Talking Stocks 2.0

[huncho]

Originally Posted by In-N-Out

I actually bought more @ open lol. Brought my basis way down. Might exit today. Maybe Monday. Maybe HODL ?

dca'ing into trash is the fastest way to lose money. i learned this the hard way in 2022 lol, good luck

[JasoninDenver]

I am frankly stunned to see so much discussion of GME and roaring kitty here.

[hambone1983]

Originally Posted by huncho

the biggest issue with gamestop was that 140% of its float was shorted and the sec allowed it to happen while parading that they're all about protecting investors at the same time. they were basically shorting fake shares and when it blew up there was no way they could fight back. nowadays the most shorted stocks usually have about half their float shorted so i doubt we'll ever see 2021 gme happen again

As I'm sure most people participating in this thread understand, in order to sell short your broker first has to borrow the stock. Normally it is lent by another customer at the same firm who has purchased the stock in a margin account. Fully paid-for stock cannot be lent. If nothing is available in house you have to borrow it from the street and secure that loan with the proceeds of the sale. As long as there is stock to borrow and you can sell on an uptick, a legit short position is established. I can say with certainty it is a very rarely used strategy by retail investors. And I have seen more than a few get absolutely crushed by selling short, they are playing with something they don't understand and get whipsawed.

How there came to be short interest of 140% of the float I do not understand. I don't see how that is physically possible given how stock loan works. And even then, I cannot fathom how that wouldn't crater the stock to zero. To my mind, that's what bears investigating. But there's no chance the Inspector Clouseaus at any of the SRO's are going to do this.

[huncho]

Originally Posted by hambone1983

As I'm sure most people participating in this thread understand, in order to sell short your broker first has to borrow the stock. Normally it is lent by another customer at the same firm who has purchased the stock in a margin account. Fully paid-for stock cannot be lent. If nothing is available in house you have to borrow it from the street and secure that loan with the proceeds of the sale. As long as there is stock to borrow and you can sell on an uptick, a legit short position is established. I can say with certainty it is a very rarely used strategy by retail investors. And I have seen more than a few get absolutely crushed by selling short, they are playing with something they don't understand and get whipsawed.

How there came to be short interest of 140% of the float I do not understand. I don't see how that is physically possible given how stock loan works. And even then, I cannot fathom how that wouldn't crater the stock to zero. To my mind, that's what bears investigating. But there's no chance the Inspector Clouseaus at any of the SRO's are going to do this.

it's all really complicated and i'm not gonna pretend i understand how it was done but the statistics did back up the fact that there were synthetic shorts. people have said it could be through rehypothecation but from what i understand there could be other ways as well. maybe someone here can explain it properly

the point there is if there's a way then the people on wall street will find it. those guys are incredibly smart and creative

[BraveBold]

Originally Posted by hambone1983

As I'm sure most people participating in this thread understand, in order to sell short your broker first has to borrow the stock. Normally it is lent by another customer at the same firm who has purchased the stock in a margin account. Fully paid-for stock cannot be lent. If nothing is available in house you have to borrow it from the street and secure that loan with the proceeds of the sale. As long as there is stock to borrow and you can sell on an uptick, a legit short position is established. I can say with certainty it is a very rarely used strategy by retail investors. And I have seen more than a few get absolutely crushed by selling short, they are playing with something they don't understand and get whipsawed.

How there came to be short interest of 140% of the float I do not understand. I don't see how that is physically possible given how stock loan works. And even then, I cannot fathom how that wouldn't crater the stock to zero. To my mind, that's what bears investigating. But there's no chance the Inspector Clouseaus at any of the SRO's are going to do this.

The 140% (though possibly off slightly depending on settlement timing and volumes) would be due to naked short selling / virtual shorts. Essentially skipping the locating / borrowing step. Some of this is due to lack of actual delivery or timing of delivery of “physical” shares. It is illegal.

Now, there could be “innocent” reasons for this - the settlement and timing lag I mention above (and underlying volumes). You could end up double-counting shares available for borrowing as the settlement window gives you some technical “wiggle room” based on regulations (ie locating vs transacting on the shares to borrow).

This gets abused - and also obfuscated - through how shares actually trade and clear in practice.

So consider it potential or likely manipulation by some short sellers - though of a different sort.

Again, just my 2 cents…

[BraveBold]

Originally Posted by huncho

it's all really complicated and i'm not gonna pretend i understand how it was done but the statistics did back up the fact that there were synthetic shorts. people have said it could be through rehypothecation but from what i understand there could be other ways as well. maybe someone here can explain it properly

the point there is if there's a way then the people on wall street will find it. those guys are incredibly smart and creative

Agree but I’d say synthetic shorts (in my book) are using derivatives to replicate a short. Can be advantageous depending on the cost of borrowing and some other factors.

Wall street traders (broadly defined) are constantly looking for ways around regs. Most are legitimate - at least for a time. Some are intelligent. Some are moronic. All types!

[huncho]

Originally Posted by BraveBold

Agree but I’d say synthetic shorts (in my book) are using derivatives to replicate a short. Can be advantageous depending on the cost of borrowing and some other factors.

Wall street traders (broadly defined) are constantly looking for ways around regs. Most are legitimate - at least for a time. Some are intelligent. Some are moronic. All types!

true, i assume it was mostly through exploiting the lag in delivery and there being no real mechanism to stop them from shorting stocks that don't actually exist. regardless, they knew what they were doing there and it wasn't like it was accidental. the funniest thing to me is that the stock was like what $2 near the bottom of 2020? how greedy can you get with the downside at that point lol. or maybe they just couldn't start covering because they knew it would cause a domino effect and hoped it would go away

[hambone1983]

Originally Posted by BraveBold

The 140% (though possibly off slightly depending on settlement timing and volumes) would be due to naked short selling / virtual shorts. Essentially skipping the locating / borrowing step. Some of this is due to lack of actual delivery or timing of delivery of “physical” shares. It is illegal.

Now, there could be “innocent” reasons for this - the settlement and timing lag I mention above (and underlying volumes). You could end up double-counting shares available for borrowing as the settlement window gives you some technical “wiggle room” based on regulations (ie locating vs transacting on the shares to borrow).

This gets abused - and also obfuscated - through how shares actually trade and clear in practice.

So consider it potential or likely manipulation by some short sellers - though of a different sort.

Again, just my 2 cents…

The fact that the only stock that can be borrowed are those shares held in margin accounts is the limiting factor on short selling. A short interest of 20% is massive and almost always accounts for all shares owned on margin. I've seen short squeezes happen way below that level. The kind of short interest seen with GME screams that something outside the rules is happening.

[BraveBold]

Originally Posted by huncho

true, i assume it was mostly through exploiting the lag in delivery and there being no real mechanism to stop them from shorting stocks that don't actually exist. regardless, they knew what they were doing there and it wasn't like it was accidental. the funniest thing to me is that the stock was like what $2 near the bottom of 2020? how greedy can you get with the downside at that point lol. or maybe they just couldn't start covering because they knew it would cause a domino effect and hoped it would go away

It was intentional, I agree. At least for some (clearly not all).

The greed part is interesting - remember that without the capital infusion of the squeeze + meme rally (and subsequent share sales) the thesis was they’d fail.

So $2 to zero is still a good bet if you think bankruptcy is imminent.

Recall Bed bath beyond… and how that played out…

[Krash]

Originally Posted by BraveBold

Anyone starting to scale down NVDA holdings? I am seriously considering slowly divesting direct holdings and only retain my indirect (through a couple ETFs). In particular because the weight in my ETFs has skewed over-concentrated.

I don’t buy the long-term thesis (metrics reaching levels implied by current valuation) but at the same time I could be wrong…

Thoughts?

No, I’m holding, at least for now. NVDA went from an obscure stock in my portfolio to my largest holding in just a few months. I think it would be a mistake to sell.

But I am a little concerned about the weighting of some of these indexes.

Just three stocks now account for 20% of the S&P 500: NVDA, MSFT, AAPL.

And then three more stocks account for another 10%. META, GOOG, AMZN.

I haven’t done in-depth analysis on this, but that’s 6 stocks that make-up 30% of an index consisting of 500 stocks.

When people talk about the performance of the S&P 500, it really boils down to those six stocks. If those stocks tank, they’re bringing everything down with them. Well, that’s probably a bit dramatic, but it’s something everyone should be cognizant of.


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[7sins]

Originally Posted by BraveBold

Anyone starting to scale down NVDA holdings? I am seriously considering slowly divesting direct holdings and only retain my indirect (through a couple ETFs). In particular because the weight in my ETFs has skewed over-concentrated.

I don’t buy the long-term thesis (metrics reaching levels implied by current valuation) but at the same time I could be wrong…

Thoughts?

Why not write ITM covered calls and get paid to sell a portion of your position? IV should be high enough to collect good premium.

[BraveBold]

Originally Posted by 7sins

Why not write ITM covered calls and get paid to sell a portion of your position? IV should be high enough to collect good premium.

It is a viable alternative for sure.

[BraveBold]

Originally Posted by Krash

No, I’m holding, at least for now. NVDA went from an obscure stock in my portfolio to my largest holding in just a few months. I think it would be a mistake to sell.

But I am a little concerned about the weighting of some of these indexes.

Just three stocks now account for 20% of the S&P 500: NVDA, MSFT, AAPL.

And then three more stocks account for another 10%. META, GOOG, AMZN.

I haven’t done in-depth analysis on this, but that’s 6 stocks that make-up 30% of an index consisting of 500 stocks.

When people talk about the performance of the S&P 500, it really boils down to those six stocks. If those stocks tank, they’re bringing everything down with them. Well, that’s probably a bit dramatic, but it’s something everyone should be cognizant of.


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My “relationship” with NVDA goes back decades. Didn’t translate to spectacular gains (outside the last few years, of course) because I sold early in that “relationship” period… but it has a psychological impact on how I view the company, which to me is problematic.

That said, I am conscious of the bias. My tendency now is to hold even as I expect it to suffer a severe decline at some point over the next 12-24 months. I would not fully divest, and as 7sins pointed out, there other ways to create some downside protection.

The index concentration you mention is something I’m keenly aware of. I bought into FSELX as one of a very limited number of ETFs I use… NVDA is now a very significant share of the fund. For me, combined with my direct holdings, I feel I am relatively overweight vs where I want to be given the way the market is irrationally pricing it (my personal view).

[Krash]

Originally Posted by BraveBold

My “relationship” with NVDA goes back decades. Didn’t translate to spectacular gains (outside the last few years, of course) because I sold early in that “relationship” period… but it has a psychological impact on how I view the company, which to me is problematic.

That said, I am conscious of the bias. My tendency now is to hold even as I expect it to suffer a severe decline at some point over the next 12-24 months. I would not fully divest, and as 7sins pointed out, there other ways to create some downside protection.

The index concentration you mention is something I’m keenly aware of. I bought into FSELX as one of a very limited number of ETFs I use… NVDA is now a very significant share of the fund. For me, combined with my direct holdings, I feel I am relatively overweight vs where I want to be given the way the market is irrationally pricing it (my personal view).

Similar situation for me. I own NVDA, MSFT, AAPL, GOOG, AMZN, etc.

But I also own VGT, too, which is a technology ETF from Vanguard. And the stocks I mentioned above are heavily weighted in this ETF. VGT has been a top performer for me.

I think if my portfolio was way down, I’d probably be on the phone with my financial advisor and complaining about this. But I’m letting it ride for now.

I’m still well diversified and have a good mix of stocks and ETFs from other sectors.


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[sambb]

is anyone generally backing off of stock allocation currently - seems like weve had a good run?

[In-N-Out]

Originally Posted by sambb

is anyone generally backing off of stock allocation currently - seems like weve had a good run?

I pulled out a significant share of my NW out of stocks a few months ago and into crypto. So far, so good

[Krash]

Originally Posted by sambb

is anyone generally backing off of stock allocation currently - seems like weve had a good run?

No, at least not yet. I’m still 80% stocks and 20% cash/bonds.

But I think rate of growth might not be as robust going forward.


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[eanzenberg]

Originally Posted by BraveBold

Anyone starting to scale down NVDA holdings? I am seriously considering slowly divesting direct holdings and only retain my indirect (through a couple ETFs). In particular because the weight in my ETFs has skewed over-concentrated.

I don’t buy the long-term thesis (metrics reaching levels implied by current valuation) but at the same time I could be wrong…

Thoughts?

No, and if you are in the AI/ML field, you know the incredible position NVDA is in and the demand that is not letting up, and the position they set themselves up for in the decades to come. My PT is ~$150 but it keeps going up every qtr. I've been an engineer/researcher in deep learning / machine learning for over a decade in the Bay Area in tech companies.

[BraveBold]

Originally Posted by eanzenberg

No, and if you are in the AI/ML field, you know the incredible position NVDA is in and the demand that is not letting up, and the position they set themselves up for in the decades to come. My PT is ~$150 but it keeps going up every qtr. I've been an engineer/researcher in deep learning / machine learning for over a decade in the Bay Area in tech companies.

Good luck.

[BroncoOne]

Originally Posted by sambb

is anyone generally backing off of stock allocation currently - seems like weve had a good run?

It’s hard to not gobble up short term treasuries above5%, but I live in a very high tax state that also piled a surcharge on top of it. The real yield is hard to pass up.

Of course, your other asset exposure and time horizon matters greatly in these decisions.

[eanzenberg]

Originally Posted by BraveBold

Good luck.

Thanks, you too.

[BraveBold]

Originally Posted by eanzenberg

Thanks, you too.

We all need it!

[eanzenberg]

Originally Posted by BraveBold

We all need it!

I know! It's all betting on probabilities of outcomes at the end of the day. Taking a bet on a 80% likelihood will still fail a decent amount of times.

[BraveBold]

Originally Posted by eanzenberg

I know! It's all betting on probabilities of outcomes at the end of the day. Taking a bet on a 80% likelihood will still fail a decent amount of times.

Poker is great education on the limits of even “sure bets”…

[SDGT3]

Originally Posted by BroncoOne

It’s hard to not gobble up short term treasuries above5%, but I live in a very high tax state that also piled a surcharge on top of it. The real yield is hard to pass up.

Of course, your other asset exposure and time horizon matters greatly in these decisions.

Treasuries are not taxed on the state level. Are you saying that MA taxes interest income on treasuries?

[superdog]

I might have missed out on btc, but I bought nvda in 2018.

Currently up 3,485%.

Not changing my life. But I’m not selling it either.

I might have a mostly super conservative portfolio, but this stock had certainly helped top the scales a bit.

[austinp]

Originally Posted by superdog

I might have missed out on btc, but I bought nvda in 2018.

Currently up 3,485%.

Not changing my life. But I’m not selling it either.

I might have a mostly super conservative portfolio, but this stock had certainly helped top the scales a bit.

That’s awesome. About 800% for me. Love it so far. I’d love to hear from 904VT about NVDA. He knows a lot about that sector.


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[BraveBold]

Bought NVDA in 1999…

Sold much too early. No change in thesis (though never envisioned the AI application opportunity) but had no family funds to fall back on and “needed” proceeds to buy a place.

Bought again in 2020. Not a big position but one of several when the market puked. Bought a small additional amount in 2022.

I am a strong believer of no regrets or second guessing once a decision’s impact has been realized. But I never fully exit positions any more, so long as my thesis remains valid. I DO reallocate / reweight with new information. This is why I am reconsidering my position today.

[BroncoOne]

Originally Posted by SDGT3

Treasuries are not taxed on the state level. Are you saying that MA taxes interest income on treasuries?

No, I’m saying the opposite. The interest in US Treasuries has no state income tax. I should have been more clear. I meant that the Treasuries provide me with a higher yield because of the high MA state income taxes that I avoid - my real post-tax yield is greater ( and also as an alternative to selling a stock in less than a year because MA has surtaxes on short term capital gains as well

Massachusetts has become uninvestable. It treats capital very poorly because it used to be able to hold it captive. That’s changed but Massachusetts hasn’t learned it yet. The lesson will be painful as it unfolds.

[BroncoOne]

Originally Posted by eanzenberg

I know! It's all betting on probabilities of outcomes at the end of the day. Taking a bet on a 80% likelihood will still fail a decent amount of times.

But you can sometimes collect dividends along the way!