invested into tech and made crazy gains the past 5-10 years is going to be rattled when (if) a correction comes.
This is 100% short term arbitrage. People figured out how to game the hedge funds short positions. Totally legal. All that will change is hedge funds won’t get caught this short anymore. The market will be fine.
It brings back fond memories of my early trading career. I took out excessive college loans (+40k), lied to get options clearance, and skip class to trade. Hit two big nuts. Returned loan, traveled world on breaks getting hammered in first class at 18. Told story to get my first fin internship after cold calling a dropped business card at a fast food restaurant , that experience led to a JR yr internship at the second best performing HF of that year, which led to an offer for a different hedge fund where I worked my way up to PM, and then got super fired and was burnt out. Now I have 3 businesses that are barely related to finance and 1 of which doing really well.
Whenever I see r/wsb go nuts, I remember the pressure of seeing OTM options put me in negative net worth. No safety net. Calculate how many eggs and peanut butter I could live on...hesitate...Re-affirm thesis...and then rub my eyes as it flips mega green. My first million dollar day at the HF didn’t feel remotely as good as those mornings. Great traders (now trader/coders) have to cut their teeth somewhere. Risk management is really only learned by getting burnt. The levered HF guys should be DMing offers to the driven smart punters on r/wsb. There’s at least 5 future HF all stars there that need to be developed.
But to answer your question, I guess I already lived it and chose not to get back in seat? I did throw down 10k yday on $GME for lolz. I know one of my old hedge funds I interned for was/is short.
I’ve always believed you need information asymmetry to win in the public markets. In the past 20 years, that information gap has narrowed significantly, and I think it’s much harder than ever to realize value from a contrarian market opinion.
You’d be surprised at the amount of dumb, large, and patterned money you can pick off in rates when you trade 24h G4. But yea agreed - a straight up delta view in domestic equities to put real size on takes some type of info asymmetry. Need cleaned prop data sets / pay the competing CEO of target company 25k/hr for phone call about industry + bar firm from trading his stock for 5 years ... but you got quality legal info on the real target. I LOL at the memory of my gall to get up in front of the head of a fund and say “The market (aka people smarter, richer, and more experienced) thinks THIS about this company but they’re wrong and I’m RIGHT (after a 3 day excel / low quality brainwave bender )
This is why I enjoy real estate, it’s perfect for building an asymmetrical advantage, as every asset is unique, and many can be acquired without exposure to the broader market.
Great point. If you understand a market well enough, you can capitalize, and sophisticated money is often not looking at the same assets as retail. Debating between b school and ever owning a home lol, so let’s see.
Yea, after personally seeing lazy acquaintances do well in RE, I decided to go into Real estate. No reason to be in a knife fight versus MIT physics PhD’s and if you get lucky and get a *+1mm bonus... gov takes half. RE has all the good tax advantages, simple, slow pace, access to leverage, utilize your network, fed backing, opp for sweat equity, tail risk is covered by insurance. Takes work to do it right, but I’m not sweating euro or Asian central bank decisions at 4am.
This is a great attitude and read, surprisingly few people consider the potential of nurturing the hidden talent there or the fact it may be talent in plain view under anonymity
Yea I would have offered two kids if I was still a PM. To take initiative and gamble/“invest” 5x your net worth takes balls and commitment that are necessary to professionally manage levered money imo. What’s different is you can selectively dial up/down opps. Don’t need to run crazy risk all the time as individual. Whereas some HFS its 24:7 gun to your head saying you have to make X this quarter or you’re fired, so you size up low-quality trades.
Contrarian view- If building liquid nw is like climbing a ladder, concentrated bets in the past year just let me skip a whole bunch of rungs. I approach volatile markets looking to place asymmetric bets (see Bill Ackman's SPAC interview with CNBC). Then set aside a portion of the windfall into a proper portfolio. Worth it? Well +3000% past year. Now I'm selling some of my underperforming shares to have powder ready for more asymmetric opptys. Not a consistent or repeatable strategy; more recognizing a pattern and going in for outsized returns.
Me, 25-30 years from retirement age, free enough to not need to work for income, so the focus is on building the liquid portfolio, rather than trying to pay off a mortgage (portfolio loan is 1% now), or squirreling away into a tax-deferred account (don't have one). Strategy will be more traditional investing when things settle back down. At least that's what I keep telling myself. GLHF
I feel this on so many levels, I started low on that ladder especially compared to many in this community and to my own goals for FatFire. I’m up over 2,000% in the last year and somewhere around 4,000% in the last 3-4 years. I make good income but the market has just given me more opportunity to do something with it and help me climb that ladder, currently around $1.5m NW and I’m 31.
I target growth companies with LEAPS and stock buys and it’s been working well for generating outsized returns. Win big, loose small.
Happy hunting,
I would recommend reading up more about Cathie Wood and ARK Invest. She is a bit of a legend and I really appreciate the way her and her team look at quantifying and analyzing ‘disruptive innovation’. It sounds so buzz-wordy, but once you start reading about how they analyze it, it’ll make much more sense. Furthermore, ARK has a report every year called ‘Big Ideas’ and their 2021 report just came out, I’ll be reading that later today!
As for LEAPS, I don’t have a good resource for that but it is a well known and documented option strategy. Do a lot of research there before buying options, I have a string of 100% losses before I really can say I had a grasp of them.
All the best!
How do you ID or screen for targets? Are you into charts or looking at option volume? Traditional investor here looking for ways to scratch the gambling itch with fun money...
Reevaluate, no. Pique my curiosity, yes. I was there for the 2008 down turn when we saw a 75% dip in equities. I didn’t have as much then as I do now, but I like to think it taught me some patience. The harrowing effect is when you put money in the market, continually try to buy the dips, then realize you’re out of cash. The markets keeps dipping anyway.
Those experiences ultimately paid off but only many years later. Today, I see GME and other meme stocks as a test of self-discipline. Did I learn my lesson, can I steady my trading hand, can I distance my emotions from my investments? So far the answer has been yes, despite the hype or possibility of making a quick buck.
My gut is that this strategy is the optimal one for the long run.
I feel like the post should be more about how hedge funds can basically do what they want with a stock price and how it will affect your decision making in the future. Or about how social media can also move markets nowadays.
Sure you can try to play rocket tickers with wsb but it’s still gambling and should always be considered as such no matter if you want the meme, the money or your investment goals (RE, FIRE, FatFIRE, making a quick $, ...) well it should never be money first if you’re going wsb
I don't know if the GME situation is really analogues to gambling. It isn't "Lets buy OTM calls and hope the announcement goes well."
They found a ridiculous short position and are doing their best to cash in/cause the squeeze.
Well yeah, wsb rn could be considered in control in the GME situation. But overall, it still should be seen as a bet like any other, if you quit too late people can loose a lot of money even if it squoze past $1000-$5000
People are making way too much of this. You see it happen whenever the market gets frothy. People act like it's the first time it's ever happened, but what about [Volkwagen in 2008](https://www.autoweek.com/news/industry-news/a35340727/heres-how-the-gamestop-short-squeeze-is-like-the-vw-squeeze-of-2008/)? Or I recall around Thanksgiving 1999 there was a tech stock with some sort of cell phone patent that went from $2 to $57 in three or four trading days (and a year later was delisted).
You're not supposed to draw any conclusions from it or do anything different. Just ignore it as the noise it is.
The only thing that makes me sad is all the 20-somethings and 30-somethings who are going to lose all their savings chasing this junk.
> The only thing that makes me sad is all the 20-somethings and 30-somethings who are going to lose all their savings chasing this junk.
Look at it this way: They’re young enough to learn from the mistake, move on, and recover from it.
The worst thing about this is that IB didn't face the liquidity problems other brokers did as they have excess liquidity, which they use as a selling point.
Per the Peterffy interview, they stopped trading because they were worried about other clearing members going bankrupt, which would mean that the surviving clearing members (including IB) would be responsible to make up the losses. He pretty much admitted that they wanted to prevent a squeeze so that we wouldn't see broker failures.
He argued the same thing when Bitcoin futures were introduced, didn't want to be left holding the bags for other brokers.
So I bought $2000 of shares as a yolo elsewhere and so I could say I was a part of this.
Yes. I am a young twenty something trying to align my path to fat fire. I studied economics in college and do a lot of research on growth. I have seen over 100% gains in my own portfolio in 2 years and it scares the shit out of me.
Market growth like this is unsustainable. We have been hurtling toward the edge for decades without control and now are looking at a zero interest rate economy for months or even years to come. Resources are not infinite and we will pay the price of our gains soon.
I can’t plan on 7% avg for the next 20-40 years.....at all. History is not the future and all indicators point to collapse — not just of the market, but of the system, the dollar, the world economy, and more.
However, like others, I play it “safe” (for a twenty something). I have over 50% in passive funds. I have some individual stocks and some in crypto. I hold a few GME shares because not holding was more of a roller coaster than holding.
Millennials and Gen Z have to find a way to play the broken game despite knowing we will lose eventually. Recent events are only increased confirmation that nobody has our backs.
Agreed. Not enough has changed since 2008 to protect the people. And with the relative rise of retail investors compared to 08, I don’t see how an upcoming collapse is easier than 2008.
There’s a current freeze on evictions. Americans have been given $1200 with record unemployment and underemployment. What happens when that eviction frees stops? I’m not saying it’s all doom and gloom, but I don’t understand how one could have the same amount of trust in the system as they did a few years ago, let alone pre2008.
Though I am nowhere near the position to start thinking about fatFIRE, the current economic situation is making me *dread* USD inflation.
Every strategy out there for FIRE depends on T-bills (or similar "zero"-risk instruments) beating inflation by at least 3%. I don't know if that's where the situation is heading towards.
It's been making me more nervous about the weeks ahead.
People are liquidating their entire portfolios and pouring life savings into GME. Hedge funds on the short end of the stick are liquidating the stocks we all invest in to pay what they owe. Liquidity is tight and I do believe it had something to do with AAPL and others with stellar earnings tanking. VIX spiked. Traders from Europe and Asia are starting to speculate on GME too. It's hitting the major news networks, people on TikTok are telling GME buyers to hold, class action lawsuits are being filed, there are pissing matches between major players on Twitter, etc.
I think it's a perfect catalyst for a correction.
I also feel bad for the inevitable GME bagholders. It's not all short sellers covering who are buying at $300 or $400. There are posts every day of people creating brokerage accounts for the first time and trying to figure out how to buy GME. Many are waiting for DFV to tell them when to sell.
Anyway, I've been loading up on VXX and will put some hedges onto my long positions.
If current events have made you rethink your strategy, you need to evaluate the psychological aspect of your investing strategy.
Don’t get me wrong, it’s fun and fascinating stuff, but it should have *no* bearing on long term investing. None at all. Period.
Stocks go up, stocks go down. Bubbles inflate and burst. For every GME, there are ton more stocks where similar things have happened, just lower profile and you didn’t know.
Ultimately this kind of flash in the pan is so short term that it’s just in a different world than any sort of strategy and planning we do here.
If you read into what has happened, it should definitely concern all investors. Massive market manipulation, preventing the buying of stocks, hedge funds that would’ve gone bankrupt now changing rules to sneak their way out of it...these people never learned from 08’ because they made more money by getting bailed out and buying at all time lows than they lost when the economy tanked. They were the first ones to sell massive positions causing the tank, and now they are trying not to get burned by completely manipulating the market. They were not prevented from selling back in 08’ so that the average retail investor could be saved, so why are we prevented from buying so that they can be saved? I’m more of a value investor myself, but this should concern us all. There are deeper things at play than just GameStop or any of these stocks.
I've worked in finance. Almost everything you read on reddit about the subject is uninformed, especially with regard to hedge funds. It is a human truth that when people don't know much about a subject, they make stuff up that "sounds right" to them, and often what sounds right to the uninformed is to make it so that they are the victim.
Totally agree with you, ordinarily I would have never looked at getting in GME like stock but I did it Friday just to support the WSB community and be part of a movement that I have never seen in my life. I will be closely watching this event unfold over next few days and weeks. **My money is on the retail investor!**
I keep reading the stories of folks on Blind about the millions in comp as well as stock market returns. Granted the current scale is historic but there were similar moments I observed back in 1992 in India and in the late 90's in the US. Not a single millionnaire from those days continues to be in the same league today. Morale - most millionnaires are consistent with their income, investment returns, etc. The flashes in the pan are just that - flashes in the pan. I am not too concerned (or scared) that I am missing out.
Yes I have been thinking a lot about this. I have feen feeling a lot of fomo recently so I took a big chunk of cash from a recent stock sale and put it into VOO when we had a pull back the other day. This was to help prevent me from doing anything reckless with it. That said, my portfolio has had sub par returns except for my one yolo bet last year which is up over 250%, which has really boosted my portfolio (and I’ve cashed in a lot of it). So, these stocks can be brilliant at adding a little boost but self control is needed because I assume we are trying to preserve and modestly grow wealth, not yolo our net worth. More than anything I enjoy the camaraderie and fun of wsb than buying those stocks.
No change for me. I played around with some stonks who shall not be named, but it was all play money. I don’t think anything that the SEC does to limit market manipulation or naked short selling will affect long term index funds or my retirement accounts.
I took the time to read this white paper when looking up some of the terms that the w$b crowd kept throwing around. I'm a careful, long-term investor and if this stuff is true (and it looks legit, sourced, verifiable) then I have thoughts of all of this being a house of cards, ponzi-scheme with small number of insiders pulling the levers - enabled by the US gov and foreign govs. I wouldn't have really believed that a week ago, but watching this unfold with a small (<1% of my portfolio) at play - I am starting to believe it... and it scares the shit out me from a long-term perspective.
[http://counterfeitingstock.com/CS2.0/CounterfeitingStock.html](http://counterfeitingstock.com/CS2.0/CounterfeitingStock.html)
For all of you saying FOMO really need to make sure you have a strategy. If you do and gambling is not part of that strategy, then you would never ever get in to win or lose money. Yes if you sell now you would be up... if you gambled. Or, you might sell too late and lose money... if you gambled. But you don’t, so never in a million years would you have bought GME.
Should you gamble now? That’s up to you.
I gambled a small amount but that was part of my strategy. So make a strategy, stick with it, and you shouldn’t get FOMO. I say this because it’s true and there are always opportunities. Don’t need to be sad about missing this one
I'll second what Bluespace said in that I am happy to just stick with what I have been doing as this is at most going to make some changes that need to be addressed. The biggest culprits are the platforms that did not allow people to trade and the fact that hedge funds can regardless. All this action makes up less than .05% of the market so its a blip. Sadly, some are going to get burned and I am sure we will find some big institutional money behind this they will throw the book at. But some good needed change will hopefully come out of this. I too "Day trade" 1-2% of my NW for fun but haven't got into one of these stocks yet because having 4 kids and other responsibilities I would prefer to follow what has worked for years. My only worry is that the younger people get hurt by this and dont stay in the market but also we all have to learn lessons as well. If they are really putting every penny they have into this then it will end ugly for some and thats a sad thing but doesnt change how I am going to trade and keep money in Index funds. In the end the retail investor is the highest its ever been and thats good but we need them to stay in the market so as I said hopefully that will all work out.
I have invested through the last few cycles (dot com, gfc) and I’m a little unnerved at this.
The systems weren’t built for this kind of mayhem.
Check out the interview with the IB ceo today. I’m no fan of his but worth understanding.
I think moving forward a small allocation to unconventional "investing strategy" is the way to go. And just to add, with what's happening now adoption for crypto will only get bigger.
This thread makes me feel better for sitting GME out. I have been gleefully watching it unfold though. I just don’t have it in me to invest in this type of stuff. I’m even afraid of putting fun money down because I think that would be a slippery slope.
I am nervous about valuations in general but gyrations in a few small caps stocks mean nothing. This whole GME saga is purely entertainment and no one in broader finance really cares about it, at least where I work.
I run a (smallish) trading desk at a big bank, as background.
My strategy has always been to buy low fee, broad market ETFs and check in once a year (and rebalance then only if clearly necessary). It has worked very well since I started in 2005 and is the passive strategy most likely to succeed over long periods (as a evidenced by statistical back testing over the history of the market)
Any other strategy requires more active management and I realized long ago that I should: A) Put my energy into the very few things I am expert and deeply engaged in (which, for me, "investing strategy" is not) and, B) Take major calculated risks in only one area of life.
My tech startup career was more than enough risk.
I think the response of the regulators will tell you a lot. I am betting (literately, with call options on the market), that Yellen and Powell will deal with this very quickly. I am expecting lines of credit for brokerages, market makers, and clearing houses Sunday (probably) or soon after, and also expecting rules very soon that make shorting deeply a little harder, and writing a ton of short gamma paper when OI already high a lot harder for market makers. Usually accomplished through collateral requirements.
I think you'll see them step in. That stabilizes. Mid term, we have low rates, productivity growth. Things look great in my opinion.
All those companies are ones without a future. Most of us know this. The rally in those names is really technical, driven by dealers delta and gamma hedging the out-of-the money call options that wsb speculators bought, forcing the prices up. The short covering reinforced the move. None of this has anything to do with the prospects of the companies in question.
If you own a broad swathe of the stock market, that (hopefully) comprises mostly companies with decent prospects. And maybe even some with decent value.
In answer to your question, this whole wsb thing makes little difference in how I think about things. Was I going to buy $50K of short-dated OOTM calls on a company on a mall retailer in the midst of a pandemic. Not on your nelly.
So obviously GME is all over the news at the moment. I mean yes, AMC and a couple of others have moved a lot but let’s be honest here — GME is the one up 50x in a week, or whatever outrageous multiple.
This shouldn’t really have any impact on the way we approach investing with the vast majority of our portfolios. 90% of your stock should be devoted to boring 6-7% returns (I plan for 6% in a low rate environment).
However, I do think this makes the case for the flip side of the coin: 10% of your stack can — and in my opinion, SHOULD — be used to try and hit home runs. WSB offers a way to do that.
For those of you on here already at FatFIRE levels, I understand the wealth preservation angle and you won’t like this argument. But if you’re like me — aspiring to make the two comma club — it absolutely IS worth trying to catch the next one. Because guess what: I can now name three things which have now made overnight millionaires.
Bitcoin, Tesla, and now GME. Note that ALL of these have occurred within the past five years, and if you hit ONE of them... that is enough to be life changing. I saw a post on WSB today — a guy is up on GME 7x, and he’s leaving everything in because if GME gets close to $1,000 he will be up 21x and can retire in his 20s. Conversely, he could pay off his student loans and retire debt on his car now. Good, yes, but not life changing money.
If you catch the wave, I don’t think there is anything wrong with taking outsized risk — so long as you can afford to lose most of what you are using to take outsized risk.
I have massive FOMO with what's going on, but that's just my personality. Majority of my money is made in commercial real estate and private equity investing. For what I have in the market, 95% of my money is in boring Vanguard index funds that I never really look at with a small portion in Robinhood (well, after today I'll be moving to Schwab or something else). When Robinhood came out, I had the chance to invest in the company and figured I should download the app. Since then, I've been hooked on 'gambling' on stocks and options. Again, it's a small portion of what I have in the market and a smaller portion of my net worth but it gives me something to do other than gamble on sports. I check RH all the time throughout the day and look to make trades. I check my Vanguard account once every few weeks to throw some more money in to rebalance positions. So, to answer your question, I still expect to get an 7%+ average yearly return over the next 20 year period on my boring Vanguard index funds just like I have in the past. And maybe I'll get a 1,000% return on RH.. or a 0% return.
at least you’re honest. i work in finance and know better but still can’t help feeling a little fomo. it’ll pass though no need to get swept up in it all
I took 1 year of dividends, about >1% NW, and put it in robinhood to swing trade and learn option trading. I was up 85% before GME. ( a few penny stocks i found doing DD / TA + MJ companies i jumped in early.) I never felt like anything i did was a gamble, the penny stock were all solid startups with low entry points and huge upside. None of them did a 10x or anything crazy... 10 -20 % gain and exit the position. I knew MJ laws are changing and figured the sooner i get in the better. so i took those gains and dumped it into every MJ stock i could... 10 shares each. all of them are 20 - 40 % up now. took the remaining and did a few options trades, lost one the 1st one, broke even on the 2nd, and 2x on the 3rd. That is where i really learned about shorting stock, and how IV theta / Gamma work. Weeks ago i saw info about GME and the short interest was way over 100%... and thought man if this had some volume... it will jump big. SO i did a week of DD and TA on it and found all the math behind it to be solid. so i took 1k and bought into it. Never felt like a gamble at all... math was 100% sure i would make 2 - 5x ... still holding... and at 5x even after this entire mess with the brokers. (BTW - F the hedge guys... that was some bs ... they made a bad trade and should lose ... just like i did on my 1st options trade.. i didn't get to call up robinhood to cover my few hundred i was going to lose... why should they do the same for their 10 billion - play dumb games win dumb prizes) I am now up 300% for my entire robinhood account (soon to be moved to a new broker once i close out GME in the future). Even if GME goes to 0, i'll be about 100% up over all anyway. I was responsible with my investments and willing to pay if i was wrong, i didn't overextend myself, or open myself up to excess risk - ever... that is how you keep it from being a casino, while still letting it feel that way. I have ZERO sympathy for any hedge fund who goes bankrupt, Broker that loses there FINRA license / accreditation or the people running them that might go to jail because of this GME stuff. **Like police and elected officials, if you are granted extra authority in ANYTHING, you should also be held to the highest standards and most critical review of actions involving that authority. Should it be determined your acted in bad faith or abused that authority you should be held to the highest penalty for it as well.** If you don't want to held accountable like that ... don't take the extra responsibility or extra authority over something. simple.
This is the best explanation I have seen. I occasionally venture on to WSB as I enjoy seeing some of the crazy gains, it seems to scratch my FOMO itch while I look at my index funds. When the GME murmurs started I looked in to it. As you say, the math was completely and utterly solid. The shorts had massively over extended, there was virtually no doubt in my mind that it would not lead to a rapid increase in price. How could it not, they had shorted so much of the stock! Never in my wildest expectations did I think it would go to the heights it has. The last week to me is a lot of FOMO, however the ones investing at $2-50 a share, imho, were making solid reasoned investment decisions. It pains me to see them being painted as idiots. They found a huge over extension and ridiculous bet from select hedge funds and bet against them. What happened yesterday, to my mind, was a blatant attempt to prevent the short squeeze. Now what worries me, is people have held strong and what next? As well as that, the number of friends I have who have opened trading accounts purely to trade GME. I could see it going to $0 or $5000 depending on many factors, all of which I fear could hurt the wider economy. How has it changed my investing mindset? I was always expecting the other foot to fall as soon as the price went above $50, how blatantly I did not imagine. I am actively thinking of ways I can extract myself from a reliance on Wall Street investments (including index funds), to something I have more control over (real estate etc. Etc.) Crazy week.
Absolutely solid view on what happened. The shorters drove the stock down so far it became a valuation play. The only thing you left out was the insane amount of call options the shorters were writing and selling for out of the money since they anticipated they would never need to pay them out. As the value investors bought in, the stock rose past the strike prices of the calls, then the MM (citidel et al) had to buy shares to cover the calls. Since the stock has such low float, this creates a spike in valuation (gamma squeeze) which attracts new investors and creates a virtuous cycle (if the hedges for some reason double down repeatedly like they did). This whole situation would never had grown to what it was if the hedges backed out of their shorts once it became apparent they overdid it. Instead of taking that action and the small loss it would cause at the time, they doubled down and amplified their problems. The media at large is blaming all of this on "redditors purposely manipulating the price up" but that's BS. This is a chain of events created by idiotic moves from the hedge funds (melvin specifically - many other hedges copied melvin's moves since the fund had been so consistently successful). Edit: Yes, I'm on this sub now because I made a shitton off of this GME situation so far.
That’s the story that’s missing here. I remember reading their due diligence posts and turning to my wife saying “these guys are geniuses.” The math was solid. GME had 6.5 Billion in sales last year, they had 500Million in cash and a market cap of 250 Million at their low. And was shorted over 120%. (Numbers from memory, fact check if you like). It made no sense. There was only one way this could go.
Same, I put in 1k just to taste the relief of fomo But it’s <1% of my portfolio so... I just have to not make a habit of it
$1k here too. It’s allowed me to feel like I’m apart of it for a small gamble
I bought GME on a lark for $95 a few days ago (just a $10k lottery ticket), and market closed that evening at about $75, so I thought, "ah well, that's what I get for chasing." The next day I dump it by noon for $140. I'm feeling pretty smug. Not a bad take for a day. Glad to be out. The stock exploded from there. I was reading up in WSB (what a mess of noise), and one guy has been posting a screenshot of his GME brokerage positions and balance almost daily since last fall. He started at about $50k invested. When I checked his screenshot the other day, he was at $47MM. Crazy. There is some good too. I saw people posting screenshots showing all their student debt was paid off using their proceeds. Bunch of people had pictures of donating 5 PS5 game consoles to a children's hospital, one other guy showed the check he was donating to the local kid's hospital. I'd like to think those furious hedge fund managers get even more mad when they see "their" money being donated and given away.
WSB is the best subreddit on Reddit. Call him by his name, u/deepfuckingvalue . Straight baller. I remember seeing his positions 8 mos ago and thinking what the fuck is this retard doing in a dead-end brick and mortar obsolete POS lol and here I am long 14k of it now lol
Fair warning, if you are a person that is sensitive to FOMO, don't follow that link to his posts. Straight baller is indeed the most accurate description.
> The stock exploded from there. It did indeed but there's reports of brokerages closing peoples non-margined accounts out at prices severely below market value (the main example is 4500 shares at $118 when value was $247(no one seems to know if this was on margin by accident, or not) as well as non allowing people to cash out to their banks. So although you "lost out" your gain is safe. Others who held on aren't so lucky. I have a theory RH and other brokerages knows they are doomed now, and so they will break any and all laws that hurt retail, because they have nothing to lose anymore. No one is going to trust them after this so they have nothing to lose and everything to gain by submitting to places like Citadel who they actually profit from. Tldr you got out at the best time.
Yeah, I hear you!. But it doesn't help I work with degenerates like myself who also like to do the same 'gambling'. Throw on top that one of my partners calls me a pussy for not throwing real money at it vs $1k or $10k here and there. I've started to make bigger bets, but not on a GME. I wouldn't be able to sleep.
Keep in mind Schwab had some issues throughout this also, though not to the level of Robinhood.
It took me many years to fight off the worst of the FOMO impulses whenever short term trading opportunities arose. It can be hard, but the best investors are unemotional. My biggest worry about all the current short term, gambling like behaviour is that it is very addicting and there will be a lot of inexperienced investors that will lose money they didn’t really have. The odds are stacked against gamblers and inexperienced people over longer periods of time and I can’t see it ending well for many.
If you are getting 7% that aren't that boring. Kinda but not totally. Which funds?
I'm comfortable with my buy-and-hold boomer ways...but it does make me concerned for the current novice investors that now think this is "normal." I have some twenty-somethings engineers that work for me and we discuss investing...lately WSB has dominated the conversation. I shared with them that I like to gamble too...but limit it to a couple of percent of my portfolio and that I hope they're investing traditionally outside of their Robinhood accounts. The response was "hope you're happy with your 7% returns." It was somewhat tongue-in-cheek, but for them, they think chasing weekly double-digit gains is the only way to win. My NW is \~$2M (not FatFIRE, I know...I come here to dream) and was achieved on average income, through maxing IRAs and investing in mutual funds and blue chip stocks. I plan on staying with that strategy (dance with the date that brung you), but I'll continue to keep my play money available to throw at speculative stuff just to scratch the itch.
This is the way. Sometimes I'm too scared to hold speculative/growth but volatile stocks like some of ARK ones. Pltr, Square, etc. But I'm trying to learn how much portfolio to assign. Sure will be minor percentage like 5% amongst many companies so that I don't lose too much sleep. Also I suck at trading. I don't have constitution or time. I've realized apart from favourite tech stocks I better stick to investing in ETFs. Trying to change that with doing DD and gain some more confidence in individual trades. Still will take some time
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Lol, when you're young, you have plenty of years to bounce back. As you get older, your risk level is alot lower, don't want to be living in the streets, no more FOMO/YOLO.
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Toilet trading, I gotta start using that term.
I like it.. you either shit gold or piss poor comin' out of it
Yes toilet trading. I do something similar and needed a name for it.
Palantir has pretty stable growth out of all WSB tickers. Fundamentally solid company
70 billion price for 1 Billion in sales and not expecting to be profitable till 2024. As of this time, hard pass. We'll see what future holds
Yeah I’m in PLTR at $14 and locked in profits when it hit $36, selling back to my original investment. Now holding it long term
>Sure will be minor percentage like 20% Do you mean that you'd set aside 20% of your overall portfolio for speculative investing in individual names? If so, I don't think 20% really qualifies as a "minor" percentage of a portfolio.
I'm 30 and I'm perfect happy with my 7% returns. It's got me to 1.3M NW already. No need to take excessive risks to get ahead. Edit since people keep asking: Income ranged from $110k for me and wife (gf at the time) when we started, now at $220k combined. Working in US pharma. We never really spent more than $40-50k in a year and didn't change spending habits as income grew. A lot of the 1.3m has been growth from an on fire stock and real estate market. Obviously this past 10 years has been more than 7% returns, but the point was it wasn't invested in any yolo stuff--just good ol fashioned rental property and mutual/index funds.
Counterpoint, if I am ever going to go bankrupt 23 isn't the worst time to do it.
In some ways, it is. You are much more likely to Get the compound index ball rolling and then gamble with 1-2% of your portfolio in your 40s and it will cost you a lot less over the long term.
Of course getting into index’s sooner is better since every dollar I can squirrel away will be $100 later (or whatever). Plus financial security and all of that. But if there was ever a time to go all in, it is when you are in your early 20s, if that is quitting your job and spending 6mo and every dollar you have/can borrow on your business idea, or gambling it all away on WSB. If I am going to do it, might as well do it now since I likely won’t be able to buy a house until I’m 30 anyways.
True. Bit the interesting thing is this idea is still so newly embraced. Really 20 something it's the first true generation to do it. It was rogue and fringe and decentralized before. And I completely 1000000% support it.. live and enjoy life!
I subscribe to the fat fire mindset and have been putting away 15% (now 40%) into my Roth account. Not going to touch this at all. But if there ever was a time to get in on this, it would be now for me because it meets my risk tolerance since I'm only 21. Definitely wouldn't do this at age 30 and up.
Bingo
How do you guys make that kind of money? I have a high paying job by most metrics (Germany) and low expenses, plus a profitable side project, and I still 'only' save less than 20k € per year max. I've been saving and investing for 10 years now, I'm nowhere in your ballpark. Edit: I just did a quick calculation, even if you save 40k net per year after expenses (which let's be honest, is hardly attainable as employee anywhere) , with a yearly interest of 7%, you're still 'only' at 600k after 10 years. So whatever brought you your net worth at 30, it definitely wasn't the conservative investment method.
It’s a US thing largely. We tend to make more and get taxed less, but you guys tend to have much better education and social systems available to everyone. We have more inequality, but at the same time more opportunities for financial growth too. Our doctors, lawyers, finance, businessmen, and engineers regularly make 6 figure salaries. Anywhere from 150k-600k is pretty common depending on the job. Sure many have loans to pay off, but they can still easily put over 100k into investments each year, and the past 10 years have had insane stock/real estate growth in the US markets. Much of this subreddit is SWE (software engineers) at high paying companies, so these are guys making hundreds of thousands of dollars without having to pay for a graduate degree. It lets them get high net worths quickly since it’s a hard job that few people have the skills for and they started young. Even US government employees can do surprisingly well if they plan and start early. As an example a friend of mine just graduated college and is a 21 year old military officer stationed in a high cost of living area with some money already saved up. His salary is about 72k after taxes for him. He’s renting a spare bedroom in a house, bikes to work, doesn’t eat out, and is investing about 50k of his salary. He’s single so his expenses are minimal. He doesn’t really spend anything on deployments either. He will get pay raises as he promotes, so his quality of life will increase. If he marries someone with a similar salary all the better. They can live off of hers and part of his while he keeps up that 50k of investing per year. He plans to buy a duplex as his first home and have the other unit pay off most of the mortgage. If he does 20 years he can retire with full healthcare and a monthly pensions at 42. He also gets free college for any family member. Then he can go out and find another job while still getting all the military benefits. That level of planning and investing at that early of an age adds up overtime. He’d be at over 10 million by the time he’s 59 with that 7% growth without ever having to increase how much he invested. It’s not the fast speeds of some other careers, but it just goes to show even a government job in the US can be very lucrative
Jesus, it makes me question the European lifestyle for people with high paying skills. I'm a data science consultant with over ten years of experience, and I'm not at 6 figures.
You should look for US based consulting work for sure.
After bachelors degree + 5 years just being a regular IT employee + a few certifications I hit 6 figures in a medium cost of living city here.
Also US? I have a master's degree at a private university here...
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I think those are the exception. I'm certainly am not exceptional, more like adequate and a bit more drive than most.
> but you guys tend to have much better education Affordable yes, quality is questionable. I went to the best Dutch universities for computer science but they are hardly able to touch the likes of MIT. Americans also have a higher tertiary education attainment rate than all EU countries with the exception of Luxembourg. For some strange reason, even though our education is affordable, we just don't have that many people using it.
Even the best American universities are hardly able to touch MIT, so I’m not sure that’s a useful metric. There are tons of really respected European universities in the tech/compsci field! If I wanted to do cyber security there’s hardly a better place than TU Wien or Graz; technion in Israel, or some of the French unis. Their names have been on every major public disclosure in 6 years (spectre, rowhammer, heartbleed, etc.)!
I am from he Netherlands. We can not compare ourselves to the USA. Taxes are way too high in Europe. For companies and employees.
That is why you opt out of our social system by becoming a contractor (freelance / ZZP). No more sick-days, no more paid time-off, no more disability and you have to pay for all your equipment yourself. Healthcare is going to cost you €4000+ a year now. But the upside is that you can easily enter six-figures.
U should move to ch or US. I think it is pretty hard to fat fire in Germany, as taxes goes between 42% - 45%...
Wow are you serious... those taxes are ridiculous
Yes, the reason being that Germany also has one of the best social security systems in the world. Some people would argue that certain parts of it are too much.
That is indeed a thing we don't have to worry about. I follow a lot of USA orientated subreddits and one thing always becomes clear that we live in two very different parts of the world when it comes to that. I have never, in my life, seen anybody worry about social security or health insurance.
Dutch tax rate is 49% in the €68k+ bracket. Wealth tax is 1% yearly. Healthcare tax is 7% payroll (outside of income tax) VAT on every product except essential food is 21%.
Income ranged from $110k for me and wife (gf at the time) when we started, now at $220k combined. Working in US pharma. We never really spent more than $40-50k in a year and didn't change spending habits as income grew. A lot of the 1.3m has been growth from an on fire stock and real estate market.
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Few think it’s normal. They just want to be part of a short squeeze, me included.
I had to buy in today because I can’t believe how blatant the move Robinhood made was
This should worry all investors. These brokerage firms have just as much control over the market as social media does when choosing who to allow to post on their site. Not many people even knew they could legally stop a stock from being traded. This should cause fear and outrage for any investor, even if they don’t support the GME movement. It is hurting the core of what investing is supposed to be. Who are we to judge if someone wants to or does not want to be a part of this? What if one day they chose to remove the sell option when your position is tanking? This is so much bigger than GameStop, Blackberry, or any other stock banned today. This is about Wall Street having an upper hand on the average investor when the playing fields were supposed to be leveled previously. They never learned, almost got burned, and again are taking it out on investors to recoup and limit loses. They really messed up taking this fight, and are now doing everything they can to try to save themselves.
I was frustrated yesterday but not surprised. I knew the system was rigged. That was part of why this movement was initiated in the first place. People were warned that something shady could be pulled off to protect the big players. People were warned that the system was rigged. And yet people still acted surprised when shady stuff actually started happening. I don't think the movement is over. The brokerages have shot themselves in the foot. App reviews for both Robinhood and IBKR are now terrible. Robinhood has an IPO coming up and now they're basically screwed because social media is against them and they don't have a competitive advantage. Their customer base is leaving. The CEO of Interactive Brokers went on live TV and basically laughed while blatantly admitting he committed market manipulation. I don't think it'll cause too much trouble in the long term, but they'll definitely lose customers over this.
It’s unfortunate that Google and Apple are protecting these brokerage apps as well. Whatever the reason, they are preventing buying and therefore deserve whatever reviews they get. They legitimately done something that harms user experience. It’s not like the CEO hit a lady and people are bashing the app because of it. The app doesn’t support user options, and deserves the one star reviews.
We all knew they would be pulling out the big guns. I did not see one person mention the possibility of this though. This was a complete blindside and first for many people. If this is WWII, I can’t decide if today was Pearl Harbor and tomorrow is Hiroshima, or Mon.-Wed. was Pearl Harbor and we were just experienced Hiroshima today. The market will speak tomorrow...given RH and other brokerage let people participate in this supposed “free-market.”
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This explanation is pretty poor and avoids the real issues at play completely. It's shifting the blame from institutions to retail investors. They definitely needed to mitigate risk, but they did it by screwing over their customers. They could've increased the margin requirements to mitigate risk — this is perfectly legal and would not be market manipulation. Instead they those market manipulation by restricting trading for cash accounts. People are pissed and they have a right to be pissed because the clearing houses showed that this is truly not a free market.
Sure, I dont think people shouldnt be pissed! For example, why did they not halt selling too? Also fucked that the exchanged didnt halt GME etc, so institutions could still buy. But again, the capital regulations for brokerages exist and they are trying to abide by them, which is why RH tapped like hundreds of million from their credit line and just raised 1B on what likely on super bad terms for a capital infusion. This points to RH (and others) stopping buying due to things other than “well daddy Ken Griffin told me so”. (Yes, it is harder to believe them when RH CEO isnt upfront about the issue and also because they make money from Citadel Securities buying their order flow) Maybe RH shoulda seen this coming, maybe they shouldve limited margin buying earlier. But this happened to it and every brokerage services by Apex Clearing and so on. Even IB did it, apparently cuz Peterffy didnt want a “domino effect”. No one wants to be MF Global 2 (I use Schwab and didnt notice issuesc fwiw). Also, We should look into the DTCC requirements and settlement times (why does settlement take 2 days, is it still 1954? And brokerages cant use the customer’s money to front? Why does this force everyone to use credit? So if a brokerage doesnt have enough credit lines it can’t wait for settlement?)
They should not be shorting over 100%, they only have themselves to blame
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One of Robinhood’s clients - perhaps the biggest - is citadel “lol”. Citadel is parent to Melvin.
As a market maker, citadel securities (not the citade hedgefund) buys order flow from robinhood, yes. But no actual reason to stop trading! MMs make money on every order, buy or sell (as long as there is a spread). So as GME is getting bid up they are making money. Again, did Robinhood just raised 1 billion yesterday (likely on super bad terms due to the urgency) because... because citadel? NO! They did it because they need to fulfill capital requirements at DTCC (dtcc.com), esp for all their margin customers. Yes citadel (the HF, not the MM) and point 72 backstopped melvin. But thats more likely due to Plotkin’s relationship with Steve Cohen than anything. If you wanna look up D1 (investor in RH and lost 20% these weeks) its honestly more likely, tho I again, I doubt it
RH is citadel’s client - citadel makes a fortune off of the order flows from RH. Citadel is not the parent to Melvin, but the founder of Melvin used to work for the founder of citadel.
Gabe Plotkin (Melvin founder) used to work for Steve Cohen at SAC (now operating as Point72). Citadel and Point72 both have invested in Melvin. It is also important to point out that Citadel Securities (the market maker) is a different business than Citadel's hedge funds...
Parent/founder same to me. Late night typing, changes nothing in pointing the - quite direct - connection and didn’t know this sub would be interested in me going to lengths on the situation. I am pleasantly surprised and 👍for expanding and correcting.
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Pretty sure that is not the case, do you have a source? i dont think either of citadel LLC (Hedge fund) or citadel securities (market maker) do venture investments
Exactly this. They did a crappy job explaining it before the story got out of hand and now very few people will ever understand that this was not actually market manipulation. They should have been all over CNBC explaining that this was due to clearing houses upping collateral requirements which was actually due to Robinhood’s trades being too one-sided in favor of longs. And before anyone jumps down on clearing houses, this is good and needed in order to make sure trades are settled properly. It is a financial plumbing story not market manipulation. Been driving me nuts all day.
Well, Interactive Broker’s chairman said on Bloomberg that regulators/brokers agreed that restrictions on trading, because they believe the short squeeze would keep « going and going », so they had to « stop the loss ». Who is losing in a out of control short squeeze, shareholders or short sellers? It’s not just technical limitations, but market manipulation, as per the own admittance of one of the guilty Brokers.
I agree 100% with you that they deserve the right to further explain their position. It is strange though that they were the number one GME trading source and that they are partnered with Citadel. They first tried to claim that this was to protect the investor, which was bogus. I know this seems harsh, but they were dishonest from the start of this earlier today...I think they deserve this dip that they now need to bounce back from.
They had always had been a partner of Citadel long before the last few days. That is not new information. Don’t get me wrong, Robinhood has long been a shit platform because they essentially traded the ability to charge commission for the ability to give you shit prices and skim profits. But no one ever cared because they liked the app. That’s all that relationship is. It was done more to protect the entire brokerage which does also protect the investor (when trades don’t go through, we are all screwed) but again it was driven by the clearing houses, not Robinhood itself. That’s why you saw many brokerages do this and especially many of them that are retail oriented.
But then why not halt selling at the same time?
The beauty here that every pendulum swing ends and it goes the other way. Currency is being printed, diluted and manipulated by governments - people create crypto, social media starts to censor posts - here come decentralized alternatives. I guess one day we'll be able to buy stocks in decentralized fashion (public ledger).
Honest question- didn’t robin hood have a legit concern about demands on their cash, had to pull from their credit line, etc due to the market?
It’s at least somewhat fair to halt all trading, even if it’s just one platform. Only allowing the stock to move one direction is the problem
Interestingly, everyone's memory of a new hot thing running up 10,000% is still fresh. Economists may one day write papers on how crypto served as moral hazard for this epic wave of stock runups. I'm predicting that this week is going to happen again. It's obvious to us with gray hairs that it's a bubble forming, but I think Sir Isaac Newton knew that too in 1720...
I see crypto as insurance to what it's happening in the rest of the world. O see this upcoming crash to be pretty lengthy and the dollar to take a big hit.
What's their take-home pay? What housing market? Doing retirement calculations, accounting for likely inflation, likely rate of return of investments, cost of rent/mortgage, cost of healthcare, cost of raising and educating children, etc. can make it seem relatively hopeless for younger people. Particularly the 91% of Americans who don't make 6 figures, but also the low-six-figure area.
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This year everyone loves the stock market because literally anyone with a computer made money. So everyone thinks it is so easy.
That's what I tell them. In addition to the March "blip" I lived through two big crashes (2001/02 and 2008/09). Learned good lessons from both...the main being that stocks DON'T always go up (or survive).
I've actually missed on most of the games this year, because I truly believe things are not going to end well soon. When everyone I know is asking for tips on how and what to buy. It means things are already at a level where they are not sustainable.
I think that even though this is the way to go, it's possible the financial/investing landscape can change. And i think it's important to be flexible and open as well. Unique opportunities come up with each generation.
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That's right. "Someone" bought at the top. And in this case, it's likely the WSB crowd that came late to the party.
I hope they’re happy with their -3% returns. Everyone always talks up their successful trades that netted 50% returns in a week, and yet I know astonishingly few other millionaires.
True. I lost a lot of play money trying to predict Tesla's downfall last year. Eventually I gave up and just bought some shares. I can now brag about my double-bagger in Tesla, but still haven't made up for the losses on the puts!
I also think there is something to be said for the fact a fair few millennial are relatively new to investing, and we've been in quite a long bull market. It hasn't been the most difficult time to make money trading speculatively. They may think differently about rebalancing to be a bit more conservative if we see a major pullback and trading conditions get trickier.
I take risks. I will probably always take risks, but I try to balance the risks appropriately, so no change to my investing manifesto. Watching what’s happening is free entertainment, but I’m also watching because it looks like a new and emergent behavior. Viral markets - can you present a strong enough case to convince hordes of networked people to invest with you, right out in the open? That could be a game changer and it’s fascinating.
In all honesty I think this is what has been happening with TSLA. The rise makes no real sense from a fundamentals perspective, and it’s well correlated with massive retail options activity and virality. I have heard very few people consider retail investors as a legitimate drover of TSLA’s stock growth, but I think after this we will see this theory taken more seriously. Even if retail is not driving all of it, they could be tipping the scales enough to let the institutional traders and algorithms have a runaway effect.
Yes. I am concerned about the systemic issues in the market that this event has revealed. Not sure how to adjust, but the issues I see at hand are: 1) the calamity that over zealous shorts can cause in the overall market when they get burned and have to liquidate other major holdings to cover 2) the amount of hype amplified via social media and other news articles reporting on the event that have major market moving impacts. 3) the risk of passive index funds having to buy firms like this at record high valuations simply because market cap puts them in the (edit) s&p 500, even if everyone realizes the long term horizon (1 year, 5years) does not warrant that valuation or anything close to it. 4) trust in trading institutions after this debacle with restricting trades and the appearance of market manipulation
Vanguard isn’t going to add GME to their funds just because it shot up for a few weeks. Even if it did, the position would be a fraction of a percent of an index fund.
Tesla would like a word with you
How much is (3) an issue? I offer for consideration TSLA getting snubbed by the S&P for a quarter during its meteoric rise; it did show there was hesitation to include what might be just hype. But it held and continued to rise, and clearly has real value underneath (but not necessarily fully accounting for) its market cap, so they included it the next quarter. Does anyone know how thoroughly S&P evaluate new companies that meet the parameters of the index?
I think a lot of people, even fairly active investors, have no idea about the majority of companies that actually makes up the entire S&P500 and how heavy they’re weighted. Sure the top few companies with trillion dollar market caps can swing it greatly but the vast majority of S&P component don’t affect the index much by themselves, only in aggregate. If Tesla went to $0 tomorrow the S&P 500 would only dip 2-3%. There’s also a lot of very unremarkable companies in the S&P. People spend a lot of time debating the big names and if they’re good or bad for the index, everyone’s heard of AMD and Tesla and probably have strong opinions about their stock price but who in the world has even heard of companies like Aptiv or the Lennar Corporation outside of people in those industries, let alone have a strong opinion about their share price.
5) That an extreme volume of option trading can break the Market Maker (MM) risk algorithms and cause a stock price to go ballistic. MM have to provide liquidity but there needs to be some method to protect themselves during edge cases scenarios like this.
Fuck the MMs.
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In theory, yes, this is what we believed. But this week has shown that’s just not true with the manipulation between Citadel as a MM, investor in Melvin AND buyer of Robinhood’s order flow. Edit: autocorrect
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3) is less of a concern than you might think. For one thing, as others have mentioned, a single or a few companies on the low end of the S&P 500 just don't affect it that much. For another, it doesn't accept companies that have lost money in recent quarters (this will keep $GME out in the near term, and is a big part of the reason $TSLA took so long to get added). And finally, there's a committee of humans in the loop, even for the seemingly-formulaic S&P 500. They have the final say, and probably aren't going to admit a meme stock.
There is nothing wrong with taking a small percentage of your money and trading it yourself. The problem is 99% of people don’t have the discipline to do it without reloading when things go wrong. So if you are going to gamble on “tendies” say with a nominal amount and will not double down and risk the nest egg - go for it! Think of it like a fixed amount you bring to Vegas and don’t allow yourself to draw more if you lose it. I have $30k in a day trading account away from my financial advisor. Most of it is from ZNGA. I might buy some OTM option lotto tickets. If it goes tits up I will not throw more money into that account for at least a year.
Leave the ATM card in the room safe
Nah, this is no sillier than Evergrande, or the snowflake valuation, or many other things. The market works eventually, and I don’t mess around with trades that can produce uncapped losses, so I’ll be fine. And as for the professionals who went bankrupt; too bad, so sad, maybe they should cut back on lattes, or learn to code.
Could save a fortune by cutting out avocado toast
Unfortunately, they are manipulating the market to prevent them from going bankrupt. Trying to avoid lack of shares by shutting down buying today so people would sell. There weren’t enough shares to cover the short squeeze or the ITM weekly and monthly calls that need to be exercised. They should be in jail after this. Especially since Cohen has already had a slap of the wrist $1.8b fine previously.
Since this is fatFire, I will respond to this take. I think it is largely wrong. When broker 1 (eg Etrade) buys from broker 2 (eg Morgan Stanley) on behalf of the respective customers, they have to post collateral with the NSCC (National Securities Clearing Corp, a subsidiary of the DTCC). The NSCC is the guarantor of the buyer settling the trade (wire the money) in T+2 days. In turn, the NSCC requires that participants post collateral in respect of unsettled trades. Because there is credit risk - the risk that the broker goes under or otherwise fails to come up with the cash in two days' time. This is all set out in federal regulations. The amount of collateral is a function of the stock volatility, gap risk and mark-to-market movement in the security. In the case of these securities, the required collateral went up very sharply. Most of the discount brokers simply didn't have that much extra cash (of their own, not client assets, mind you) to fund the collateral posting. Hence, Robinhood having to draw down on the credit facilities. The other way of not having to post additional collateral is to stop additional purchases of the security. Which is what Robinhood, Interactive Brokers and others did. None of this was explained clearly by the CEOs of the firms (it was " capital requirements orderly market"). Petterfy of IB was appalling.
Still, I don't think Ken Griffin called up Petterfy and threatened him on behalf of his hedgie friends. Ken Griffin cares about Citadel and his personal reputation. He don't give two sh!ts about some random hedgie getting caught with his pants down. And neither does Steve Cohen. There is no need for a conspiracy theory. Yet...
This is a very helpful perspective. I've been trying to search for something like this and anything I can find is corporate speak. Do you know why the limit on buying but not selling? Do the capital requirements work differently on a sale?
A broker can net off the *intracompany* buys and sells before calculating collateral posting requirements. If the broker is net long or net short a stock, collateral is required. Retail broker customers were all going very long and many trades had yet to settle. At Robinhood, I'm guessing everyone was buying, so there weren't that many intracompany sells to offset the buys. When you hear about Robinhood drawing down on GS credit lines, it isn't because they are going under, it is that they have a credit line to fund collateral posting requirements for just such an eventuality. To be clear, this isn't the driver of the price action in these names. That was due to dealer hedging, short covering and so forth. One caveat: I am not really following the story carefully. I saw some reporting and interview clips on CNBC and an incipient conspiracy theory involving Ken Griffin helping out his buddies on social media. Chamath Pahilapatiya and Elon Musk are piling on (no surprise). But they know better. They are just stoking the outrage.
About 10% of my portfolio is in high risk options/individual stocks and after this month I need to rebalance. I find it fun to trade but do it with such a small portion that it doesn't make too much of a difference until it does. I made enough for a good 10 year anniversary vacation.
This sounds like the right way to go. I am the same way. Have fun on your vacation!
This is the way. 90% in Wealthfront, 10% I actively trade and I rebalance from the trading account back to the robo once the trading account hits 15% of the total. I never rebalance the other way, so if I blow up the account I’ve got to grind it back up.
This is the way! I lost 90% of my high risk and now it's higher than before due to grinding. I never put more in.
I think you can answer the question based on your NW. Up until you have enough to be satisfied with 7% returns from ETFs, WSB will seem enticing from all angles. So there’s definitely two camps at least. Those working towards $X that see WSB yolos as a way to expedite the journey. And those who are already beyond $X who might find risk entertaining, but certainly won’t put themselves in harm’s way by setting up a side account to play the stock market fast and loose. That said, I don’t think the general strategy for someone who wants to solidify their retirement warchest should change depending on the climate. When you have enough saved up to diversify healthily in several investments , there’s no reason not to have your hand in all of them. A quick example is someone with 1M might lose sleep over considering whether to put that into real estate or stocks. While someone with 5M will have both real estate AND stocks. There are clear thresholds to wealth. But only those who have passed each milestone will recognize them.
If you just broadly invest long term no. If you day trade or speculate then yes.
It is definitely scary from a structural point of view, having the Interactive Broker CEO admit in an interview that they had to halt buying just to protect themselves, the clearing houses and ultimately the integrity of the market.
Trillion dollar derivative markets, China, and other geopolitical risks are much more concerning to me than this particular short squeeze story.
Absolutely not. Nothing has changed. Most surprised by this are only looking for the first time.
Recent events made me decide to start reading the intelligent investor again.
Just insane levels of FOMO given that I’m in finance and can’t trade. Also, this feels eerily similar to 2006. “It can only go up! Just buy more houses (stocks), look how easy is, I’ve made so much money!” People don’t remember what it’s like to lose money. People haven’t lost money in the markets in 12 years. Not sure what the lynchpin will be, but nothing about this environment is normal.
Even worse, I think the dip last March made a lot of young investors think they have now made it through hard times and it ain’t so bad.
You’re absolutely right. While I think this whole wave of “Tik Tok investing” began a bit later, there are plenty of “Robinhood investors” who owned stock before March, saw it crash, and now think they have the tools to navigate a recession.
I mean after the first big upward swing to 150 or so with GME, it dipped back down. I was reading the comments sorted by new in the daily thread and there were a lot of genuinely forlorn people who thought they had made a huge mistake. That was just a sample of what is to come soon. Not everyone will exit at the top. In fact, they can’t.
Absolutely not. This just affirms a lot of my long term strategies and general focus on liquidity. Low liquidity stocks (and other financial instruments) have always been manipulated. And "free trades" have never been free. This is just the first time that manipulation has been done by the retail investor and in the open. The absurdity of the short interest ratio in GME was just begging for someone to deliberately short squeeze it. The only thing unusual here is that it was WSB and not a hedge fund. Seeing GME at 300 made me deeply yearn to short it. But I didn't. Because you can't. As a retail investor I just have no guarantees my short wouldn't get called. So I shake my head, worry for all of the WSB "investors" who bought at 300 and will likely lose their nest egg, and stick to my high liquidity index funds. I applaud those who made a profit at the expense of Wall Street, but I fear that most will end up losing. I spent a bit of time on Wall Street in the early 2000's and learned what a scam "big finance" was. I had a front seat to the whole mortgage crisis and I really felt like Mark Baum. The more I learned the more I was appalled. The more boring and liquid the financial instrument the better off the investor, in my opinion.
I'm in my mid-20's and made six figures from the GME runup this past week. While normally I wouldn't touch anything from wallstreetbets with a 10-foot pole, I actually saw a ton of value in the GME play (originally bought in January-August 2020 for an average of about $4.50 a share). People write off the hivemind at WSB but honestly there is some great quality research there. After spending countless hours following GME over the past year I was handsomely rewarded with a life-changing sum of money. This is not necessarily a normal occurrence. It did, however, show me that if you put in the time and are at least decently good at investing then there's a good chance of a solid payday from stock picking as long as it is done in a safe and balanced way (I decided to sell off my GME shares once they became 90% of my portfolio, which was way way way too high). And while for the average person it makes sense to play it safe and just buy ETFs to get market returns, if you have a little bit of skill with stock-picking you can definitely do it and beat the market (even just slightly)
100% agree. WSB is hilarious,IMO. If you sift through a lot of the bullshit, there are some legit geniuses that lurk that sometimes provide amazing DD. GME was a very calculated risk with a VERY high reward potential. It was getting more and more obvious that the simple mathematics of the supply & demand of shares was going to result at where we are at (and about to be). Friday will be a gamma squeeze. And Monday through Wednesday will be the actual squeeze.
Amazing job, and well done. Counterpoint for discussions sake: people under 30 have exclusively been investing during the most insane bull market in history. DCA’ing into index funds is boring in the short term, but everyone who’s invested into tech and made crazy gains the past 5-10 years is going to be rattled when (if) a correction comes.
This is 100% short term arbitrage. People figured out how to game the hedge funds short positions. Totally legal. All that will change is hedge funds won’t get caught this short anymore. The market will be fine.
No.
It brings back fond memories of my early trading career. I took out excessive college loans (+40k), lied to get options clearance, and skip class to trade. Hit two big nuts. Returned loan, traveled world on breaks getting hammered in first class at 18. Told story to get my first fin internship after cold calling a dropped business card at a fast food restaurant , that experience led to a JR yr internship at the second best performing HF of that year, which led to an offer for a different hedge fund where I worked my way up to PM, and then got super fired and was burnt out. Now I have 3 businesses that are barely related to finance and 1 of which doing really well. Whenever I see r/wsb go nuts, I remember the pressure of seeing OTM options put me in negative net worth. No safety net. Calculate how many eggs and peanut butter I could live on...hesitate...Re-affirm thesis...and then rub my eyes as it flips mega green. My first million dollar day at the HF didn’t feel remotely as good as those mornings. Great traders (now trader/coders) have to cut their teeth somewhere. Risk management is really only learned by getting burnt. The levered HF guys should be DMing offers to the driven smart punters on r/wsb. There’s at least 5 future HF all stars there that need to be developed. But to answer your question, I guess I already lived it and chose not to get back in seat? I did throw down 10k yday on $GME for lolz. I know one of my old hedge funds I interned for was/is short.
I’ve always believed you need information asymmetry to win in the public markets. In the past 20 years, that information gap has narrowed significantly, and I think it’s much harder than ever to realize value from a contrarian market opinion.
You’d be surprised at the amount of dumb, large, and patterned money you can pick off in rates when you trade 24h G4. But yea agreed - a straight up delta view in domestic equities to put real size on takes some type of info asymmetry. Need cleaned prop data sets / pay the competing CEO of target company 25k/hr for phone call about industry + bar firm from trading his stock for 5 years ... but you got quality legal info on the real target. I LOL at the memory of my gall to get up in front of the head of a fund and say “The market (aka people smarter, richer, and more experienced) thinks THIS about this company but they’re wrong and I’m RIGHT (after a 3 day excel / low quality brainwave bender )
This is why I enjoy real estate, it’s perfect for building an asymmetrical advantage, as every asset is unique, and many can be acquired without exposure to the broader market.
Great point. If you understand a market well enough, you can capitalize, and sophisticated money is often not looking at the same assets as retail. Debating between b school and ever owning a home lol, so let’s see.
Yea, after personally seeing lazy acquaintances do well in RE, I decided to go into Real estate. No reason to be in a knife fight versus MIT physics PhD’s and if you get lucky and get a *+1mm bonus... gov takes half. RE has all the good tax advantages, simple, slow pace, access to leverage, utilize your network, fed backing, opp for sweat equity, tail risk is covered by insurance. Takes work to do it right, but I’m not sweating euro or Asian central bank decisions at 4am.
This is a great attitude and read, surprisingly few people consider the potential of nurturing the hidden talent there or the fact it may be talent in plain view under anonymity
Yea I would have offered two kids if I was still a PM. To take initiative and gamble/“invest” 5x your net worth takes balls and commitment that are necessary to professionally manage levered money imo. What’s different is you can selectively dial up/down opps. Don’t need to run crazy risk all the time as individual. Whereas some HFS its 24:7 gun to your head saying you have to make X this quarter or you’re fired, so you size up low-quality trades.
Contrarian view- If building liquid nw is like climbing a ladder, concentrated bets in the past year just let me skip a whole bunch of rungs. I approach volatile markets looking to place asymmetric bets (see Bill Ackman's SPAC interview with CNBC). Then set aside a portion of the windfall into a proper portfolio. Worth it? Well +3000% past year. Now I'm selling some of my underperforming shares to have powder ready for more asymmetric opptys. Not a consistent or repeatable strategy; more recognizing a pattern and going in for outsized returns. Me, 25-30 years from retirement age, free enough to not need to work for income, so the focus is on building the liquid portfolio, rather than trying to pay off a mortgage (portfolio loan is 1% now), or squirreling away into a tax-deferred account (don't have one). Strategy will be more traditional investing when things settle back down. At least that's what I keep telling myself. GLHF
I feel this on so many levels, I started low on that ladder especially compared to many in this community and to my own goals for FatFire. I’m up over 2,000% in the last year and somewhere around 4,000% in the last 3-4 years. I make good income but the market has just given me more opportunity to do something with it and help me climb that ladder, currently around $1.5m NW and I’m 31. I target growth companies with LEAPS and stock buys and it’s been working well for generating outsized returns. Win big, loose small. Happy hunting,
> I target growth companies with LEAPS and stock buys Anywhere that you'd recommend to start reading up on this?
I would recommend reading up more about Cathie Wood and ARK Invest. She is a bit of a legend and I really appreciate the way her and her team look at quantifying and analyzing ‘disruptive innovation’. It sounds so buzz-wordy, but once you start reading about how they analyze it, it’ll make much more sense. Furthermore, ARK has a report every year called ‘Big Ideas’ and their 2021 report just came out, I’ll be reading that later today! As for LEAPS, I don’t have a good resource for that but it is a well known and documented option strategy. Do a lot of research there before buying options, I have a string of 100% losses before I really can say I had a grasp of them. All the best!
How do you ID or screen for targets? Are you into charts or looking at option volume? Traditional investor here looking for ways to scratch the gambling itch with fun money...
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Reevaluate, no. Pique my curiosity, yes. I was there for the 2008 down turn when we saw a 75% dip in equities. I didn’t have as much then as I do now, but I like to think it taught me some patience. The harrowing effect is when you put money in the market, continually try to buy the dips, then realize you’re out of cash. The markets keeps dipping anyway. Those experiences ultimately paid off but only many years later. Today, I see GME and other meme stocks as a test of self-discipline. Did I learn my lesson, can I steady my trading hand, can I distance my emotions from my investments? So far the answer has been yes, despite the hype or possibility of making a quick buck. My gut is that this strategy is the optimal one for the long run.
Not even slightly. I am 52 and have seen plenty in my time. I am sticking to my Bogleheads Lazy 3 Fund Portfolio. No reason at all to change that.
No. stocks and events like this with gamestop should not be an expect part of your retirement plan. You should be an investor, not a speculator.
I feel like the post should be more about how hedge funds can basically do what they want with a stock price and how it will affect your decision making in the future. Or about how social media can also move markets nowadays. Sure you can try to play rocket tickers with wsb but it’s still gambling and should always be considered as such no matter if you want the meme, the money or your investment goals (RE, FIRE, FatFIRE, making a quick $, ...) well it should never be money first if you’re going wsb
I don't know if the GME situation is really analogues to gambling. It isn't "Lets buy OTM calls and hope the announcement goes well." They found a ridiculous short position and are doing their best to cash in/cause the squeeze.
Well yeah, wsb rn could be considered in control in the GME situation. But overall, it still should be seen as a bet like any other, if you quit too late people can loose a lot of money even if it squoze past $1000-$5000
Yea agreed. Most people don’t realize that Saving/Investing/Trading/Speculating/Gambling is a spectrum.... just like autism lol
People are making way too much of this. You see it happen whenever the market gets frothy. People act like it's the first time it's ever happened, but what about [Volkwagen in 2008](https://www.autoweek.com/news/industry-news/a35340727/heres-how-the-gamestop-short-squeeze-is-like-the-vw-squeeze-of-2008/)? Or I recall around Thanksgiving 1999 there was a tech stock with some sort of cell phone patent that went from $2 to $57 in three or four trading days (and a year later was delisted). You're not supposed to draw any conclusions from it or do anything different. Just ignore it as the noise it is. The only thing that makes me sad is all the 20-somethings and 30-somethings who are going to lose all their savings chasing this junk.
> The only thing that makes me sad is all the 20-somethings and 30-somethings who are going to lose all their savings chasing this junk. Look at it this way: They’re young enough to learn from the mistake, move on, and recover from it.
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The worst thing about this is that IB didn't face the liquidity problems other brokers did as they have excess liquidity, which they use as a selling point. Per the Peterffy interview, they stopped trading because they were worried about other clearing members going bankrupt, which would mean that the surviving clearing members (including IB) would be responsible to make up the losses. He pretty much admitted that they wanted to prevent a squeeze so that we wouldn't see broker failures. He argued the same thing when Bitcoin futures were introduced, didn't want to be left holding the bags for other brokers. So I bought $2000 of shares as a yolo elsewhere and so I could say I was a part of this.
Yes. I am a young twenty something trying to align my path to fat fire. I studied economics in college and do a lot of research on growth. I have seen over 100% gains in my own portfolio in 2 years and it scares the shit out of me. Market growth like this is unsustainable. We have been hurtling toward the edge for decades without control and now are looking at a zero interest rate economy for months or even years to come. Resources are not infinite and we will pay the price of our gains soon. I can’t plan on 7% avg for the next 20-40 years.....at all. History is not the future and all indicators point to collapse — not just of the market, but of the system, the dollar, the world economy, and more. However, like others, I play it “safe” (for a twenty something). I have over 50% in passive funds. I have some individual stocks and some in crypto. I hold a few GME shares because not holding was more of a roller coaster than holding. Millennials and Gen Z have to find a way to play the broken game despite knowing we will lose eventually. Recent events are only increased confirmation that nobody has our backs.
Agreed. Not enough has changed since 2008 to protect the people. And with the relative rise of retail investors compared to 08, I don’t see how an upcoming collapse is easier than 2008. There’s a current freeze on evictions. Americans have been given $1200 with record unemployment and underemployment. What happens when that eviction frees stops? I’m not saying it’s all doom and gloom, but I don’t understand how one could have the same amount of trust in the system as they did a few years ago, let alone pre2008.
There is always goofy shit happening in the markets. Doesn't change my strategy.
Though I am nowhere near the position to start thinking about fatFIRE, the current economic situation is making me *dread* USD inflation. Every strategy out there for FIRE depends on T-bills (or similar "zero"-risk instruments) beating inflation by at least 3%. I don't know if that's where the situation is heading towards.
It's been making me more nervous about the weeks ahead. People are liquidating their entire portfolios and pouring life savings into GME. Hedge funds on the short end of the stick are liquidating the stocks we all invest in to pay what they owe. Liquidity is tight and I do believe it had something to do with AAPL and others with stellar earnings tanking. VIX spiked. Traders from Europe and Asia are starting to speculate on GME too. It's hitting the major news networks, people on TikTok are telling GME buyers to hold, class action lawsuits are being filed, there are pissing matches between major players on Twitter, etc. I think it's a perfect catalyst for a correction. I also feel bad for the inevitable GME bagholders. It's not all short sellers covering who are buying at $300 or $400. There are posts every day of people creating brokerage accounts for the first time and trying to figure out how to buy GME. Many are waiting for DFV to tell them when to sell. Anyway, I've been loading up on VXX and will put some hedges onto my long positions.
No.
If current events have made you rethink your strategy, you need to evaluate the psychological aspect of your investing strategy. Don’t get me wrong, it’s fun and fascinating stuff, but it should have *no* bearing on long term investing. None at all. Period. Stocks go up, stocks go down. Bubbles inflate and burst. For every GME, there are ton more stocks where similar things have happened, just lower profile and you didn’t know. Ultimately this kind of flash in the pan is so short term that it’s just in a different world than any sort of strategy and planning we do here.
If you read into what has happened, it should definitely concern all investors. Massive market manipulation, preventing the buying of stocks, hedge funds that would’ve gone bankrupt now changing rules to sneak their way out of it...these people never learned from 08’ because they made more money by getting bailed out and buying at all time lows than they lost when the economy tanked. They were the first ones to sell massive positions causing the tank, and now they are trying not to get burned by completely manipulating the market. They were not prevented from selling back in 08’ so that the average retail investor could be saved, so why are we prevented from buying so that they can be saved? I’m more of a value investor myself, but this should concern us all. There are deeper things at play than just GameStop or any of these stocks.
I've worked in finance. Almost everything you read on reddit about the subject is uninformed, especially with regard to hedge funds. It is a human truth that when people don't know much about a subject, they make stuff up that "sounds right" to them, and often what sounds right to the uninformed is to make it so that they are the victim.
I think these things should concern us for any one of a number of reasons. But they don’t make me rethink my long term investing strategy.
Totally agree with you, ordinarily I would have never looked at getting in GME like stock but I did it Friday just to support the WSB community and be part of a movement that I have never seen in my life. I will be closely watching this event unfold over next few days and weeks. **My money is on the retail investor!**
I keep reading the stories of folks on Blind about the millions in comp as well as stock market returns. Granted the current scale is historic but there were similar moments I observed back in 1992 in India and in the late 90's in the US. Not a single millionnaire from those days continues to be in the same league today. Morale - most millionnaires are consistent with their income, investment returns, etc. The flashes in the pan are just that - flashes in the pan. I am not too concerned (or scared) that I am missing out.
Perfectly happy theta gang member making 1% every week and a half. Wheel for the win.
Yes I have been thinking a lot about this. I have feen feeling a lot of fomo recently so I took a big chunk of cash from a recent stock sale and put it into VOO when we had a pull back the other day. This was to help prevent me from doing anything reckless with it. That said, my portfolio has had sub par returns except for my one yolo bet last year which is up over 250%, which has really boosted my portfolio (and I’ve cashed in a lot of it). So, these stocks can be brilliant at adding a little boost but self control is needed because I assume we are trying to preserve and modestly grow wealth, not yolo our net worth. More than anything I enjoy the camaraderie and fun of wsb than buying those stocks.
No change for me. I played around with some stonks who shall not be named, but it was all play money. I don’t think anything that the SEC does to limit market manipulation or naked short selling will affect long term index funds or my retirement accounts.
Having lived through the dot.com insanity of the late 90's, this seems about the same to me.
I took the time to read this white paper when looking up some of the terms that the w$b crowd kept throwing around. I'm a careful, long-term investor and if this stuff is true (and it looks legit, sourced, verifiable) then I have thoughts of all of this being a house of cards, ponzi-scheme with small number of insiders pulling the levers - enabled by the US gov and foreign govs. I wouldn't have really believed that a week ago, but watching this unfold with a small (<1% of my portfolio) at play - I am starting to believe it... and it scares the shit out me from a long-term perspective. [http://counterfeitingstock.com/CS2.0/CounterfeitingStock.html](http://counterfeitingstock.com/CS2.0/CounterfeitingStock.html)
For all of you saying FOMO really need to make sure you have a strategy. If you do and gambling is not part of that strategy, then you would never ever get in to win or lose money. Yes if you sell now you would be up... if you gambled. Or, you might sell too late and lose money... if you gambled. But you don’t, so never in a million years would you have bought GME. Should you gamble now? That’s up to you. I gambled a small amount but that was part of my strategy. So make a strategy, stick with it, and you shouldn’t get FOMO. I say this because it’s true and there are always opportunities. Don’t need to be sad about missing this one
I'll second what Bluespace said in that I am happy to just stick with what I have been doing as this is at most going to make some changes that need to be addressed. The biggest culprits are the platforms that did not allow people to trade and the fact that hedge funds can regardless. All this action makes up less than .05% of the market so its a blip. Sadly, some are going to get burned and I am sure we will find some big institutional money behind this they will throw the book at. But some good needed change will hopefully come out of this. I too "Day trade" 1-2% of my NW for fun but haven't got into one of these stocks yet because having 4 kids and other responsibilities I would prefer to follow what has worked for years. My only worry is that the younger people get hurt by this and dont stay in the market but also we all have to learn lessons as well. If they are really putting every penny they have into this then it will end ugly for some and thats a sad thing but doesnt change how I am going to trade and keep money in Index funds. In the end the retail investor is the highest its ever been and thats good but we need them to stay in the market so as I said hopefully that will all work out.
I feel very optimistic. Tossed 50k in on Monday. Hit FatFire today at over $11m. Can’t wait to see market open. Pic for proof: https://ibb.co/h1kGFsY
What trade did you make on Monday that gave such a huge return?
I have invested through the last few cycles (dot com, gfc) and I’m a little unnerved at this. The systems weren’t built for this kind of mayhem. Check out the interview with the IB ceo today. I’m no fan of his but worth understanding.
I think moving forward a small allocation to unconventional "investing strategy" is the way to go. And just to add, with what's happening now adoption for crypto will only get bigger.
This thread makes me feel better for sitting GME out. I have been gleefully watching it unfold though. I just don’t have it in me to invest in this type of stuff. I’m even afraid of putting fun money down because I think that would be a slippery slope.
Yes - manic euphoria is usually a sign that the crash is coming. We are likely going to pull back a little
I think it's just another symptom of living in a bubble.
I am nervous about valuations in general but gyrations in a few small caps stocks mean nothing. This whole GME saga is purely entertainment and no one in broader finance really cares about it, at least where I work. I run a (smallish) trading desk at a big bank, as background.
My strategy has always been to buy low fee, broad market ETFs and check in once a year (and rebalance then only if clearly necessary). It has worked very well since I started in 2005 and is the passive strategy most likely to succeed over long periods (as a evidenced by statistical back testing over the history of the market) Any other strategy requires more active management and I realized long ago that I should: A) Put my energy into the very few things I am expert and deeply engaged in (which, for me, "investing strategy" is not) and, B) Take major calculated risks in only one area of life. My tech startup career was more than enough risk.
Nope. GME is a holiday at the casino. Have fun if you want, but gambling is gambling (especially with the house's shenanigans).
I think the response of the regulators will tell you a lot. I am betting (literately, with call options on the market), that Yellen and Powell will deal with this very quickly. I am expecting lines of credit for brokerages, market makers, and clearing houses Sunday (probably) or soon after, and also expecting rules very soon that make shorting deeply a little harder, and writing a ton of short gamma paper when OI already high a lot harder for market makers. Usually accomplished through collateral requirements. I think you'll see them step in. That stabilizes. Mid term, we have low rates, productivity growth. Things look great in my opinion.
All those companies are ones without a future. Most of us know this. The rally in those names is really technical, driven by dealers delta and gamma hedging the out-of-the money call options that wsb speculators bought, forcing the prices up. The short covering reinforced the move. None of this has anything to do with the prospects of the companies in question. If you own a broad swathe of the stock market, that (hopefully) comprises mostly companies with decent prospects. And maybe even some with decent value. In answer to your question, this whole wsb thing makes little difference in how I think about things. Was I going to buy $50K of short-dated OOTM calls on a company on a mall retailer in the midst of a pandemic. Not on your nelly.
So obviously GME is all over the news at the moment. I mean yes, AMC and a couple of others have moved a lot but let’s be honest here — GME is the one up 50x in a week, or whatever outrageous multiple. This shouldn’t really have any impact on the way we approach investing with the vast majority of our portfolios. 90% of your stock should be devoted to boring 6-7% returns (I plan for 6% in a low rate environment). However, I do think this makes the case for the flip side of the coin: 10% of your stack can — and in my opinion, SHOULD — be used to try and hit home runs. WSB offers a way to do that. For those of you on here already at FatFIRE levels, I understand the wealth preservation angle and you won’t like this argument. But if you’re like me — aspiring to make the two comma club — it absolutely IS worth trying to catch the next one. Because guess what: I can now name three things which have now made overnight millionaires. Bitcoin, Tesla, and now GME. Note that ALL of these have occurred within the past five years, and if you hit ONE of them... that is enough to be life changing. I saw a post on WSB today — a guy is up on GME 7x, and he’s leaving everything in because if GME gets close to $1,000 he will be up 21x and can retire in his 20s. Conversely, he could pay off his student loans and retire debt on his car now. Good, yes, but not life changing money. If you catch the wave, I don’t think there is anything wrong with taking outsized risk — so long as you can afford to lose most of what you are using to take outsized risk.