What a wild world we are living in. If you had $600 billion dollars would you rather take the red pill and buy all of Berkshire Hathaway (~$537B) with all its business and its investment holdings including $115B of Apple stock… and then throw in General Motors (~$63B) as a little side bet or would you rather take the blue pill and outright own Tesla (market cap ~$600B)?
We’re red pill takers here at CVI, but maybe… stonks really do only go up.
The hero of our times - (Unaffiliated, available at www.teeherivar.com )
Today here at CVI we just want to take a moment to acknowledge the strange times we are living in. There is great chart in the Economist from back in September (full article here - https://www.economist.com/finance-and-economics/2020/09/12/beware-the-power-of-retail-investors ) showing the growth in the use of call options by retail investors. It’s a lot. “The total nominal value of calls traded on individual American stocks hit a record high in the last two weeks of August, averaging $335bn a day, according to Goldman Sachs—the first time the average daily volume of traded stock options has exceeded trading volume for the shares themselves. The volume of calls was more than triple the rolling average between 2017 and 2019.”
“Stonks only go up.”
This brought to mind one of my favorite books, Reminiscences of a Stock Operator. It is a first person fictional story of a stock trader Jesse Livermore in the 1890s-1920s. The first part of the book covers his escapades at bucket shops, which were effectively places where you gambled on stocks and commodities. Leverage was as high as 100x every dollar you put down and you didn’t even actually own the securities. No fundamental analysis or tax filings required! Just tea leaves and a bit of luck.
History does not repeat itself, but it rhymes. Now today you cannot actually buy a stock on 99% margin due to various pesky securities laws in most if not all jurisdictions. But you can buy options and it is easier than ever. The internet and process automation has brought about a wonderful world of extremely low trading costs and at lightning speed. No longer do you have to call a high-priced trader to place a bet for you. This is unless, of course, you are doing arcane small cap wind up trades like we do here sometimes to our brokers annoyance. But anyway, add on COVID-19 and now you have a lot of people at home, bored, probably a little down, maybe even unemployed and a bit desperate. Why bother with the casino that’s closed anyway or sports betting. I mean who watches the Game without a crowd? Why not just buy some TSLA calls and be entertained from 9:30-4 until expiry?
This new world of cheap options trading and social media has led to what might be Peak Shenanigans – r/wallstreetbets. It is the land of people investing “for the tendies” and lots of wild stories like this daytrader turning $460 into $1 million – a 221,000% return for those doing the math - through a few Tesla options. Post here - https://www.reddit.com/r/wallstreetbets/comments/k8n3io/1m_from_460_video_so_the_haters_among_you_dont/
Us value investors are staying grounded here at CVI, or at least trying to, and we hope you do to. But maybe the world really is different this time.
I got to keep moving, never gonna slow down
You can have your funky world, see you 'round
I got to ramble
Yeah, I got to gamble
-Bob Segar
