The Stock Market

[yovargas]

The whole thing roughly reminds me of scalping, where you buy some hot, hard to get item in the hope you can resell it for more later. But I guess here you hope you can rebuy it for less later, I guess?

Scalpers, btw, are loathsome scum who belong in a low rung of hell. I suspect short-sellers should be sitting next to them there.

[Inanna]

I know the exchanges do, but then all trading is halted for everyone. Robinhood is a broker, and they only halted buying stock. In this way, institutions are free to trade, but retail investors are prevented from buying the stock, which should bring the price down and help short sellers.

Or at least that's how I understand it.

Oh, I didn’t realize that. My friend challenged me to stay off the news. It’s showing.

[Túrin Turambar]

Everyone here has acted legally, although everyone involved in this is losing money. The hedge funds, on their shorts. And the redditors, most likely, because it isn't clear that Gamestop has a way to trade out of its difficulties - it's struggling to compete with online stores like Steam. But I agree there's no grounds to stop the redditors from buying the stock.

Personally, I wouldn't object if shorting stock was made illegal. And many of these other tricky financial practices. The stock market is for investors to invest and for companies to raise the capital they need to operate and grow.

[elengil]

The whole thing roughly reminds me of scalping, where you buy some hot, hard to get item in the hope you can resell it for more later. But I guess here you hope you can rebuy it for less later, I guess?

Scalpers, btw, are loathsome scum who belong in a low rung of hell. I suspect short-sellers should be sitting next to them there.

In a very special hell, along with child molesters and people who talk in the theatre.

[N.E. Brigand]

The whole thing roughly reminds me of scalping, where you buy some hot, hard to get item in the hope you can resell it for more later. But I guess here you hope you can rebuy it for less later, I guess?

Scalpers, btw, are loathsome scum who belong in a low rung of hell. I suspect short-sellers should be sitting next to them there.

I was once hired by an air show to buy tickets from scalpers so that the show could figure out who had been given tickets that were subsequently being sold.

[N.E. Brigand]

Personally, I wouldn't object if shorting stock was made illegal. And many of these other tricky financial practices. The stock market is for investors to invest and for companies to raise the capital they need to operate and grow.

Josh Barro of Business Insider yesterday argued that the ability to short stock is a way to hold managers accountable. Without that tool, he said, more companies could act like Theranos, which was privately traded and was valued at $10 billion with some $700 million invested in it, before it turned out that the company's product was a complete fraud. (The trial of the company's founder Elizabeth Holmes and president Ramesh Balwani starts in six weeks.)

Interesting. According to Wikipedia, these were the biggest investors in Theranos, whose investments ended up being worth nothing:
--the Walton family: $150 million
--Rupert Murdoch: $121 million
--Betsy DeVos: $100 million)
--the Cox family (of Cox Media Group): $100 million

[Túrin Turambar]

Personally, I wouldn't object if shorting stock was made illegal. And many of these other tricky financial practices. The stock market is for investors to invest and for companies to raise the capital they need to operate and grow.

Josh Barro of Business Insider yesterday argued that the ability to short stock is a way to hold managers accountable. Without that tool, he said, more companies could act like Theranos, which was privately traded and was valued at $10 billion with some $700 million invested in it, before it turned out that the company's product was a complete fraud. (The trial of the company's founder Elizabeth Holmes and president Ramesh Balwani starts in six weeks.)

Interesting. According to Wikipedia, these were the biggest investors in Theranos, whose investments ended up being worth nothing:
--the Walton family: $150 million
--Rupert Murdoch: $121 million
--Betsy DeVos: $100 million)
--the Cox family (of Cox Media Group): $100 million

It's understandable, but it seems like an extreme way to prevent fraudulent stock offerings. It's as if, instead of having building codes, there'd been some mechanism for property investors to bet that buildings will fall down.

My problem with it is that it exposes investors to potentially unlimited losses. If you buy $100 worth of shares in Theranos, you stand to lose $100. But if you short $100 worth of stock, your potential losses are nearly unlimited - as Gamestop shows. People are bad at planning for events at the far end of the probability tail.

[Impenitent]

NE, could you explain how short selling is a mechanism for exposing that kind of fraud?
Are there no other legal mechanisms that can be used to keep the stock market clean?

And if not, that is surely a failure of the regulation system if it relies on murky dealings (selling short sounds murky to me) as a form of regulation.

If I sound obtuse, that's because I am, on this subject.

[Frelga]

I agree with Túrin. It's not the managers who suffer from uncovered shorts.

Update - some unexpected fallout.

Screenshot_20210128-201225.jpg

[N.E. Brigand]

NE, could you explain how short selling is a mechanism for exposing that kind of fraud?
Are there no other legal mechanisms that can be used to keep the stock market clean?

And if not, that is surely a failure of the regulation system if it relies on murky dealings (selling short sounds murky to me) as a form of regulation.

If I sound obtuse, that's because I am, on this subject.

No more obtuse than me! I know almost nothing about this subject. But I am thinking about The Big Short: were that movie's protagonists (Christian Bale, Steve Carrell, Ryan Gosling, Brad Pitt, etc.) the good guys or the bad guys? They spotted the housing crash well in advance. They bet against the housing market. They made money when it crashed. But they didn't cause it.

[Inanna]

Why RobinHood had to stop individual investors from trading - they didn’t have the cash to cover it.

From NYTimes:

[Frelga]

I suspect shenanigans.

In any case, looks like they lifted restrictions against Gamestop, which almost doubled. Now they are restricting trading in cryptocurrency, although to be fair, it's something called dogecoin. And only for trades using deposits that haven't cleared yet.

Robinhood restricts crypto trading 'due to extraordinary market conditions'
I

[N.E. Brigand]

The per share stock price of Gamestop over the past six months:

Aug. 9 -- $4.33
Sep. 9 -- $7.35
Oct. 9 -- $12.02
Nov. 9 -- $11.49
Dec. 9 -- $13.66
Jan. 9 -- $17.69

Jan. 19 -- $39.36

Jan. 25 -- $65.01
Jan. 26 -- $147.98
Jan. 27 -- $347.51
Jan. 28 -- $193.60
Jan. 29 -- $325.00

Feb. 1 -- $225.00
Feb. 2 -- $90.00
Feb. 5 -- $63.77
Feb. 9 -- $49.20

[elengil]

So if the stock was steadily increasing in price since August what made the broker think it was going to go down instead?

[Voronwë the Faithful]

He died by suicide thinking he owed $730,000. Now his family is suing Robinhood

Robinhood is being sued for the wrongful death of a 20-year-old college student who died by suicide last summer after he saw a negative balance of $730,000 in his trading account and mistakenly believed that was the sum of money he owed.

The parents and sister of Alexander Kearns accused Robinhood of luring inexperienced investors like their son to take big risks in sophisticated financial instruments such as the options trading he engaged in -- without providing the necessary customer support and investment guidance.

"Robinhood built out its trading platform to look much like a videogame to attract young users and minimize the appearance of real-world risk," reads the lawsuit filed Monday in California by Kearns' parents Dan and Dorothy and sister Sydney.

[elengil]

[Frelga]

So if the stock was steadily increasing in price since August what made the broker think it was going to go down instead?

It's a company selling a product that can be downloaded digitally out of shopping mall stores that are largely closed due to pandemic?

[elengil]

So if the stock was steadily increasing in price since August what made the broker think it was going to go down instead?

It's a company selling a product that can be downloaded digitally out of shopping mall stores that are largely closed due to pandemic?

But they have a website - you can buy the digital copy from their store, or buy hardware you can't download through their store. And their stock had been steadily going up during the pandemic...?

[Dave_LF]

Presumably somebody analyzed the company's data and decided the runup wasn't justified. If you believe there's a bubble and it's about to pop, a short sell is a good play.

[elengil]

Presumably somebody analyzed the company's data and decided the runup wasn't justified. If you believe there's a bubble and it's about to pop, a short sell is a good play.

Ah.