Tag Archives: Personal finance

Should Anyone Own Bonds?

I used to love bonds. Especially government bonds. Guaranteed income, easy liquidity, and stability in a crisis.

What’s not to like?

But my old flame hasn’t done much for me lately. And I’m not the only one.

The Problem

Bonds have hovered at or below the rate of inflation since 2009:

Just barely keeping up with inflation might be enough, given that I have much riskier positions in stocks, real estate, and tech startups.

But if an investment pays a yield below the rate of inflation, you’re essentially paying someone to hold onto your money. Instead of getting even a modest return, you lose a little of your cash every year, like clockwork.

Today, I own long term treasury bonds and medium term treasury and mortgage bonds. The long term bonds pay 1.73%, and come with a big risk of decline when interest rates increase. Which they’re just about bound to do, given that that they’re are sitting near 0.

The shorter duration bonds pay even less: 1.28%.

What Kind of Return Do We Need to Keep Up With Inflation?

Recent inflation numbers have been scary: over 5% a year. But, if we look at the longer run averages, the picture brightens a little.

Over the last 20 years, inflation has averaged 2.16%. Over the last 10 years, the figure is 1.89%.

I don’t know how long the sudden higher inflation of the last couple of months will last. But it appears that a floor for a return that will keep up for inflation is no less than 2%.

Where Can We Get Our 2%?

The attractive features of government bonds are liquidity, stability, and a modest income. Let’s review a few alternatives, with that in mind:

1) Corporate bonds. Returns aren’t much better than government bonds, at around 1.7%.

2) Fundrise. Love it, but not a good substitute for bonds. Real estate development just isn’t as stable. It’s not very liquid either. However, returns are good. I’ve notched around 7% since I started investing.

3) Single Premium Immediate Annuities. A rather exotic choice. Rates can be good at around 3.5% in some cases. And the income is guaranteed. But they’re not very liquid: there’s a 10% IRS penalty for withdrawal before age 59.5. But if you’re older, they could work well.

4) Dividend Aristocrats. These aren’t just any high dividend stocks. These have a history of paying higher dividends every year for at least 25 years. That’s a surer bet than many stocks with even higher dividends, because those huge payouts may not last.

The yield on some of these large, stable companies is impressive:

ExxonMobil: 6.5%

Chevron: 5.5%

IBM: 4.8%

Consolidated Edison: 4.2%

Of course, the stock prices could go down.

But if you’re buying for income, and the company is large and stable and has increased its dividend of decades on end, you don’t care. You just collect your check and head to the golf course.

What’s more, you can buy a basket of these stocks, rather than just one, insulating yourself from the chance that one of them cuts its dividend.

Wrap Up

Dividend Aristocrats seem like one of the best options to replace the income bonds no longer offer. They are also less likely to fall with higher interest rates.

What do you think the best option is? Leave a comment at the very bottom of the page and let me know! I just might use your idea. 🙂

More on investing:

What Does the Pandemic Mean for Real Estate Investments?

Why I Just Invested in EyeRate, the Best Online Review Tool

What I Learned From an Investor Who Turned $100,000 into $100,000,000

Photo: “Governor Jerome Powell speaks at Brookings panel, ‘Are there structural issues in U.S. bond markets?'” by BrookingsInst is licensed under CC BY-NC-ND 2.0

If you found this post interesting, please share it on Twitter/Reddit/etc. using the buttons at the bottom of the page. This helps more people find the blog! 

Save Money on Stuff I Use:

Amazon Business American Express Card

You already shop on Amazon. Why not save $100?

If you’re approved for this card, you get a $100 Amazon gift card. You also get up to 5% back on Amazon and Whole Foods purchases, 2% on restaurants/gas stations/cell phone bills, and 1% everywhere else.

Best of all: No fee!

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account.

iHerb

The only place I buy vitamins and supplements. I recently placed an order and received it in less than 48 hours with free shipping! I compared the prices and they were lower than Amazon. I also love how they test a lot of the vitamins so that you know you’re getting what the label says. This isn’t always the case with supplements.

Use this link to save 5%! 

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. 

AMC Fails to Deliver Up 1088% in Latest Data

Major new data just came out today from the SEC. It shows fails to deliver in AMC Entertainment Holdings, Inc. up 1088% in the first half of August:

These fails to deliver sometimes happen for benign reasons. But when massive fails to deliver occur in a stock over a sustained period, it’s often a sign of naked short selling.

Naked short selling is the illegal practice of intentionally selling shares short (betting against them) without ever borrowing the shares as required. This is a powerful tool to distort markets. Since you never have to actually obtain any shares, you can sell as much as you want, pushing down the price.

The fails to deliver in AMC are truly enormous. And after falling significantly last month, they’re back with a vengeance. As of August 13, the last day in the series, AMC’s fails to deliver were 157 times larger than Apple’s. Apple is the largest stock in the market, at 113 times AMC’s market cap.

How could there be so much questionable activity in such a small stock? I strongly suspect illegal trading, likely on the part of hedge funds.

Maybe they’re trying to make back some of their losses.

More on AMC:

AMC #3 on Robinhood for September, Behind Only Apple & Tesla

For Retail Traders, AMC Has Become the Only Meme Stock

Short Sellers Lost $1 Billion Yesterday in AMC and GameStop

If you found this post interesting, please share it on Twitter/Reddit/etc. using the buttons at the bottom of the page. This helps more people find the blog! 

Save Money on Stuff I Use:

Amazon Business American Express Card

You already shop on Amazon. Why not save $100?

If you’re approved for this card, you get a $100 Amazon gift card. You also get up to 5% back on Amazon and Whole Foods purchases, 2% on restaurants/gas stations/cell phone bills, and 1% everywhere else.

Best of all: No fee!

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account.

iHerb

The only place I buy vitamins and supplements. I recently placed an order and received it in less than 48 hours with free shipping! I compared the prices and they were lower than Amazon. I also love how they test a lot of the vitamins so that you know you’re getting what the label says. This isn’t always the case with supplements.

Use this link to save 5%! 

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. 

AMC #3 on Robinhood for September, Behind Only Apple & Tesla

The seasons are changing but one thing is not: the incredible popularity of AMC Entertainment Holdings, Inc. among retail investors.

Robinhood lists AMC at #3 on its leaderboard for September, behind only Apple and Tesla:

Apple is the largest stock in the entire market, with a market cap of $2.6 trillion. That’s 113 times larger than AMC. Tesla is 32 times larger.

AMC is more popular than massive companies like Amazon, Microsoft, or Walt Disney. It’s also significantly hotter than Robinhood Markets itself, at #12.

Even more incredible is that AMC has held the #3 position for six months straight. AMC also holds the #3 spot on Fidelity.

My understanding is that the Robinhood leaderboard reflects how many users own a particular stock, not the total amount held. So the amount of money in Apple, Tesla, or Amazon held by Robinhood accounts could be much greater than the amount in AMC, given those companies’ massive size.

Nonetheless, when a $23 billion business is more widely held than some of the most powerful companies on earth, I stand up and take notice.

More on AMC:

Charting The Huge Drop in AMC Fails to Deliver

For Retail Traders, AMC Has Become the Only Meme Stock

Short Sellers Lost $1 Billion Yesterday in AMC and GameStop

If you found this post interesting, please share it on Twitter/Reddit/etc. using the buttons at the bottom of the page. This helps more people find the blog! 

Photo: “Robin Hood sai à noite” by freddie boy is licensed under CC BY-SA 2.0

Save Money on Stuff I Use:

Amazon Business American Express Card

You already shop on Amazon. Why not save $100?

If you’re approved for this card, you get a $100 Amazon gift card. You also get up to 5% back on Amazon and Whole Foods purchases, 2% on restaurants/gas stations/cell phone bills, and 1% everywhere else.

Best of all: No fee!

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account.

iHerb

The only place I buy vitamins and supplements. I recently placed an order and received it in less than 48 hours with free shipping! I compared the prices and they were lower than Amazon. I also love how they test a lot of the vitamins so that you know you’re getting what the label says. This isn’t always the case with supplements.

Use this link to save 5%! 

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. 

Short Sellers Lost $1 Billion Yesterday in AMC and GameStop

Short sellers have been fighting retail traders all year. Yesterday, they took a major hit:

“Heavily shorted stocks have, for the last month, been less volatile than earlier this year. Today we saw an end to this,” said Ortex co-founder Peter Hillerberg.

The share price gains in AMC and GameStop generated losses for close to $1 billion for short sellers, Hillerberg said.

AMC Entertainment Holdings, Inc. was the most active stock in the entire options market. This is remarkable for a company whose market cap is only $23 billion. Apple, the biggest stock in the market, is over 100 times as large.

The options activity in both AMC and GameStop Corp. was strongly bullish, with call options (the right to purchase shares in the future) going like hotcakes.

No obvious news propelled these stocks upward. Yet hedge funds maintain their risky short positions.

This means using investors’ money to bet against stocks that gyrate wildly at the whims of retail traders. I find that to be irresponsible.

But, to quote one of my favorite movies:

Well, it could’ve been worse, right? Could’ve been my money.

Marv, Wall Street

More on AMC and meme stocks:

CHARTING THE HUGE DROP IN AMC FAILS TO DELIVER

HEDGE FUNDS HIT HARD BY MEME STOCK LOSSES, BADLY BEHIND S&P 500

HEDGE FUNDS GET SPECIAL TREATMENT DURING MARGIN CALLS

Photo: “Fitness” by Walimai.photo is licensed under CC BY-NC-ND 2.0

If you found this post interesting, please share it on Twitter/Reddit/etc. using the buttons at the bottom of the page. This helps more people find the blog! 

Save Money on Stuff I Use:

Amazon Business American Express Card

You already shop on Amazon. Why not save $100?

If you’re approved for this card, you get a $100 Amazon gift card. You also get up to 5% back on Amazon and Whole Foods purchases, 2% on restaurants/gas stations/cell phone bills, and 1% everywhere else.

Best of all: No fee!

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account.

iHerb

The only place I buy vitamins and supplements. I recently placed an order and received it in less than 48 hours with free shipping! I compared the prices and they were lower than Amazon. I also love how they test a lot of the vitamins so that you know you’re getting what the label says. This isn’t always the case with supplements.

Use this link to save 5%! 

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. 

Charting The Huge Drop in AMC Fails to Deliver

There appears to be some fishy activity going on in shares of AMC Entertainment Holdings, Inc. The stock has long had huge “fails to deliver,” or trades that aren’t completed.

This can be a sign of illegal naked short selling, which is selling shares short without borrowing them first. Naked short selling is a sophisticated and powerful tactic that can drive share prices down, fast.

Last week, we talked about the huge drop in fails to deliver that occurred in the most recent SEC data, from the second half of July. Today, I decided to chart all AMC’s fails to deliver for July (above.)

As you can see, the number was staggering at the beginning of the month. As of July 1st, little AMC had fails to deliver 35,000 times as large as Amazon, one of the biggest companies on earth.

Exchanges whittled that number down substantially over the course of the month. (Note that the figure is cumulative, rather than just reflecting fails to deliver that occurred that day.)

Perhaps moves by the SEC, New York Stock Exchange (NYSE), National Securities Clearing Corporation (NSCC), and others to clean up the failed trades had an effect.

AMC still has massive fails to deliver for a stock its size. It ended the month with 160,233 fails to deliver, still 239 times the end-of-month figure for Amazon and 351 times Apple’s.

Regulators have made progress, but there’s a lot further to go.

More on AMC:

NEW DATA SHOWS BIG DROP IN AMC FAILS TO DELIVER

AMC HAS 35,000 TIMES THE FAILS-TO-DELIVER OF AMAZON

HEDGE FUNDS HIT HARD BY MEME STOCK LOSSES, BADLY BEHIND S&P 500

If you found this post interesting, please share it on Twitter/Reddit/etc. using the buttons at the bottom of the page. This helps more people find the blog! 

Save Money on Stuff I Use:

Amazon Business American Express Card

You already shop on Amazon. Why not save $100?

If you’re approved for this card, you get a $100 Amazon gift card. You also get up to 5% back on Amazon and Whole Foods purchases, 2% on restaurants/gas stations/cell phone bills, and 1% everywhere else.

Best of all: No fee!

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account.

iHerb

The only place I buy vitamins and supplements. I recently placed an order and received it in less than 48 hours with free shipping! I compared the prices and they were lower than Amazon. I also love how they test a lot of the vitamins so that you know you’re getting what the label says. This isn’t always the case with supplements.

Use this link to save 5%! 

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. 

New Data Shows Big Drop in AMC Fails to Deliver

The Securities and Exchange Commission (SEC) has just released new fails to deliver data for the second half of July. It shows that fails to deliver in shares of AMC Entertainment Holdings, Inc., dropped substantially in the last two weeks, but remain elevated.

In the first half of July, AMC had over 3.5 million fails to deliver. Here is the raw data from the SEC from July 1st. The fails to deliver are the number right before the company name:

20210701|00165C104|AMC|3519354|AMC ENTMT HLDGS INC CL A COM S|56.68

The most recent data, from July 30, show a significant decrease:

20210730|00165C104|AMC|160233|AMC ENTMT HLDGS INC CL A COM S|38.13

Let’s back up for a second: what are fails to deliver and why do they matter? Fails to deliver occur when a trade in a stock doesn’t clear properly. Sometimes the cause is benign, but AMC’s fails to deliver have been large and persistent.

Such a pattern is often associated with the illegal practice of naked short selling. Naked short selling involves selling shares without actually borrowing them first, pushing down the price artificially.

Perhaps recent moves by the SEC, New York Stock Exchange (NYSE), National Securities Clearing Corporation (NSCC), and others to reduce fails to deliver and prevent illegal trades are having an effect.

That said, AMC’s fails to deliver remain 238 times larger than those of Amazon (671 on July 29th, the most recent date available). Amazon has a market cap nearly 100 times AMC’s. AMC’s fails to deliver are 351 times the size of Apple’s (456 on July 30), the largest stock in the market.

Trading in AMC stock still looks fishy. Regulators may be making progress but there’s still a long way to go.

More on AMC:

AMC HAS 35,000 TIMES THE FAILS-TO-DELIVER OF AMAZON

AMC ON THE THRESHOLD LIST: STRONG EVIDENCE OF NAKED SHORT SELLING

HOW AMC CRAZY IS YOUR STATE?

If you found this post interesting, please share it on Twitter/Reddit/etc. using the buttons at the bottom of the page. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account. I will also get a fee waiver for 90-365 days, depending on what type of account you open.

iHerb

The only place I buy vitamins and supplements. I recently placed an order and received it in less than 48 hours with free shipping! I compared the prices and they were lower than Amazon. I also love how they test a lot of the vitamins so that you know you’re getting what the label says. This isn’t always the case with supplements.

Use this link to save 5%! I’ll also get 5% of however much you spend, at no cost to you.

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. I’ll also get $10.

How Short Sellers Could Evade the New NSCC Rules

The National Securities Clearing Corporation (NSCC), which handles a huge percentage of all stock trades, may soon increase capital requirements for firms 25-fold:

DESCRIPTION OF THE PROPOSED RULE CHANGE
Currently, NSCC requires each Member to maintain a minimum Required Fund Deposit amount of $10,000. NSCC proposes to increase each Member’s minimum Required Fund Deposit amount to $250,000.

This change could make it more difficult for hedge funds to engage in naked short selling, a generally illegal practice that allows them to drive down a company’s share price without ever actually having any shares. There is substantial evidence that such sales have artificially driven down the share price of AMC Entertainment Holdings, Inc. among others.

But there may be ways around this new rule, and I’m sure the hedge funds are scrutinizing them at this very moment. From law firm Norris Mclaughlin:

After a period of consolidation from the 1980’s through 2010, seven SEC-registered clearing agencies remain, of which NSCC is both the oldest and the biggest.

One wonders, however, whether the size of the proposed increase will cause some, especially smaller, less active Members to leave the NSCC and seek other, alternative trading systems to close transactions.

So, the increase in required capital may not be big enough to dissuade the large firms from continuing to trade as they have. And smaller traders may leave to other, friendlier venues.

The SEC may need to make more comprehensive rules to stamp out illegal short sales. And as it happens, they’re looking for public comments on the rule now here.

Let the voice of the people be heard!

More on AMC:

AMC HAS 35,000 TIMES THE FAILS-TO-DELIVER OF AMAZON

AMC ON THE THRESHOLD LIST: STRONG EVIDENCE OF NAKED SHORT SELLING

EXPLOSIVE CLAIMS IN LAWSUIT AGAINST ROBINHOOD

Photo: “Thief” by elizaIO is licensed under CC BY-SA 2.0

If you found this post interesting, please share it on Twitter/Reddit/etc. using the buttons at the bottom of the page. This helps more people find the blog! And please leave your comments at the bottom.

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account. I will also get a fee waiver for 90-365 days, depending on what type of account you open.

iHerb

The only place I buy vitamins and supplements. I recently placed an order and received it in less than 48 hours with free shipping! I compared the prices and they were lower than Amazon. I also love how they test a lot of the vitamins so that you know you’re getting what the label says. This isn’t always the case with supplements.

Use this link to save 5%! I’ll also get 5% of however much you spend, at no cost to you.

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. I’ll also get $10.

Why Jim Chanos Is Dead Wrong About AMC Holders

Jim Chanos, Founder and President of the Kynikos Associates hedge fund, has some harsh criticism for holders of AMC and other meme stocks:

What I see on Reddit, Twitter and elsewhere is the exact opposite. The communities have a strong determination to hold and often find the position deeply personal. One very popular Reddit post I saw said that hedge funds killed her father, in that her father fell into despair and substance abuse after the financial crisis, which hedge funds had a hand in:

For many AMC holders, it’s personal. And I don’t doubt the same is true for holders of other meme stocks.

Do they also want to make money? Sure. And I’m also pretty sure that Chanos didn’t start his hedge fund in order to save starving kittens.

In fact, this personalization of the position could be a liability for meme stock holders. As someone who invests for a living, I urge all investors to view an investment as an investment only. It helps you make clearer decisions.

In the future, I suggest listening to this song when you read Chanos’ tweets:

More on AMC:

AMC HAS 35,000 TIMES THE FAILS-TO-DELIVER OF AMAZON

SQUEEZES IN AMC AND OTHERS ARE KILLING OFF SHORT SELLERS

EXPLOSIVE CLAIMS IN LAWSUIT AGAINST ROBINHOOD

Photo: “Notorious BIG by Marv Castillo” by 5AENZ2NEXWNYZRR22ACALR5SWN is licensed under CC BY-NC-SA 2.0

If you found this post interesting, please share it on Twitter/Reddit/etc. using the buttons at the bottom of the page. This helps more people find the blog! And please leave your comments at the bottom.

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account. I will also get a fee waiver for 90-365 days, depending on what type of account you open.

iHerb

The only place I buy vitamins and supplements. I recently placed an order and received it in less than 48 hours with free shipping! I compared the prices and they were lower than Amazon. I also love how they test a lot of the vitamins so that you know you’re getting what the label says. This isn’t always the case with supplements.

Use this link to save 5%! I’ll also get 5% of however much you spend, at no cost to you.

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. I’ll also get $10.

Hedge Fund Losses Could Take Decades to Recover

Melvin Capital, among other hedge funds, has taken severe losses on bad bets in AMC, GameStop and others. They are now down by almost half:

Melvin Capital Management, which lost more than $6 billion in January, is now down 46% for the year through June, the fund recently told investors. Maplelane Capital is down 39% for the period.

Until Melvin recovers all of those losses, it will not earn any performance fees. This juicy 20% fee is what induces traders to set up hedge funds in the first place.

The average long/short equity hedge fund, the class Melvin belongs to, has returned just 3% annually over the last decade. At that rate, it would take Melvin 21 years to recoup its losses.

Here’s what could come next:

  • Manager Gabe Plotkin shuts the fund down, locking in investors’ losses. If he starts over with another fund, he can get performance fees right away.
  • Top traders leave the firm for other hedge funds that are earning performance fees, and hence can pay hefty bonuses. Only the B Team remains.
  • Melvin and similar funds make increasingly risky bets, desperate to quickly recover what they have lost, thereby losing even more. After all, 21 years is a long time to wait.

I think you will soon see more and more hedge funds either shutting down or getting desperate. If I were invested in any fund that saw big losses in meme stocks, I’d sell now before I lose it all.

More on AMC:

AMC SHORTS LOST $642 MILLION YESTERDAY

SHORT SELLERS LOSE $44 BILLION IN 30 DAYS

HEDGE FUNDS LOSE $12 BILLION ON AMC AND GAMESTOP

Photo: “Forever is Binding and Freeing” by Lomo-Cam is licensed under CC BY-NC-ND 2.0

If you found this post interesting, please share it on Twitter/Reddit/etc. using the buttons at the bottom of the page. This helps more people find the blog! And please leave your comments at the bottom.

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account. I will also get a fee waiver for 90-365 days, depending on what type of account you open.

iHerb

The only place I buy vitamins and supplements. I recently placed an order and received it in less than 48 hours with free shipping! I compared the prices and they were lower than Amazon. I also love how they test a lot of the vitamins so that you know you’re getting what the label says. This isn’t always the case with supplements.

Use this link to save 5%! I’ll also get 5% of however much you spend, at no cost to you.

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. I’ll also get $10.

Hedge Funds’ AMC Death Spiral

Despite losses of nearly $4 billion so far this year shorting stock in AMC Entertainment Holdings, Inc., short sellers are actually increasing their bets against the company:

As AMC tests its key 50-day moving average support level, short bets against the company are increasing, according to data from S3 partners. Over the past week, short bets increased 6% to 5 million shares, worth nearly $200 million.

When a stock is up 17-fold for the year despite a recent correction, and you’ve already taken billions in losses, why would you add to your position? I suspect that some hedge funds, who tend to be large short sellers in AMC, are swinging for the fences because they have little alternative. Many have already taken huge losses, and a few conservative bets won’t bring them back.

Keep in mind the incentive structure for hedge fund managers: they generally make 2% of all assets under management yearly, plus 20% of any gains. That 20% performance fee is what can really make them rich. But, if their fund is down, there’s no performance fee until they’re back in the black.

If only high risk bets can get you back to earning your fat performance fee, you make those bets. Slowly clawing back over a period of years with prudent trades means no performance fees for an extended period, and that’s not palatable to many fund managers. They’d sooner take high risks with their current fund and, if it fails, close it and start fresh with another.

Nice deal for them, not such a nice deal for the pension funds and universities whose money they hold.

If I held a position in any hedge fund that was betting against meme stocks, I’d liquidate it immediately before they lose more and suspend redemptions. The risk here is simply too high and too unpredictable.

There are easier ways to make a buck.

More on AMC:

SHORT SELLERS LOSE $44 BILLION IN 30 DAYS

HEDGE FUND TORCHED BY AMC

AMC + UFC = JACKPOT

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