Read on Twitter
so, low-key, it's worth mentioning that the relative rarity of dividend payments is the actual villain here https://twitter.com/jbarro/status/1354464982981877762
why shouldn't GameStop be worth $25 billion? why not $250 billion?
Relatively few stockholders hold for the purpose of receiving dividends, and paying dividends is increasingly unfashionable.
But dividends are ***the only actual tie*** between a retail investor and firm profits
Relatively few stockholders hold for the purpose of receiving dividends, and paying dividends is increasingly unfashionable.
But dividends are ***the only actual tie*** between a retail investor and firm profits
I mean Google class A and class C shares trade for virtually identical prices, and most of the shares that actual cast votes in corporate elections essentially never enter the open market and are traded at off-market prices anyways.
Virtually no retail investors ever will (and in many cases they actually can't) cast a meaningful vote in a management decision. Many firms pay no dividend.
It's literally just a measure of warm fuzzies.
It's literally just a measure of warm fuzzies.
Here's a list of a bunch of S&P500 countries which have no dividend payments (and AFAIK which have *never* had dividend payments).
Some are young companies people may hope will someday pay.
But y'all. Chesapeake Energy is not young. United Rentals is not young.
Some are young companies people may hope will someday pay.
But y'all. Chesapeake Energy is not young. United Rentals is not young.
Huge amounts of market capitalization is people plowing tons of money into firms that have never and will never pay dividends (or that pay pitifully scrawny dividends), over which they will never exercise ownership rights, because they *feel good about it.*
And in turn they suspect that *other* people will *also* feel good about it.
The insane thing is that.... this actually mostly works. People get returns!
The insane thing is that.... this actually mostly works. People get returns!
Sorry, here's the list of non-dividend-payers in the SP500: https://www.dividend.com/investor-resources/sp-500-companies-that-dont-pay-dividends/
Yes, buybacks return money to investors as well, but it's a bit silly to act like this fundamentally changes the calculus, since we still in fact observe massive differences between long-run dividend + buyback / price ratios.
The reality is that people will actually pay more money to have some companies give them a dividend than they will to have other companies give them a dividend, and this remains true even in the long run!
Now, *on average* this works out. Markets really are efficient on average. Companies that underdeliver *tend* to have prices fall, and vice verse.
But that tendency is over a longish time horizon and nowhere close to universal.
But that tendency is over a longish time horizon and nowhere close to universal.
Point is.... it's perfectly rational to investors to buy assets with a complete and total disregard for the underlying value of the company. That's what most investing is. It's a Keynesian beauty contest.
Now, it's a dicey game. Lots of people lose. On average you don't beat the market. etc etc etc. None of this conflicts with the view that markets and pricing are in some sense collectively "rational" and even "efficient" under some definitions.
But very few investors will actually be holding an asset when they get a buyback, and very little of the total returns individuals reap from holding stocks comes from dividends. Individuals know this, and so correctly observe that like 99% of their return will actually come...
... from the Keynesian beauty contest. And so it is rational and a normal part of the market to have speculative bubbles. It seems like almost a logical necessity; the pile-on *should* continue for a non-trivial amount of time!
In the long run will GameStop come to rest at $300/share?
lol, no. OTOH, their price-to-book ratio, while insane at like 70 or something.... is actually not that insane: many companies we don't think of as insanely overvalued have similar ratios at like 20-60.
lol, no. OTOH, their price-to-book ratio, while insane at like 70 or something.... is actually not that insane: many companies we don't think of as insanely overvalued have similar ratios at like 20-60.
Of course, the argument is that GameStop's high ratio is irrational because their business model has no future, while e.g. Amazon's extremely high ratio in 2008 was rational because their business model did have a future.
And that sounds reasonable to me!
But it might also be wrong!
That's what the beauty contest is all about!
But it might also be wrong!
That's what the beauty contest is all about!
And if GameStop were able to offload some of their millions of dollars of debt through leveraging what's happening now, it could in fact impact their future profitability!
That seems far-fetched, but we also shouldn't rule out the possibility that companies may sometimes have an interest in using guerrilla marketing to create interest in their stock. Did GameStop do that here? Probably not! But it's not impossible!
It's pretty obvious that 1) Redditors are making money causing short-squeezes, 2) short-sellers are a *necessity* for market function, but they aren't actually doing some deeply important capital-raising function themselves... https://twitter.com/jeuasommenulle/status/1354481741642289156
And most importantly, these are companies where short sellers were obviously *too short*. That a *very small* number of Redditors can trigger a squeeze leading to escalating prices and big returns for the Redditors suggests the short-sellers irrationally assessed the risk.
It's not clear to me that Redditors noticing that short-sellers were basically adopting irrationally narrow confidence intervals for future volatility are the bad guys here. Seems like the short-sellers may be.
