Tag Archives: Day trading

The New Black Wall Street: Young Black Investors are Piling Into Stocks

A new survey finds that young black Americans now invest in stocks at the same rate as whites:

In a year like no other, however, there is also evidence of growing engagement in the stock market by younger Black Americans, with 63 percent under the age of 40 now participating in the stock market, equal to their white counterparts. The closing of this gap among younger investors is being driven by new investors: three times as many Black investors as white investors (15% vs. 5%) report having invested in the market for the first time in 2020.

Stocks are a major vehicle for wealth creation, and black Americans have long been less involved in the stock market than whites:

A majority (61%) of non-Hispanic white households own some stock, compared with 31% of non-Hispanic black and 28% of Hispanic households. Median investments vary here as well: Among whites the median is about $51,000. By comparison, the median for black families is $12,000, and for Hispanic families it is just under $11,000.

Behind this growth is a huge increase in the use of stock trading apps like Robinhood and Webull. Downloads in the last year are up 157% and 371% respectively. For all their faults in enabling speculation, these apps also seem to be opening up opportunity. The minimum investment in Vanguard’s S&P 500 index fund is $3,000, for example. This is far out of reach for many young people, particularly minorities. Meanwhile, Robinhood allows users to buy fractions of a share of stock for as little as $1. Webull has no minimum at all.

I’m happy to see more people get an opportunity to be a part of this amazing capitalist wealth creation system of ours. More people benefiting from our system helps preserve it. And more people getting rich makes me smile.

Have a great weekend everyone!

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In GameStop, An Unlikely Community

I spent some time browsing the GME sub* on Reddit yesterday, curious what some of the stock’s most fervent supporters are saying. What I found surprised me.

The most striking discussions were intensely personal. One poster described saving up his GameStop winnings for sex reassignment surgery, a lifelong dream (usernames redacted):

Other posters, who call themselves “apes” in a reference to the movie Planet of the Apes, were extraordinarily supportive. Some even expressed a determination to hold the stock to help the original poster, even though one person selling or holding won’t have a material impact on the price. There were a few salty words for hedge funder Ken Griffin though:

It struck me that, in a time when people are forced to be apart, humans have managed to create community in the most unlikely of places. It says something about the human spirit than even in a disembodied online world, where the topic is an intangible financial instrument, brotherhood (and sisterhood) flourishes. I find it rather beautiful.

That said, I encourage the posters to simply support each other as people, rather than tying that to a stock. Take it from a professional investor: a stock doesn’t know you own it and doesn’t care about you. It’s a legal construct that gives you ownership rights in a company. And truth be told, it’s a shaky business. I’d hate to see such nice people get hurt.

For more on GameStop and the Reddit trade, check out these posts:

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*A sub, or subreddit, is a thematic category on the discussion website Reddit

Photo: “Gorilla ‘Kibo'” by to.wi is licensed under CC BY-NC-SA 2.0

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

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:

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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.

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

Palantir Stung By Slow Government Contracting Business

Palantir Technologies’ business is largely driven by government contracts. So far in 2021, despite a new Department of Energy contract, the overall picture is not looking good:

The Department of Energy win could potentially add $18 million in incremental revenue per year, but Mielczarek says that, otherwise, the investment firm’s Dotted Line tracker shows that Palantir “had a fairly quiet first quarter for government bookings.”

Besides an early January $8.5 million Army TITAN prototype award, there were no other government contract wins in the quarter.

Palantir’s business is largely driven by government contracts, and so far in 2021, it’s not looking good

This stock trades at a rich multiple, so it needs rapid growth to justify that. The numbers aren’t much better on the commercial side of the business:

“Palantir’s commercial sales increased by 4% in the December quarter,” Mielczarek noted. “The new sales strategy is showing potential, but we believe that it is too early to bet on.”

Add that to the fact that 20% of their commercial business is a single customer, and this looks like an overvalued, moderate growth company with some serious embedded risks. I’ll be avoiding 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

AMC Shareholders Could Lose Most of Their Ownership. Again.

CEO Adam Aron told FOX Business Network’s “The Claman Countdown” Monday that the company has asked its shareholders to approve up to 500 million shares, even though there is no intention of using them all at this time.

Aron insists he doesn’t plan to issue them all at once:

And we’ve asked our shareholders to approve up to another 500 million shares, not that we would use any amount like that any time soon. But we’re going to make sure – AMC was a very successful company for 100 years – we’re going to make sure that AMC theaters is around and is a very successful company for the next 100 years …

More here.

The thing is, AMC has only 450 million shares outstanding. This would more than double their share count, meaning every existing shareholder loses most of their ownership stake in the company. Perhaps they don’t intend to issue them all at once, but something tells me they won’t be issued over 100 years either. If you only intend to sell a few in the near term, why not authorize just that, rather than a wholesale dilution of the existing shareholders?

This comes on top of a massive dilution last year. AMC had about 100 million shares in the fall of 2020. They’re now at 450 million. And they could go to a billion at any time if this proposal goes through.

That would mean anyone who’d owned shares as of fall 2020 would’ve lost 90% of their ownership stake in the company. Granted, it’s a stronger company with the additional capital, but this level of dilution is rare.

How is the stock reacting to all this? Just fine, thank you. In fact, it’s gone up approximately 5 fold since the end of 2020, despite 80% dilution, which is headed to 90% if these additional shares are issued.

This defies all logic. I suspect the retail investors piling into AMC don’t know about the dilution or don’t know what dilution is.

As much as one would like to pull for a classic American institution like AMC, I suggest doing so by attending a movie, not buying what’s left of the stock.

For more on AMC and Wallstreetbets, check out these posts:

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Photo: “AMC Theaters” by JeepersMedia is licensed under CC BY 2.0

GameStop Plans to Dilute Shareholders, Issue Hundreds of Millions in New Stock

Well, it’s here:

GameStop Corp. GME -3.90% said it could raise hundreds of millions of dollars from stock sales in the coming months, as the videogame retailer turns to public markets to help support its turnaround plan.

The company said Monday that it would sell up to 3.5 million shares, adding that the timing and amount of any stock sale would involve various factors.

Plans for issuing more shares were in their most recent annual report, as I called out here on March 25th.

3.5 million shares would be about 5% of the current shares outstanding. With GameStop’s share price still 60x above where it was a year ago, I would expect further capital raises. If they can use the money wisely to fund a turnaround to e-commerce, this could wind up being a positive for shareholders in the long term, but in the short term any dilution is likely to hit the stock’s price.

GameStop has failed at turnarounds before, and I’m skeptical they can do it right this time. If not, shareholders are left with diluted shares in a company that’s hit a dead end.

For more on GameStop, check out these posts:

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

Palantir’s CEO Is Spending Time Critizing Wall Street, Rather Than Making Money

Palantir Technologies, Inc. CEO Alex Karp had some sharp words for Wall Street recently:

“We told the Wall Streeters that we will focus on building the long-term health of our company, that we are going to invest in our product development and in our clients, and you just have to battle it out with them,” said Karp, also a Palantir co-founder. The developer of data analysis software went public via a direct listing in September after nearly two decades as a private company.

Not everyone on Wall Street has such a short-term focus, Karp acknowledged. Nevertheless, he said it remains “one of the most destructive, corrosive attributes of an otherwise interesting and largely functioning system.”

Is 18 years short term? That’s how long Palantir has been in business, and it’s never made a profit. Google and Amazon built businesses for the long term as well, but they reached profitability far sooner. Amazon took seven years and Google took just three.

I suggest that Karp stop wasting time criticizing Wall Street and start focusing on making his company spit out some cash for shareholders.

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

Are GameStop Shareholders About to Be Diluted to Oblivion?

It’s no secret that GameStop shares are way up this year, despite recent struggles:

This could be an opportune time for the company to sell more shares to fund its transformation from a brick-and-mortar to a digital business. Indeed, the company hints at this in their latest annual report, just released after Tuesday’s market close:

Since January 2021, we have been evaluating whether to increase the size of the ATM Program and whether to potentially sell shares of our Class A Common Stock under the increased ATM Program during the course of fiscal 2021, primarily to fund the acceleration of our future transformation initiatives and general working capital needs. The timing and amount of sales under the ATM Program would depend on, among other factors, our capital needs and alternative sources and costs of capital available to us, market perceptions about us, and the then current trading price of our Class A Common Stock.

When a company issues more shares, that means each existing share is less valuable because it represents a smaller slice of the company. You’re slicing the pizza into thinner slices, so to speak.

To get an idea of what such a dilution could mean, consider AMC Entertainment Holdings, Inc., another darling of the Reddit crowd that has experienced a huge run up in price this year. They sold so much stock that each share only owned 20% as much of the company as before! That’s an enormous haircut for investors.

GameStop has just $635 million in cash on hand. That’s enough to avoid bankruptcy for the forseeable future, but is it enough to fund a transformation into the Chewy of video games, outcompeting the likes of Amazon and Microsoft? I doubt it. So they could go for a huge capital raise, severely diluting shareholders.

The flip side of this is if they raise a lot of money and successfully transform the business, you may not care. You own a smaller slice of the company, but the company is worth more.

However, if the transformation fails, you’re left with less ownership in a company that’s still struggling. GameStop has the drag of 5,000 money losing stores. And in a video game sales market that’s increasingly digital, with giant competitors with way more tech expertise and capital, I think dilution and a failed transformation is the more likely scenario.

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