Gamestop?

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Campitor
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Re: Gamestop?

Post by Campitor »

@suomalainen

There's comes a point where the size of the trades, generated either by 10k retail investors or a single hedge fund, will send signals through the market. These signals have weight as they generate trading velocity. Currently some of the Wall Street Professionals (WSP) are upset at the disruption of Wall Street Bets (WSB) and are voicing concerns and recommending SEC oversight despite the fact both WSP and WSB affect the market in the same way. WSP doesn't like WSB betting against them. It's hypocritical to cry foul at WSB when WSP is equally putting the finger on the scale of the market.

So how does this play into the spirit of the law versus the letter of the law? Well market manipulation is a no no but WSP skirt this rule by saying they don't collude despite the fact that WSPs like to hang out with each other and have the computing power to make trades that would take thousand of individuals to achieve if human biology was the only resource. So while they aren't colluding to manipulate the market in the sense that the hedge funds are not conspiring with each other to criminally influence trades (supposedly :roll: ), the computing power they bring to the table is tantamount to tens of thousands of virtual brokers spread out all over the market tracking every trade and buying and selling in a collective manner.

see the following for reference:

jacob
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Re: Gamestop?

Post by jacob »

@Campitor - Did you read the link Suo posted above? (The loooong quote.) If not, please do so. Would probably save us a lot of time.

Campitor
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Re: Gamestop?

Post by Campitor »

@jacob. I read it - an informative and entertaining read.

In the article was the following:
There is a “traditional four-part test for manipulation that has developed in case law”:

(1) That the accused had the ability to influence market prices; (2) that the accused specifically intended to create or effect a price or price trend that does not reflect legitimate forces of supply and demand; (3) that artificial prices existed; and (4) that the accused caused the artificial prices.
Supercomputer trading, like what's done at Renaissance Technologies, could potentially trigger all 4 items on that list. Renaissance Technologies defense has been that it's a self learning machine and even they don't know why it makes some of its trade decisions. It's these types of scenarios that seem like a "letter of the law versus spirit of the law" thing. How can you prove computational intention when its a self learning algorithm? What if the algorithms induce certain bad behaviors which are either hard to catch or not prosecutable?

Faulty but high scoring learning algorithm (includes video of the faulty behavior).: https://openai.com/blog/faulty-reward-functions/
We assumed the score the player earned would reflect the informal goal of finishing the race, so we included the game in an internal benchmark designed to measure the performance of reinforcement learning systems on racing games. However, it turned out that the targets were laid out in such a way that the reinforcement learning agent could gain a high score without having to finish the course. This led to some unexpected behavior when we trained an RL agent to play the game.

The RL agent finds an isolated lagoon where it can turn in a large circle and repeatedly knock over three targets, timing its movement so as to always knock over the targets just as they repopulate. Despite repeatedly catching on fire, crashing into other boats, and going the wrong way on the track, our agent manages to achieve a higher score using this strategy than is possible by completing the course in the normal way. Our agent achieves a score on average 20 percent higher than that achieved by human players.


The article's author, Matt Levine, thinks WSB has done nothing wrong - they were transparent it was a pump (no dump) strategy whose sole purpose was to poke a finger in the eye of wall street despite the likely loss. He has doubts the SEC can do anything in regards to prosecution but they may put in rules to prevent a pump (no dump) strategy if it's sole purpose is to wreck a financial institution. Meanwhile those supercomputers are making trades with black box technology that is likely masking behavior that would be illegal if done by a human. When the repercussions are low or the negative behavior hard to prove, it will create all sorts of perverse incentives.

suomalainen
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Re: Gamestop?

Post by suomalainen »

@campitor - yeah, being smarter, bigger, richer, faster, etc. is an advantage in the securities markets. Actually... in most markets (employment, any products, any service, etc., even the dating market). I don't really mind that NFL players get paid what they do even though I could play football too. Should the NFL change its rules to accommodate "the little guys"? Make it a little more fair? Why is the securities market so special that it should have as an explicit purpose to "level the playing field" between experts and non-experts? I get the emotion behind sentiments like the one you linked to / quoted from a few posts back, but ... the emotion basically boils down to "humans are greedy, and that greedy guy is doing better than (greedy) me because the rules favor guys that look like that and not guys that look like me! :x" Like, sure, I get it. On the other hand... life isn't fair, now what? And if we here jump into a discussion of systemic inequality, racism, sexism, cronyism, etc., great! Great topics. But those topics have nothing to do with the arcane mechanics of the securities markets. In other words, you can't solve systemic inequality by banning short sales.

1) Ban short sales (or whatever)
2) ...
3) Profit! (Inequality solved!)

@ID - the problem in your thinking is that you think there is control in an investment. You seem to think that when an investor gives money to a hedge fund, that investor is directing the hedge fund to act a certain way (i.e., tell a hit man "go kill that guy"). That's not what happens. It's called blind pool investing. You give a guy money, the end. No direction. No further involvement. You don't even know what the guy is going to invest in (the blind in blind pool)! And you CAN'T give direction because it would endanger your limited liability under corporate law (it's called "piercing the corporate veil"), as @jacob alluded to. And even if you did give direction, hedge fund guys are such assholes, they'd tell you to go fuck yourself (I've had hedge funds for clients. They ARE assholes, no question.). Same goes for all of iDave's investments. iDave has "given money to"* each company in his portfolio / each of his index funds (I can't remember what his portfolio looks like). Does that mean iDave is responsible for every corporate decision made on each new project in each of those companies? Ridiculous idea, right? So iDave's morality cannot be deduced from the decisions made by companies in which iDave has an investment, nor can iDave be said to be managing said companies collectively with all of the other shareholders. iDave sends money out and hopes it comes back. Same goes for hedge fund investors. And besides, if you have a pension, I'm 95% certain you're an indirect investor in hedge funds. So... :o

I'm not here to debate morality in markets, really. I'm just here cleaning up legal misinformation. I have no problem with WSB playing their little game... except, I suppose at some point some adult DOES need to tell the retail investors buying at $1,000 (the WSB "goal", I guess?) that "yeah, you're the ones that are gonna lose everything" - but NOT to the hedge funds! That retail investor buying at $1,000 because of the hype is losing his money to the WSB hypers! Little guys fucking little guys! Is that unfair? I don't know. Much of securities regulation came about in the 1930s following the mania of the 1920s and the Great Depression that followed. I dunno. Like I've been saying, I don't know enough about how the system works to be able to say "this is what's wrong and this is exactly how to fix it." In fact, 99.9% of people are in the same boat as me. But you should at least learn enough about the rules of a game BEFORE you start to play it so that you know what you're in for. And yes, that does include the rule that "the bigger you are, the more powerful you are, so if you're a little guy, the deck is stacked against you." The securities markets were not designed for retail investors. Sorry, it's just the way it is. Complaining about it may change it, since politicians ALWAYS make wise decisions when responding to populist pressure, but that doesn't mean that in some normative way that the market SHOULD change. It's just a market. Whatever rules you make, the smarter ones will dominate the dumber ones. That's life.

* Notwithstanding the fact that a company receives zero direct benefit from any secondary trades, and largely doesn't directly benefit from IPOs. IPOs these days are an exit for a company's private owners' investment and typically NOT a huge capital raising for the company's own future projects. But there are indirect benefits to being public (non-cash currency for employees and M&A targets being primary ones, probably).

Campitor
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Re: Gamestop?

Post by Campitor »

Should the NFL change its rules to accommodate "the little guys"? Make it a little more fair?
No but there are barriers to entry and obvious signals to inform the weekend warrior that he’s out of his league. No such barrier exists (beyond discretionary money) for investing. You’re one app download away from stock speculation. The Podcast posted by White Belt has a moment where the short traders recommend having a BS in finance to understand the market.

Trust me, I’m not exactly a soak the rich type of guy. My intention is to shake the tree on both sides to see what I discover. I often play devil’s advocate to try and poke holes in explanations to see what truth is undiscovered. Years of the Socratic method of learning was drilled into me. It can be very taxing to those unaccustomed to its style of learning and inquiry.

https://en.m.wikipedia.org/wiki/Socratic_method

I never allow myself to hold an opinion on anything that I don't know the other side's argument better than they do. ~ Charlie Munger

IlliniDave
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Re: Gamestop?

Post by IlliniDave »

suomalainen wrote:
Mon Feb 01, 2021 8:11 pm
@ID - the problem in your thinking is that you think there is control in an investment. You seem to think that when an investor gives money to a hedge fund, that investor is directing the hedge fund to act a certain way ...
I don't think there's a problem in my thinking. I don't think what you seem to think I seem to think, but that's not relevant to my interest and is becoming a distraction so I'll keep my spitballing/tire-kicking/tree-shaking (to steal from Campitor) thoughts to myself. I'm looking at it from the outside in rather than the inside in and trying to place it in the landscape to answer the age old question: "Wtf is really going on?" There's a ways to go in this saga and as it unfolds I'll be looking to see which if any of the main three competing narratives offering answers to the aforementioned question best fits the data. It could be that nothing much comes of the GME incident and it proves irrelevant to what has made it potentially interesting to me.

ducknald_don
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Re: Gamestop?

Post by ducknald_don »

Klement has an interesting take on it: https://klementoninvesting.substack.com ... rt-sellers

suomalainen
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Re: Gamestop?

Post by suomalainen »

Campitor wrote:
Mon Feb 01, 2021 9:27 pm
No but there are barriers to entry and obvious signals to inform the weekend warrior that he’s out of his league. No such barrier exists (beyond discretionary money) for investing.
Ah, but what about the often-heard complaint that "the securities markets should be opened to the little guys! It's not fair that only the big guys get to make money in the securities markets!" It's like you can't win. The market is too rich and plentiful and should be opened to little guys ... and the market is too big and scary and should be closed to the little guys. I dunno what the right answer is. My bias is "personal responsibility", but seeing how so many people only believe in "personal responsibility" when applied to someone else ... that's not a practical answer here either. Perhaps the tug-of-war *is* the stable state.

@ID - sorry if I misunderstood. This is probably a case of my having myopia on the finer points of corporate law such that I can't see your forest for my legal trees.

white belt
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Re: Gamestop?

Post by white belt »

Looks like the GME frenzy has passed. It’s down ~50% just after market opening. AMC is down too. Dave Portnoy exited his positions and has pretty much stopped posting the “hold on” memes on Twitter. It seems the news cycle has moved on as well.

As I scroll through WSB on Reddit, there seems to be a shift in tone, with lots of senior members talking about how no one should have put money in that they couldn’t afford to lose and how the “bets” part implied that there was risk of loss.

Looks like my decision to exit GME on Friday was the right one. It remains to be seen if there will be another new trend in the coming weeks. Perhaps the fact that RH and other platforms limited trades of certain stocks is enough cold water to put a damper on such things in the future.

Campitor
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Re: Gamestop?

Post by Campitor »

@suomalainen

I understand the pressure to make the market accessible to the retail investor and the reason for it; many have become millionaires using simple long term investment strategies. I personally agree that having the market open to all is a good thing. But I also recognize that this accessibility comes with tradeoffs. One of those tradeoffs is having ignorant actors doing things to intentionally destabilize the market which I sincerely believe isn't good for anyone. Another tradeoff is having a large pool of ignorant investors that can be easily manipulated or exploited.

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C40
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Re: Gamestop?

Post by C40 »

Yep. I sold out this morning. There were too many problems adding up. People can't buy shares on Robinhood (which itself may have prevented the price from really skyrocketing).. Tons of biased news propaganda and misinformation.. and maybe a handful of other shady things. Also, the discussions of GME by the hold-outs were really getting delusional. Like people declaring it is still shorted by posting links to data from 1/15. People arguing that S3's data must be suddenly wrong. Etc..

There were many times when I had sell orders set that just barely did not get hit. Or.. I kept increasing them as the price increased. I sold 2 shares yesterday to cover all my principle, and the rest today. Wish I would have sold it all, but 'tomorrow never knows'. I still made out ok. Something like 200% profit, which will pay for about 2,000 bahn mi, so, breakfast in Vietnam for over 5 years.

I feel like I might have made WAY more profit if the market functioned as it 'should'. But.. this is how it actually works. I'm already rich, and I made some money, so I can laugh about the whole thing. But These poor people who bought at $200, $300, and $400 and are still holding, especially if new to investing or who YOLO'd. man they are gonna be pissed and jaded about this a long time. The thing that is really fucked is that they may have made a buy decision that at the time was fundamentally sound and a great choice (based on short interest and the growing popularity that was going to ensure a squeeze)

suomalainen
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Re: Gamestop?

Post by suomalainen »

@campitor, agree with that statement 100%

Brutal day for GME, but maybe it recovers. Fads are hard to sustain, though. People lose interest and move on. Was bound to happen eventually, but the Robinhood fiasco had to have contributed to the timing, if not the ultimate resolution. What I'm not decided on yet is how much to blame Robinhood's executive team. Like, surely they should have thought about what would happen if they were really successful in gaining lots of retail traders to their platform and all of them, you know, trading. At the same time, should they have anticipated the volume and concentration in a handful of names and capitalized themselves appropriately for such success ex ante? Will they recover from this fiasco?

https://finance.yahoo.com/news/robinhoo ... 33479.html

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Lemur
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Re: Gamestop?

Post by Lemur »


Something like 200% profit, which will pay for about 2,000 bahn mi, so, breakfast in Vietnam for over 5 years.
Should be really happy with that return! Multi-baggers typically take years of holding for investors and traders to receive.
Also...like your perspective on real value in regards to the Vietnam breakfast. :D

ertyu
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Re: Gamestop?

Post by ertyu »

congrats to everyone who sold calls monday

wasn't me...

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Jean
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Re: Gamestop?

Post by Jean »

https://www.youtube.com/watch?v=EGs5kYYw6d8

I found this video to be very instructive, but it's in french.

white belt
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Re: Gamestop?

Post by white belt »

Robinhood CEO calls for settlement of trades in real-time: https://www.reuters.com/article/BigStor ... SKBN2A22VG

Mister Imperceptible
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Re: Gamestop?

Post by Mister Imperceptible »

“we need a central bank digital currency”

Campitor
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Re: Gamestop?

Post by Campitor »

@Jean

I was hoping that video had english captions but it doesn't. The infinity war montage at the 1:26 minute mark was funny - sadly it was the only part with english captions.

Campitor
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Re: Gamestop?

Post by Campitor »

@Mister Imperceptible

What problems would be solved by having a central bank digital currency? Many people are actually worried about this very occurrence fearing that centrally controlled digital currency will be the only type of currency allowed to exist. Once this total control is achieved, it would be easy to shut off access to funds since paper currency would no longer be valid.

I'm leaning toward this fear of central digital currency being a tinfoil hat type of thing but who knows. I'd never thought I'd see book bannings, politically sanctioned riots, censorship of anyone not adhering to any accepted dogma within institutions of higher learning, and a bunch of amature stock speculators deliberately and successfully sabotaging a billion dollar hedge fund. Times are strange and events are becoming even stranger. I'll think I'll run to the kitchen for some tinfoil... :lol:

Campitor
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Re: Gamestop?

Post by Campitor »

@White Belt

Do you think real time settlements will be widely supported? Any drawbacks that you can see? Here's an interesting take in the opposite direction:
http://jpkoning.blogspot.com/2017/09/th ... -time.html.

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