Why Did Reddit Trigger a GameStop Stock Surge?

[russ_watters]

Because of classifying drivers as ICs?

And by operating a taxi service without taxi-licensed drivers.

 

[russ_watters]

I'm 100% aware of that.

eta; maybe the way I worded it opened myself up to this? ...If so, good correction.

It's not the wording it's the example itself. Amazon isn't breaking any laws or even coming close to any legal gray areas, so the comparison to Uber makes no sense. Either you think Amazon is doing something wrong or Uber isn't - neither is correct.

 

[Office_Shredder]

I think this is really a question of taste/ perspective. Regulatory arbitrage is really trying to identify times when your actions are far from what the rule intended.

Does there exist *a* person that is an independent contractor at Google who should be an employee? Probably. Does this describe most of their workforce? Not that I'm aware of. Does Amazon take advantage of a tax break that wasn't really designed for their business? Probably. Fundamentally, is the tax code designed to not tax companies that grow the way Amazon has? Yes, it is designed to look like this intentionally.

 

[kyphysics]

https://www.investopedia.com/terms/short-termloss.asp#:~:text=Key Takeaways,price received for selling it.

Whatdya think, Russ?

Should I sell my shares of $META. I'm embarrassed I even own this piece of crap.
I'm fine to get a short-term loss and buy something else.

Post-Apple privacy changes, numerous scandals, Tik Tok and Snapchat taking engagement time away on social media, stalled user growth (expected to be fair...only so many people on planet Earth), new competition in the online advertising space (Netflix, Disney, Amazon, etc.), ...no immediate gains from metaverse investments, etc. ... this stock sucks. I bought the dip this year (thankfully, it was a small position), but wish I bought something else.

The main thing enticing to me is the valuation. It's cheap, but I don't have a ton of faith/confidence in the metaverse panning out to be a huge hit. It still seems very niche. Not only that, there are competitors trying to build it too. No guarantee Meta creates the best version. Even VR/AR headsets have strong competitors like Microsoft.

eta: Obv., not asking for unlicensed financial advice...rather just initiating informal chat about stock/company prospects of Meta/Facebook here.

 

[Vanadium 50]

I'm not sure a good use of PF is asking for unlicensed financial advice.

I also think that your lack of stated goals makes it difficult even to do that. So far as I can tell, you're hoping to "strike it rich" playing the market. Advice for a sudden windfall is no better and no worse than saying "Bet on 23 Red".

If you don't know where you are going, any path will take you there.

 

[russ_watters]

Whatdya think, Russ?

Should I sell my shares of $META. I'm embarrassed I even own this piece of crap.
I'm fine to get a short-term loss and buy something else.

This can't become a stock picks/unlicensed financial advice thread.

 

[Vanadium 50]

Against my better judgment...

Presumably there was some reason you bought a given stock - for example, expectation of a regular dividend (I picked this example specifically because META does not pay a dividend). Is that reason still valid?

Further, presumably before you bought the stock, you had in mind some conditions for when you would sell it. Have these conditions materialized?

If you bought it because you were egged on by Reddit and podcasters, well, all I can say is "I'm happy to be your counterparty."

 

[kyphysics]

This can't become a stock picks/unlicensed financial advice thread.

lol...that's just a "manner of speech" on my part...which is why I did the ETA...

I mean, you're sitting here saying NOT to buy crypto and what not and support dollar cost averaging, etc. That is recommending something (albeit, general advice and not super specific). . .

We have debated the merits of companies/stocks like GameStop...FWIW, I always make my own decisions, but just enjoy chatting/debate on stocks.

I also think people here (everyone - not singling YOU out at all) need to stop being word Nazis, have some common sense, and learn reading comprehension/social skills for every day life. It's amazing how people on this forum supposedly have high levels of education and cannot pick up on social/informal conversational cues/intent.

Please (anyone - not singling YOU out) don't respond with a lengthy/critical super nitpicky word parsing rebuttal or anything like that...I have zero interest in debating asinine semantic minutiae that can be the domain/interest of certain toxic personalities on this forum. Okay, back to the topics at hand...continue on w/ whatever we were talking about!

 

[russ_watters]

I mean, you're sitting here saying NOT to buy crypto

I don't think I've said that.

 

[kyphysics]

I don't think I've said that.

Ah, okay. I stand corrected then. Thought you may have.

 

[russ_watters]

Whatdya think, Russ?

Should I sell my shares of $META.

I mean, you're sitting here saying NOT to buy crypto and what not and support dollar cost averaging, etc. That is recommending something (albeit, general advice and not super specific). . .

We have debated the merits of companies/stocks like GameStop...FWIW, I always make my own decisions, but just enjoy chatting/debate on stocks.

Ok, I've had more time to think about it and I'll elaborate/clarify and maybe walk it back a bit.

I have certainly said I think bitcoin/crypto is a scam, which whether I actually said it or not, means I think at least in general, nobody should buy it. To me, that's not even investment advice, to keep someone out of a scam. But if someone asked: "look at these crazy people pumping up this trash! I think I can profit from their foolery!" I probably wouldn't offer advice not to. And it's also not the same as asking/saying someone who's already in should sell immediately. I have friends who own some. I don't know the details, don't want to, and haven't told anyone I think they should sell immediately. Because I don't know. Maybe they're really the lesser fool? Maybe they bought it as a lottery ticket and don't really care if it goes to zero? Once they're in the quicksand, it's too late to advise someone to stay out, so I just hope they know what they are doing.

Stocks are different. Facebook/Meta is a real and valid company. Trading/investing in it is valid. But you asked, very specifically, "should I sell my shares". That's specific advice with serious implications. I've been thinking of selling my own shares in Meta, but even if I do, I still wouldn't advise you, and it's not a good idea to even ask internet strangers for such advice. Talking about the general health of the company should be fine though...as long as you don't over-interpret what you are reading (which you are prone to do). And by the way, I don't actually think owning individual stocks is a very good idea in general, even though I do it.

Stonks! are also different. They're essentially a pump and dump, whether anyone ends up in jail for it or not. But again, maybe someone is good at reading crowds and really is the lesser fool? Or they're already in? Or it's a lottery ticket? Not for me (though I do occasionally buy a lottery ticket), but as long as someone has their eyes open, maybe it can be for them.

DCA investing in an S&P Index fund is sort of a default/baseline investment strategy. A strategy for people who don't want to put together a strategy. It's generic/basic and non-specific. Brush your teeth. Look both ways before crossing the street. Don't run a balance on your credit cards. Max out your 401k contributions and invest in a diversified/broad, low load fund such as an S&P Index Fund. None of these are situation-specific and they are not necessarily always applicable. But if you asked me "should I sell some of my S&P Index Fund holdings?" I would not answer such a question either.

 

[Vanadium 50]

But if someone asked: "look at these crazy people pumping up this trash! I think I can profit from their foolery!" I probably wouldn't offer advice not to

As they say about playing poker, "If you're don't know who the patsy is, it's you."

 

[BWV]

Yes, and no.

If you mean "I am going to sit on a big hunk of cash that I want to invest, but won't do it right away", I agree. You're overbalanced in cash, and there is little reason to wait to fix this balance.

But if you mean that dollar cost averaging means investing (I don't think you do, but this thread is filled with people who misinterpret what they read) with every paycheck, I think that's a winning strategy.

There are also strategies that are related - e.g. bond ladders.

But at best DCA with periodic contributions, like in a 401K, adds no expected value
say the realized return (geometric mean) of the S&P 500 over the next 30 years is 7% with 18%σ and you invest $1 per year for 30Y

we agree that its better to invest $30 up front if you have the cash

but compared to a hypothetical alternative investment that pays 7% with no vol, DCA wins when the returns in later years are higher than in the early years and loses if the returns are higher in the early years. As either outcome is equally likely, DCA is neither good or bad (but worse than a 0-vol return of the same amount, as no one wants the risk of a large decline toward the end of the saving period)

Spending down your savings in retirement is just the inverse of this

 

[russ_watters]

But at best DCA with periodic contributions, like in a 401K, adds no expected value

...DCA is neither good or bad (but worse than a 0-vol return of the same amount, as no one wants the risk of a large decline toward the end of the saving period)

So, what exactly did you mean by this?:

Dollar cost averaging is a losing strategy - the avg returns are lower.

Lower than what, exactly? If it's neither good nor bad, how does that square with being a losing strategy? If it returns 7% how is it a losing strategy?

Lump sum and DCA are generally situational and largely mutually exclusive (are you getting the money as a lump sum or increments over time?). The key for either is that it's better to invest now than to wait.

 

[BWV]

So, what exactly did you mean by this?:

Lower than what, exactly? If it's neither good nor bad, how does that square with being a losing strategy? If it returns 7% how is it a losing strategy?

answered that in #703 - relative to a lump sum investment

Lump sum and DCA are generally situational and largely mutually exclusive (are you getting the money as a lump sum or increments over time?). The key for either is that it's better to invest now than to wait.

True, but you hear many talk about DCA benefiting from investing incrementally through bear markets, but that benefit is offset by the risk of poor returns coming late in the investing period

 

[Vanadium 50]

I may not have been clear. DCA is neither "good" nor "bad", neither "winner" nor "loser". You need to understand what the alternative is. If you have a block of cash, using DCA as an excuse not to invest it right away is a losing strategy. (This is contingent only on higher expected returns when investing - but if the expected returns are lower, the optimum strategy isn't to invest slowly. It's not to invest at all.)

If you have a steady stream of cash - like most people earning a salary - you can call it "DCA" if you want, but these regular investments are still "invest what you can as soon as you can". I wouldn't want people to think this is a bad idea just because the first case is.

 

[russ_watters]

answered that in #703 - relative to a lump sum investment

True, but you hear many talk about DCA benefiting from investing incrementally through bear markets, but that benefit is offset by the risk of poor returns coming late in the investing period

So, my problem is that this advice describes one side of a mirror-image pair of scenarios while ignoring the other. If you mirror the scenario, then the advice is also mirrored: DCA beats lump sum. It's weird and inaccurate to state it so generally without specifying it is only true for a limited scenario that is in fact far less common in real life. Stating it like that, many people might come away with the wrong idea of what they should do with their money.

 

[BWV]

I may not have been clear. DCA is neither "good" nor "bad", neither "winner" nor "loser". You need to understand what the alternative is. If you have a block of cash, using DCA as an excuse not to invest it right away is a losing strategy. (This is contingent only on higher expected returns when investing - but if tehge expected returns are lower, the optimum strategy isn't to invest slowly. It's not to invest at all.)

If you have a steady stream of cash - like most people earning a salary - you can call it "DCA" if you want, but these regular investments are still "invest waht you can as soon as you can". I wouldn't want people to think this is a bad idea just because the first case is.

True, but you also see BS like this:
Dollar-cost averaging helps minimize the impact of volatility when investing as contributions are spread over time instead of invested as a lump sum.
https://www.fidelity.ca/en/investor/investorinsights/dollarcost/

When DCA is just a trade off between sensitivity to near and long term poor returns

 

[BWV]

So, my problem is that this advice describes one side of a mirror-image pair of scenarios while ignoring the other. If you mirror the scenario, then the advice is also mirrored: DCA beats lump sum. It's weird and inaccurate to state it so generally without specifying it is only true for a limited scenario that is in fact far less common in real life. Stating it like that, many people might come away with the wrong idea of what they should do with their money.

I don’t see where I ignored the other side, I said DCA is just a trade off - the extent to which potential losses are mitigated in the early years is offset by a larger sensitivity to losses in later years.

 

[russ_watters]

I don’t see where I ignored the other side, I said DCA is just a trade off...

Well, you initially said lump sum beats DCA without qualifier or even a description of the scenario under which it would be true. It's less than half true. Usually - the way most people invest - DCA beats lump sum.

 

[russ_watters]

I may not have been clear. DCA is neither "good" nor "bad", neither "winner" nor "loser". You need to understand what the alternative is. If you have a block of cash, using DCA as an excuse not to invest it right away is a losing strategy. (This is contingent only on higher expected returns when investing - but if the expected returns are lower, the optimum strategy isn't to invest slowly. It's not to invest at all.)

If you have a steady stream of cash - like most people earning a salary - you can call it "DCA" if you want, but these regular investments are still "invest what you can as soon as you can". I wouldn't want people to think this is a bad idea just because the first case is.

Right. The "better" or "winning" strategy is dictated primarily by how you receive the money. Moreover, the "lump sum" method is not synonymous with "invest it right now", even though people seem to treat it that way. It's a 2x2 matrix with four potential choices:

1. Receive a lump sum, invest it right now.
2. Receive a lump sum, wait to try to time the market.
3. Receive small sums at intervals, invest them when you receive them.
4. Receive small sums, wait to try to time the market (collect a lump sum a la #2).

The key dilemma isn't DCA vs lump sum it's invest right now vs time the market. IMO, they're improperly being conflated. [edit] fixed a significant typo in that last sentence.

 

[BWV]

Right. The "better" or "winning" strategy is dictated primarily by how you receive the money. Moreover, the "lump sum" method is not synonymous with "invest it right now", even though people seem to treat it that way. It's a 2x2 matrix with four potential choices:

1. Receive a lump sum, invest it right now.
2. Receive a lump sum, wait to try to time the market.
3. Receive small sums at intervals, invest them when you receive them.
4. Receive small sums, wait to try to time the market (collect a lump sum a la #2).

The key dilemma isn't DCA vs lump sum it's wait vs time the market. IMO, they're improperly being conflated.

You are conflating the fact that people often receive small sums at intervals with DCA. But intervallic investing, like with 401K contributions if often called DCA. Even then, there is no inherent value in the averaging effect of periodic contributions as the protection against early losses comes at the expense of vulnerability to later losses given the timing of returns in a series of periods with the same geometric mean return.

So per above call 2 and 4, discretionary DCA and call 1 and 3 lump sum, then with a positive expected return, the expected values will be in descending order 1 >2>3>4 assuming the DCA period for 2 gets money to work faster than 3

 

[BWV]

Usually - the way most people invest - DCA beats lump sum.

show me how that is true

 

[russ_watters]

You are conflating the fact that people often receive small sums at intervals with DCA.

No. The definition of "DCA" is independent of how you receive the money. DCA is a strategy of investing small sums at regular intervals, period. Failure to differentiate how you receive the money with what you do with it is exactly the problem I'm complaining about.

Even then, there is no inherent value in the averaging effect of periodic contributions as the protection against early losses comes at the expense of vulnerability to later losses given the timing of returns in a series of periods with the same geometric mean return.

The advantage of "invest now" is always the same, whether it's one big lump sum or a lot of little lump sums. It's not missing gains in the interim.

The way you describe it, it's difficult to see what the alternative scenario is. If you receive $100 a month and invest it right away, what's the alternative scenario? Wait until the end of the year and invest all $1200 at once?

So per above call 2 and 4, discretionary DCA and call 1 and 3 lump sum, then with a positive expected return, the expected values will be in descending order 1 >2>3>4 assuming the DCA period for 2 gets money to work faster than 3

How is #2 any form of DCA if it's just one lump sum that you are investing? It's really confusing to call investing a lump sum a version of DCA when it's clearly a lump sum. It really seems like you're twisting "lump sum" into "invest right now" and "DCA" into "wait/time the market".

show me how that is true

If you follow the definitions at face value and not the half-twist you did above, it is self-evident why DCA #4 beats Lump Sum #2. But here's an example:

 

[BWV]

No. The definition of "DCA" is independent of how you receive the money. DCA is a strategy of investing small sums at regular intervals, period. Failure to differentiate how you receive the money with what you do with it is exactly the problem I'm complaining about.

The advantage of "invest now" is always the same, whether it's one big lump sum or a lot of little lump sums. It's not missing gains in the interim.

The way you describe it, it's difficult to see what the alternative scenario is. If you receive $100 a month and invest it right away, what's the alternative scenario? Wait until the end of the year and invest all $1200 at once?

How is #2 any form of DCA if it's just one lump sum that you are investing? It's really confusing to call investing a lump sum a version of DCA when it's clearly a lump sum. It really seems like you're twisting "lump sum" into "invest right now" and "DCA" into "wait/time the market".

i assume what you meant from 2 and 4 is holding back to average into the market, pure market timing is outside the scope here. Not saying you have a better alternative than investing your 401K contributions as soon as the money is available, just that there is is no inherent benefit- the dollar-weighted return (IRR) may be substantially lower than the GM for the overall period. your average return for on annual 401k contributions is the average of the return from years 1-10,2-10,3-10,etc if the highest returns are in the earliest years, then the average DCA return will be lower than the GM over the period

If you follow the definitions at face value and not the half-twist you did above, it is self-evident why DCA #4 beats Lump Sum #2. But here's an example:

View attachment 313577

That example is trivial, with two different DCA methods and with no vol in returns and example 1 is just invested longer at the same return. Try to construct a return series with positive and negative annual returns with a gm of 7%, then playing with the sequencing of returns to see what I am talking about here

 

[russ_watters]

i assume what you meant from 2 and 4 is holding back to average into the market,

Neither of those are "averaging in" as you are investing all of the money at once in both scenarios. They are "holding back to lump sum invest".

pure market timing is outside the scope here.

Market timing, "pure" or otherwise, isn't outside the scope, it's exactly the issue at hand. The timing options are:
1. Now.
2. Later.
3. Average over now and later.

Not saying you have a better alternative than investing your 401K contributions as soon as the money is available, just that there is is no inherent benefit

No inherent benefit than what? Waiting and investing it all as a lump sum at the end of the year? No, there's definitely an inherent benefit in investing it when you get it; not missing the gains. That's always what the benefit is.

..the dollar-weighted return (IRR) may be substantially lower than the GM for the overall period. your average return for on annual 401k contributions is the average of the return from years 1-10,2-10,3-10,etc if the highest returns are in the earliest years, then the average DCA return will be lower than the GM over the period

What's "GM"? You're not defining your terms/scenarios here.

That example is trivial...

Yes, that's my point.

Try to construct a return series with positive and negative annual returns with a gm of 7%, then playing with the sequencing of returns to see what I am talking about here

"playing with different return/volatility scenarios" is a red herring. Unless you're custom-making/cherry-picking the scenarios, "invest it now" is going to be the better option most of the time. The whole point is that there's no way to predict the future so your best option is the one that produces the best result most of the time. That's "invest it now".

 

[BWV]

Neither of those are "averaging in" as you are investing all of the money at once in both scenarios. They are "holding back to lump sum invest".

Market timing, "pure" or otherwise, isn't outside the scope, it's exactly the issue at hand. The timing options are:
1. Now.
2. Later.
3. Average over now and later.

No inherent benefit than what? Waiting and investing it all as a lump sum at the end of the year? No, there's definitely an inherent benefit in investing it when you get it; not missing the gains. That's always what the benefit is.

What's "GM"? You're not defining your terms/scenarios here.

Yes, that's my point.

"playing with different return/volatility scenarios" is a red herring. Unless you're custom-making/cherry-picking the scenarios, "invest it now" is going to be the better option most of the time. The whole point is that there's no way to predict the future so your best option is the one that produces the best result most of the time. That's "invest it now".

Right, invest now > DCA what I have been saying all along
GM = geometric mean

 

[russ_watters]

Right, invest now > DCA what I have been saying all along

So as I've been saying, the problem is conflating the terms. The way you are using those terms is not the way they are being used out in the real world. "Invest now" is not synonymous with "lump sum". "DCA" is not synonymous with "invest later". If you are investing in a 401k with every paycheck, that's both "invest now" and "DCA". So, saying "invest now > DCA" is gibberish for that scenario.

 

[Vanadium 50]

I think we are getting twisted in language.

The only decision one is truly faced with is "where do I invest this dollar in my hand?" The past is past. The future involves dollars you don't have yet. In a choice between "invest now" and "invest later", I can make at least two (no, three) good arguments why "invest now" is the better strategy, but won't unless my arm is twisted.

If it makes people feel smarter to call "investing - at least a little - with every paycheck" "dollar cost averaging", great. If you prefer to call it "pay yourself first", that's great too. If it helps remind you that volatility is part of the game, and the fact that at asset fell right after you bought it is just part of the game and not to worry so much about it, that's OK too. Whatever it takes to handle the psychological aspects of investing.

 

[russ_watters]

If it makes people feel smarter to call "investing - at least a little - with every paycheck" "dollar cost averaging", great. If you prefer to call it "pay yourself first", that's great too. If it helps remind you that volatility is part of the game, and the fact that at asset fell right after you bought it is just part of the game and not to worry so much about it, that's OK too. Whatever it takes to handle the psychological aspects of investing.

I agree with everything you said, and for this last part; DCA isn't a term I ever use, but it looks to me like it's used a lot online, and I'm seeing a lot of what look like click-baitey articles comparing DCA and lump sum that appear to me to muddy the waters and do more harm than good. That was my complaint about the post that started this.

Here's an example where the headline might cause confusion if one doesn't read the article:

https://www.cnbc.com/amp/2021/08/12...better-lump-sum-or-dollar-cost-averaging.html

 

[Vanadium 50]

Welcome to the internet, where anybody living in their parents' basement and listening to a podcast or two can declare themsevles experts. I have moved my thinking from "they must be corrected!" to "pay them no mind" to "I'm happy to be their counterparty".

 

[Vanadium 50]

comparing DCA and lump sum

OK, consider my arm twisted.

(1) If the asset will earn money, why wait to start that earning?
(2) If you have a balanced portfolio and then get some cash, you're now overbalanced in cash. Why wait to correct it?
(3) If your plan is to 'time the market', that implies you have information that (most) of the market does not. That information advantage will only go down with time.

 

[bhobba]

Just wanted to mention today, we saw a short squeeze on the whole market. The way it played out is this. Before the market opened, there was some lousy inflation data. That sent the futures on the S&P 500 tumbling over 70 points. Some short sellers thought, excellent - now is a good time to take profits. The market opened about 60 points lower (I did a 4 delta call credit spread myself thinking it would go lower still - I am a very conservative spread trader). The short sellers had to buy back their shares, so the demand went up. Hence the price went up despite the bad news. Other short sellers seeing the price rise on lousy news wanted out, so the price went up further - panic set in and what should have been a big down day became a 150-point up day - which is very rare. Good thing my spread was at 4 delta - it is now at 13 delta. The reason I chose 4 delta is it was 15% above the market, and over the last 60 years, the market has only moved over 15% in a month twice - 4 delta was 15% above the market. We will see if it reaches my adjustment at 25 delta. Maybe it will be short-lived - but we will see.Thanks
Bill

 

[BWV]

Just wanted to mention today, we saw a short squeeze on the whole market. The way it played out is this. Before the market opened, there was some lousy inflation data. That sent the futures on the S&P 500 tumbling over 70 points. Some short sellers thought, excellent - now is a good time to take profits.

Do you have data supporting this, or is this just one of those ex post stories the financial press likes to make up?

 

[bhobba]

Do you have data supporting this, or is this just one of those ex post stories the financial press likes to make up?

It is what all the traders I know said - and I figured it out independently. They have been playing the market for a long time. The evidence is we had lousy inflation data that sent the premarket down over 70 points. No other data came in. When the market opened, it opened 60 points lower and, as expected, went even lower to 80 points lower. Then it turned around a bit, then a bit more and finally started rising through the whole day. Short sellers set automated stops, and you could see the avalanche buying as those stops were hit. Is this proof of a short squeeze - of course not - just the most reasonable explanation. So I will change my statement - an example of a likely short squeeze. The futures are still rising - so may continue today - depending on when it exhausts itself. I have two choices - either close my spread when it hits the stop loss - for a high probability credit spread, usually 3 times the credit or sell a put credit spread to take in more credit to limit losses that way. If a short squeeze, the second option is what most traders would do. I have that set at 25 delta - it's at 15 delta now. Hopefully, it will not reach that, and I will have to adjust

Thanks
Bil