Tremendous

An angel investor's take on life and business

  • Bullish Investors Pile Into Palantir Options

    Investors are piling into call options on Palantir Technologies, Inc. this week, expecting the stock to head upward:

    “Palantir saw above-average call activity [Monday], about 90,000 contracts more than it trades on average, and the most action was seen in the 24-, 25- and 26-strike calls that expire this coming Friday. The 24-strike calls, for example, traded about 45,000 contracts. Those were trading for just under 70 cents,” Optimize Advisors CIO Michael Khouw said Monday on CNBC’s “Fast Money.”

    Those 24-strike calls break even at an underlying stock price of $24.70, or about 6% higher from where Palantir closed Monday’s session. More bullish traders who took a chance on the 26-strike calls would need to see a jump of more than 12% by Friday’s close to break even.

    Some may be reacting to a recent push from Palantir into the life sciences, diversifying from its bread-and-butter of government clients:

    In a continued push to expand its business beyond the sometimes-controversial federal defense and intelligence contracts it’s best-known for, $42 billion big data company Palantir is making a new push into industries including life sciences and manufacturing.

    That push comes in the form of new capabilities for Palantir Foundry, its product for the private sector, which will be showcased at a company event it calls Double Click on Wednesday.

    However, the stock is richly valued and its core government contracting business is growing slowly. Commercial sales growth is also weak, at a mere 4% in Q4 2020. And 20% of that slow growing commercial business is a single customer. Indeed, a small number of clients drive Palantir’s revenue, exposing the company to a big risk if several were to leave at once. The concentrated and slow growing customer base, along with a hefty price, will keep me away from this stock.

    For more on Palantir, check out these posts:

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    Photo: Palantir co-founder Peter Thiel. “Peter Thiel” by jdlasica is licensed under CC BY 2.0

  • Hedge Fund Loses Half Its Value on GameStop Trades

    Melvin Capital, the hedge fund that dug itself into a hole during the GameStop saga, extended its first-quarter losses to 49%.

    The firm, founded by portfolio manager Gabe Plotkin, saw a 53% decline in January, reversed some of that loss by gaining 22% in February, but slid another 7% in March, Insider’s Bradley Saacks reported on Friday.

    More here.

    The GameStop mania has come with incredible trading volume and rapid price moves. Collectively, hedge funds have taken losses of over $1 billion a day at certain points:

    To put the gravity of the situation into perspective, on 27 January at the height of the GameStop saga, 24 billion shares were traded on US exchanges, surpassing the previously set record by 4 billion shares traded in the 2008 global financial crisis.

    According to data and analytics firm S3 Partners, by 27 January short sellers had accumulated losses of more than $5 billion in 2021, including a loss of $1.6 billion on the 22 January and $917 million on 25 January.

    Hedge funds seemed to have largely abandoned their positions. The percentage of GameStop stock sold short is down to 26% from over 100%. In January, it was hard to even borrow the stock at all to sell it short. Now, that’s cheap and easy to do, if you dare:

    …a quick check with my broker verified that GME shares are available to borrow at 0.5% borrow rate, indicating that they are likely not in scarce supply

    I expect hedge funds to pull back from shorting numerous stocks popular on Reddit, such as Palantir, AMC, etc. Losses like that may be too painful to take, no matter how good the fundamental case against those companies may be.

    For more on GameStop, check out these posts:

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    Photo: “Retail GameStop” by ccPixs.com is licensed under CC BY 2.0

  • GameStop To Dump CEO

    GameStop plans to fire its CEO, Reuters reports:

    GameStop Corp is looking for a new chief executive to replace George Sherman as it pivots from a brick-and-mortar video game retailer to an e-commerce firm, three people familiar with the matter said on Monday.

    It would be the biggest shakeup at GameStop since Ryan Cohen, the co-founder and former chief executive of online pet food company Chewy Inc, joined its board in January and began laying the groundwork for a shift in culture and strategy, people familiar with his work at GameStop said.

    Numerous top executives have already left, likely under pressure from Cohen:

    The CEO replacement is the latest in a string of changes pursued by Cohen since he joined GameStop’s board.

    Former Chief Financial Officer Jim Bell and Chief Customer Officer Frank Hamlin are among the senior executives who have left the company in recent weeks.

    Cohen has brought in executives from Chewy and Amazon. But Chewy and Amazon still sell physical goods, albeit online. Video games are becoming increasingly digital, leaving GameStop with no item to ship to you. Perhaps GameStop could process those digital transactions, but I don’t see why the game publishers wouldn’t just do that themselves and keep 100% of the revenue.

    This leaves them with consoles, primarily. But new consoles only come out every 5-7 years, not enough to sustain a brick and mortar business with 5,000 stores.

    No matter who he brings in, Cohen faces an uphill battle. The video game industry has simply changed in ways that make it difficult for a company like GameStop to survive.

    For more on GameStop, check out these post:

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    Photo: “Ryan-Cohen” by bill.jerome is licensed under CC BY-SA 2.0

  • Reddit Up, Michael Jordan Down as GameStop Soars

    Social-media trading star Keith Gill, known by his social-media nickname Roaring Kitty posted what is believed to be a screenshot of his trading portfolio to Reddit Wednesday afternoon that may show a massive position in videogame retailer GameStop Inc. made up of almost $19 million in equity and $8.9 million in options.

    If Gill’s screenshots can be taken at face value, he has made $25.2 million on his GameStop wagers at a profit of more than 938%.

    More here.

    While Gill, probably the most famous trader from Reddit’s Wallstreetbets, made huge gains, another big name may have been burned by the stock, albeit indirectly. Michael Jordan, majority owner of the NBA’s Charlotte Hornets, had sold part of the team to hedge funders Gabe Plotkin and David Sundheim. Both lost massive sums in the GameStop short squeeze. As their business partner, this puts Jordan in an awkward position:

    2020 was a historically bad year for NBA finances, thanks to the pandemic shutdown, absent ticket revenue, and a hit to the NBA’s China business. If cash is tight, can Jordan still count on Plotkin or Sundheim?

    Jordan’s own net worth is down $500 million in the last year. Perhaps he should make a Reddit account?

    For more on GameStop, check out these posts:

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    Photo: “Michael Jordan” by mccarmona23 is licensed under CC BY 2.0

  • We Need Science Funding More Than Road Repairs

    As the Biden administration pushes for a $2 trillion infrastructure bill, I dug into some numbers on federal research funding today. Most basic scientific research is funded by the federal government, including the critical advances in mRNA technologies that laid the groundwork for COVID vaccines. But this funding has fallen by more than 1/3 since the 1970’s, measured as a percentage of GDP:

    In absolute dollar terms, funding has increased, but far below the rate one would predict given our burgeoning economy. Meanwhile, the infrastructure bill contemplates $110 billion in funding for road repair. This despite the US having some of the best roads in the world (slightly better than those of Switzerland) and among the world’s lowest commute times. Even in the New York area, which many single out for having poor road infrastructure, I see mostly smooth pavement wherever I go.

    Science funding will never be as visible as road repair. You don’t see men in orange jackets out there with big trucks. But without basic research, we will find ourselves falling behind competitors like China and left without the tools we need to meet future challenges. What if we had faced the COVID pandemic without the scientific groundwork laid by massive research funding in decades past?

    For more on science and policy, check out these posts:

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    Photo: “Joe Biden” by Gage Skidmore is licensed under CC BY-SA 2.0

  • This Tiny Country Beat COVID

    On the southern tip of Spain, the tiny UK territory of Gibraltar has vaccinated almost its entire population. COVID deaths have dropped to zero:

    Life is beginning to get back to normal. Masks are no longer required outside, curfews are gone, and bars and restaurants are full. Even sporting events have resumed:

    Events have also returned to the Rock as Gibraltar hosted what’s thought to be the first fully vaccinated major sporting fixture in the world on Saturday.

    Five hundred spectators, each tested for Covid-19 prior to the event, were able to witness British heavyweight fighter Dillian Whyte claim victory over Russia’s Alexander Povetkin at Gibraltar’s Europa Sports Complex.

    The fight, called the Rumble on the Rock, was originally meant to take place at the Matchroom HQ, a venue in southeastern England, but was switched to Gibraltar thanks to its Covid-19 safe environment.

    Soccer fans were also allowed to witness sporting matches starting with Gibraltar’s World Cup qualifier clash against the Netherlands on Tuesday.

    Victoria Stadium welcomed 600 attendees who had previously received two doses of the vaccine and tested negative for the virus on the day of the match.

    Only 3% of residents refused the vaccine, which may be one reason why Gibraltar’s results are so good. That may be difficult to recreate in the US or other nations, but Gibraltar provides a welcome view of what life could look like soon as the world races to vaccinate.

    I encourage you to get your shot if you haven’t already. Let’s get back to normal life!

    For more on COVID and vaccines, check out these posts:

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    Photo: “Gibraltar – Rosia” by Roy McGrail (krm gib) is licensed under CC BY-SA 2.0

  • Beware the SPAC Cliff

    Special Purpose Acquisition Companies, or SPACs, have become all the rage in the last year. These “blank check” companies raise money from investors and then look for a company to acquire. They’re multiplying like rabbits:

    More than 300 such blind pools have come public so far this year according to SPACInsider, raising an aggregate $99 billion. That blows past the prior $83 billion, full-year record established in 2020. For context, the pre-coronavirus peak in aggregate IPO proceeds stood at just $64.8 billion.

    More here (see the 4-9 post).

    That means hundreds of companies all competing for the same pool of private acquisition targets. This has pushed up prices substantially, and SPACs may be overpaying for their acquisitions:

    SPAC-sponsored deals took place at a median price of 12.9 times sales in the first three months of the year, more than triple the 4.1 times median price-to-sales ratio for non-blank check transactions.

    SPACs typically have two years to find a company to acquire. If they succeed, the people who run the SPAC will get about 20% of the total value of the deal. If they don’t acquire a company, the party ends, and the money goes back to investors.

    With hundreds of companies from this year and a backlog from previous years all searching for deals before their two year window is up, it’s no surprise they’re overpaying.

    With 117 SPAC-related deals announced so far this year, 497 blank-check entities are currently seeking their own dance partner, according to Refinitiv, while only about a quarter of all SPACs listed in 2020 or 2021 have completed a transaction.

    The clock is ticking: Entities that fail to find a merger target within two years are typically unwound, with promotors obliged to return capital to investors. “There is a lot of indigestion,” a senior bank executive tells the FT.

    If the SPAC sponors buy an overpriced company, they still get 20% of the money. If they don’t buy anything, they don’t. What do you think they’ll do?

    The incentives aren’t well aligned. If the SPAC sponors buy an overpriced company, they still get 20% of the money. If they don’t buy anything, they don’t. What do you think they’ll do?

    Sure enough, overpaying for companies is leading SPACs to perform poorly. An index of SPACs is down about 20% from its peak earlier this year.

    Expect to see more and more SPACs frantically overbid for deals as their two year cliff approaches. Bad for SPAC investors, good for private company shareholders.

    For more on SPACs and financial markets, check out these posts:

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    Photo: “YIELD TO THE MAN FALLING OFF THE CLIFF!” by Bods is licensed under CC BY-SA 2.0

  • The Top 5 Things That Changed When I Started Working for Myself

    For fourteen years, four months and eleven days, I worked in software. My job was like a lot of jobs: conducted in a cubicle or sometimes remotely, during regular business hours, and almost every week of the year.

    In July of 2019, I left that job to make my investment business full time. I still remember the feeling when I walked out of the office for the last time into a hot, sunny summer’s day…”Wow, this is it, I’m really gone”.

    Looking back on the past 21 months, I decided to write down a few of the biggest changes in my life since leaving the world of corporate employment:

    1) Your time is your own. When I wake up in the morning, I eat breakfast and do a little journaling. I can plan out a day focusing on whatever I want. The ability to design your own day is a huge difference from working at a company, where you’re crossing off items on someone else’s to-do list.

    2) You find yourself suddenly immersed in new areas on a regular basis. In the last couple of months, I’ve done deep dives into COVID, vaccines, meme stocks, and startups. Some for business purposes, some just because I’m interested. When your time is your own, you find yourself delving into new topics a lot more frequently.

    3) It’s harder to decide what success means. At a job success means not getting fired, getting a raise every year, and maybe a promotion. How do you define success in your own business? That’s a lot more subjective, and I tend to move the goalposts further whenever I reach a goal. This can put you on something of a treadmill. It’s important to get off sometimes and smell the roses.

    4) You have more energy. Even though I almost never use an alarm clock anymore, I wake up earlier and am more energetic in general. Being able to do what I want with my time gives me energy. Doing what someone else wanted all day tended to drain it.

    If you can make money through something other than selling your time, like investing or writing or selling a software product, you can remove that ceiling on your income.

    5) The sky is the limit. My investments this past year made far more than I ever made working, and new investments I’m planning in early stage startups could blow away all previous earnings if things go right. (Or go to zero if they go wrong!)

    If you work for a company, your raises usually come yearly and they’re only so much. There’s a limit to how much an employer will pay for an hour of your labor in most fields. What’s more, you only have at most 24 hours a day to sell! But if you can make money through something other than selling your time, like investing or writing or selling a software product, you can remove that ceiling on your income.

    If you can generate enough income to fund even a modest living, and you aspire to work for yourself, I encourage you to do it!

    If you can generate enough income to fund even a modest living, and you aspire to work for yourself, I encourage you to do it! If you can’t, build up a side business over time and eventually you’ll be ready!

    For more on improving your life, check out these posts:

    Photo: “The Workaholic NSA” by herval is licensed under CC BY 2.0

  • Could the Government Sue Wallstreetbets Over GameStop?

    Traders on Reddit’s Wallstreetbets who are pumping GameStop stock could get in trouble with the law. From Lawyer Monthly:

    There’s no clear indicator that what occurred is illegal, but it certainly falls within a shady area.

    A large number of the investors who joined in, certainly in the later stages, were just jumping on a trend that could earn them money. That’s not the case for those who kicked things off, and that’s where there may be problems. However, even then, it’s not clear because “pumping” a stock for fun, provided that you’re not releasing misleading information, doesn’t technically fall foul of the law. There’s a strong argument that the subreddit thread didn’t have the capacity on their own to change the market substantially. In addition, they didn’t release misleading information to induce others to buy. For these reasons, the SEC and FCA may well decide that although dubious, there were no illegal manoeuvres.

    I would expect the most at risk posters to be people with large positions who were early to a campaign to lift a stock like GameStop. Others have been successfully sued by the SEC for buying a stock and promoting it online message boards. However, there are two significant legal precedents in the US that may protect the Reddit traders.

    If you want to participate in these runs on meme stocks, the safest way to do so is quietly. Let others do the talking and, if necessary, take the hit.

    Nonetheless, if you want to participate in these runs on meme stocks, the safest way to do so is quietly. Let others do the talking and, if necessary, take the hit.

    For more on GameStop, check out these posts:

    If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

    Check out the Stuff I Use page for some great deals on products and services I use to improve my health and productivity. They just might help you too! 

    Photo: “Retail GameStop” by ccPixs.com is licensed under CC BY 2.0

  • The First Stock Trades On the Blockchain Just Happened

    Credit Suisse and Nomura just did the first stock trades settled via blockchain technology:

    This week Credit Suisse cut some US equities trades with the Nomura-owned broker Instinet, using blockchain. This technology has been used before to verify other kinds of transactions. But these trades were a “first” because settlement occurred in hours and not the two days needed with America’s Depository Trust and Clearing Corporation, the industry-owned utility that normally settles stock trades.

    This long settlement period is inefficient and costly:

    “This is an incredibly inefficient way to operate,” Charles Cascarilla, Paxos’s chief executive tells me, pointing out that $15bn to $30bn of industry capital and twice as much liquidity are tied up in DTCC systems.

    The two day settlement period was the key factor behind Robinhood stopping buy orders for GameStop shares earlier this year. The price had become so volatile that it could move against Robinhood a great deal in those two days. Given that, brokers insisted Robinhood post a large amount of colatteral. That expense was too great, so instead, Robinhood blocked buy orders for the stock. In a world where trades settled in hours via the blockchain, this would be much less likely.

    However, blockchain technology is incredibly energy hungry. If we moved the massive volume of stock trading onto it, I suspect the energy needed might be prohibitive. I think instant, or at the very least faster, trade settlement is likely. But I expect that to happen via more standard computer systems, rather than blockchain technology.

    I think instant, or at the very least faster, trade settlement is likely. But I expect that to happen via more standard computer systems, rather than blockchain technology.

    For more on blockchain technology and cryptocurrencies, check out these posts:

    If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

    Check out the Stuff I Use page for some great deals on products and services I use to improve my health and productivity. They just might help you too! 

    Photo: “Crypto Kitties on Blockchain” by marcoverch is licensed under CC BY 2.0