The postmodern era of investing

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jacob
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The postmodern era of investing

Post by jacob »

https://www.benzinga.com/markets/22/07/ ... rkets-soon

The first "meme"-ETF may be coming to the market soon. With a proposed ticker of YALL---I am not making this up---the "God Bless America" fund---I'm still not making this up---promises to invest exclusively in anti-ESG companies. I suppose some argument, similar to the argument in favor of the VICE fund, could be made that such companies are undercapitalized (from a market perspective); a similar argument would be that ESG companies are overcapitalized thanks to ESG funds. However, the naming and the ticker has more of a gamestonk flavor with people buying simply to cheer a political statement.

The main question here is ... what will happen to the underlying economy IF the financial markets start trading according to memes and political identity rather than numbers and spreadsheets? The first indications might be to look at what happened to the individual companies underlying the gamestonk group. Has anyone been following that? IIRC, one of them used the opportunity to sell off manically overpriced shares to pay down debt/recapitalize.

Jin+Guice
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Re: The postmodern era of investing

Post by Jin+Guice »

My knee jerk reaction is that it would represent an unprecedented opportunity. Maybe I finally become interested investing.

chenda
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Re: The postmodern era of investing

Post by chenda »

jacob wrote:
Tue Jul 26, 2022 9:10 am
The main question here is ... what will happen to the underlying economy IF the financial markets start trading according to memes and political and identity rather than numbers and spreadsheets?
Hasn't it always done this to some extent though? Whilst this fund sounds very silly imo its perhaps in some sense not that different from 'ethical investment funds', kosher investment, Islamic investment etc. Pledging to avoid investment in gambling, pornography, pig farming, tobacco, alcohol etc. (Note I'm not making a political or ethical comparison, just saying principled based investment is not entirely new)

dustBowl
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Re: The postmodern era of investing

Post by dustBowl »

@Jacob you're remembering correctly. The Gamestonk namesake itself - Gamestop - held an ATM share offering in June of 2021: https://news.gamestop.com/news-releases ... -program-0.

The initial memestock frenzy was in January 2021, and it looks like GME was trading around ~$200 in June 2021 compared to single digits / teens the year before. So they captured a lot of the value from the rally with their share offering.

AMC, the second biggest meme stock, did the same thing: https://www.cnbc.com/2021/06/03/amc-say ... llion.html.

Incidentally, I spent some time lurking WSB / other forums where the memestonk faithful congregated around that time, and people were pissed about those share offerings. Lots of internecine warfare around 'doing what's best for the company' vs 'they're diluting the share price and taking advantage of people who bought in' etc etc etc. I think that this reaction gestures vaguely in the direction of an answer to your question about how a meme economy would function, because it shows that even among the 'true faithful' of the memestonks, you don't have to dig very deep to get through the ideological layer and reach the 'actually everyone here just cares about the same things as everybody else, which is making the most money possible' layer.

That said, I think there's a meaningful difference between something like an anti-ESG ETF and what I would envision a meme ETF to be, i.e. full of stuff like GME and AMC. The former is built around a more coherent ideology than the latter, the contents of which are basically only connected by the January 2021 memestock rally.

I'm curious whether you could get significant numbers of people to engage in anti-efficient behaviors given a strong enough ideological offering. I have to admit that I'm doubtful given that 1) it turns out people actually really don't like losing money, regardless of their beliefs and 2) there are plenty of non-ideological participants in the market who would happily take advantage of inefficient behaviors, balancing things out (calling @J+G? lol).

Investigating existing ESG funds seems like a good way to get a handle on the dynamic here, since they're doing something similar to what you're thinking about. Of course they can't tell you what would happen if the whole economy ran on a meme model, but that's a much harder question to answer.

Dave
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Re: The postmodern era of investing

Post by Dave »

chenda wrote:
Tue Jul 26, 2022 9:50 am
Hasn't it always done this to some extent though? Whilst this fund sounds very silly imo its perhaps in some sense not that different from...
This is how I see it. There have been financial products tailored for non-(client) profit maximizing reasons for a long time. Wall Street provides what the people want, whether that is green funds, dreamer tech funds (ARKK?), or meme stonk funds. If there is money to be made by selling a financial product, it will be marketed.

To the OP's main question, these products will cause economic distortions. One case is reflexivity like we've seen with GME/TSLA/AMC in that companies whose overpriced shares led to huge influxes of capital that changed the course of their future - saving the company in some cases. More broadly, the outcome is inefficient allocation of capital (as noted above by the capital raises by say GME or AMC, but arguably TSLA as well).

The real how question is how much economic distortion will happen. I'm not concerned by it much (yet) because I think we've seen similar things play out many times before, and it only really affects things substantially if it happens at a scale much larger than has occurred to date. I really don't see YALL being much different than a number of green funds in that in each case buyers are prioritizing personal values over economics. That's fine to do, and each group will think they are doing what's right.

But in both cases it's questionable whether you are really investing (economically), as such it will likely cause economic distortions as capital flows to lower-return projects than otherwise would be the case. And maybe if one group's values are "right", this is a net positive. But from a dollars and cents economic view, this warps things. Which again, is not new.

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Re: The postmodern era of investing

Post by Dream of Freedom »

How is it different than MAGA or DEMZ which have been around since 2017 and 2020 respectively?

jacob
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Re: The postmodern era of investing

Post by jacob »

Dream of Freedom wrote:
Tue Jul 26, 2022 11:00 am
How is it different than MAGA or DEMZ which have been around since 2017 and 2020 respectively?
I guess it isn't. I just haven't heard of those before.

ertyu
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Re: The postmodern era of investing

Post by ertyu »

It's obviously designed to soak up the money of a certain brand of sucker. Might even do well given that most explicitly non-esg businesses are things like oil companies, miners, weapons, and nestle

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Re: The postmodern era of investing

Post by jacob »

dustBowl wrote:
Tue Jul 26, 2022 10:26 am
I'm curious whether you could get significant numbers of people to engage in anti-efficient behaviors given a strong enough ideological offering. I have to admit that I'm doubtful given that 1) it turns out people actually really don't like losing money, regardless of their beliefs and 2) there are plenty of non-ideological participants in the market who would happily take advantage of inefficient behaviors, balancing things out (calling @J+G? lol).
The coordinated ESG side is much larger than the anti-ESG side. The effect is large on small/micro-cap, e.g. prisons, windmills, ... and probably close to non-existent on large-cap, e.g. integrated oil majors. Thus in terms of (2), will there are some non-ideological participants, there's not enough of them willing to put on concentrated long positions in prisons or to short wind farms to move the price needle---they become traps. In terms of (1), it's correct that people don't like losing money, but some ESG-investors like capitalism even less, so the alternative for this type might be pulling their money out entirely.

The anti-ESG seems like a different dynamic, closer to memestonks. They're bought as part of an identity or a protest, whereas the ESG dynamic is more about "making a difference". This should affect the degree to which agents are willing to back their position. This implies that despite the naming, behaviorally speaking, they are not each other's opposites.

WFJ
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Re: The postmodern era of investing

Post by WFJ »

I had this idea about 5 years ago when CalSTRS and CalPRS started making public virtue signaling statements rather than making investment decisions based on profit. Symbol would have been NESG. The strategy has crushed it but marketing something like this is problematic as one is putting themselves in the public sector and have to interact with very low IQ people. I'm still running this strategy and it's generating alpha, but only doing it for myself and not for public consumption. One of the easiest ways to make money is to short companies that hire CEOs based on their skin color or gender than hiring the most qualified person. Many private equity companies do nothing but wait for these CEOs to fail and scoop up good companies who have been mismanaged (KSS and GPS are recent examples).

The other issue raised is if MEME investing is problematic, Yes and No. Yes, that capital could have been used to increase productive capacity and not wasted on virtue-signaling activities and hiring unqualified people to do complex jobs. No, a fool and their money are easily parted. Once the suckers are separated from their money, the conman will borrow and spend, spurring the economy, eventually blowing up, but spurring the economy along the way.

These MEMEs trading is not new and was systematic with rail roads, radio, Nifty-Fifty, S&L, Dotcoms, and now crypto/NFTs.

Tyler9000
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Re: The postmodern era of investing

Post by Tyler9000 »

jacob wrote:
Tue Jul 26, 2022 1:46 pm
The anti-ESG seems like a different dynamic, closer to memestonks. They're bought as part of an identity or a protest, whereas the ESG dynamic is more about "making a difference". This should affect the degree to which agents are willing to back their position. This implies that despite the naming, behaviorally speaking, they are not each other's opposites.
Setting aside any judgment on the underlying merits of each cause, I personally don't see ESGV and YALL as opposites at all. They both overtly cater to political identity and simply target two different segments of the same market. So from my perspective this isn't really that new. Just a new flavor of the same product.

That said, I've had similar thoughts in the past about ESG investing. Individuals making choices in what they like to invest in seems just fine. But enforced institutional "morality" by massive companies like Blackrock makes me a lot more uncomfortable. So I do think it's fair to question the effects of these types of funds on the market and the larger culture that they cater to.

xmj
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Re: The postmodern era of investing

Post by xmj »

Please don't forget that a lot of ESG driven funds whitewash S&P500 or ACWI style indexes, do just-so-slightly different allocation %s, and collect big fees for this. I've had similar ideas to WFJ, though for me it's just easier to buy tobacco stocks (MO/PM/BTI trifecta) and hold them for their low duration and high dividend yields.

Has anyone seen a proposed list of components in $YALL?

prudentelo
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Re: The postmodern era of investing

Post by prudentelo »

Asymmetry between ESG and any opposition is ESG attempts to preempt regulatory action that can create "real" business advantage even if advantage is not due to providing better product/service to customer

BUying anti-ESG fund as real investment is a bet on Trump or whoever permanent victor,y revolution, replacement of Freudian-Marxian ideas as definition of "ethics" in society, all around big changes. Whereas buying ESG is just bet current winners continue to win political battles


Of course one can make money betting against companies that go "too far too fast" with non-market ESG decisions, outrunning regulatory catchup

WFJ
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Re: The postmodern era of investing

Post by WFJ »

xmj wrote:
Tue Jul 26, 2022 11:55 pm
Please don't forget that a lot of ESG driven funds whitewash S&P500 or ACWI style indexes, do just-so-slightly different allocation %s, and collect big fees for this. I've had similar ideas to WFJ, though for me it's just easier to buy tobacco stocks (MO/PM/BTI trifecta) and hold them for their low duration and high dividend yields.

Has anyone seen a proposed list of components in $YALL?
Hold the same (MO/PM/BTI). Also self-indexing with most boring funds as I don't want CalSTRS/Blackrock to use investors' money to support radical weirdos like Engine One to pollute corporate boards. Self-indexing more now as these weirdos are becoming more belligerent in their tactics to destroy profitable companies. Index investing still represents a small portion of stock market capital, but a few firms control massive power in voting shares and can destroy boards, which hire/fire executives.

Another dirty secret of ESG "investing" (virtue-signaling) is the fees firms are grifting off of ignorant investors. The highest expense ratio was 2.00 to hold the same top 10 in S&P market cap for some kind of "Sustainable" fund.

Doing the opposite of CalSTRS is the easiest way to pick up some alpha buy buying what they exclude and selling what they over-weight.
https://www.calstrs.com/portfolio-holdi ... c-equities
https://www.calstrs.com/sustainable-investing

This is someone managing $10 billion at CalSTRS. Even trying to explain a discount rate to someone like this is a nightmare (I've tried in the past but have capitulated).

Jenkinson holds an M.A. degree in international history from the University of Edinburgh, Scotland.
https://www.calstrs.com/kirsty-jenkinson

sky
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Re: The postmodern era of investing

Post by sky »

I can see using one's expenses to push a political agenda, using a boycott or preferring certain retail/service providers. Most expenses are discretionary so if you stop buying thing X, its probably not going to hurt you much.

When it comes to the money I invest, I prefer to be a hardcore capitalist. I might avoid some sectors because I believe they will become obsolete, and be happy that I am not invested in outdated technology and commodities. I would only invest in ESG if I think there is a good return on the investment.

johnsmith84730
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Re: The postmodern era of investing

Post by johnsmith84730 »

jacob wrote:
Tue Jul 26, 2022 9:10 am
The main question here is ... what will happen to the underlying economy...
Short answer:
To the underlying economy, not much will happen.
To the financial markets - a lot more volatility.

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Lemur
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Re: The postmodern era of investing

Post by Lemur »

US Vegan Climate ETF (VEGN)
https://finance.yahoo.com/quote/VEGN?p=VEGN

Perhaps, I can inverse YALL with WOKE lol.

sky
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Re: The postmodern era of investing

Post by sky »

Synthetic Reverse Iron Condor with one leg VEGN and the other YALL.

DutchGirl
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Re: The postmodern era of investing

Post by DutchGirl »

chenda wrote:
Tue Jul 26, 2022 9:50 am
Hasn't it always done this to some extent though? Whilst this fund sounds very silly imo its perhaps in some sense not that different from 'ethical investment funds', kosher investment, Islamic investment etc. Pledging to avoid investment in gambling, pornography, pig farming, tobacco, alcohol etc. (Note I'm not making a political or ethical comparison, just saying principled based investment is not entirely new)
I also think the market has never been based solely on spreadsheets. Think people buying American stocks out of nationalism, think people buying stocks from companies just because they have heard of them (and because they make products they personally like). And think people buying stocks because they have gone up in the recent past and they're chasing the dollars (that often do not materialise). So this would be just another way of people behaving irrationally.

ertyu
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Re: The postmodern era of investing

Post by ertyu »

A rational agent taking advantage of suckers by offering them a scheme they'll eat up - nothing new there

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