Mental Models Podcast It's not a brain in a jar, that's the gist!
Dr. Daniel Krawczyk & George Baxter, JD, CFA
72 episodes
10 months ago
GameStop $GME shops mainly sold physical video games. They would also stock many resale items. The physical locations capitalized on the same type of business that comic book shops often had by selling collectibles as well. Many projected that Game Stop had a very limited future and had been cut out of the supply chain as many electronic games are simply sold online in recent years.
Hedge funds had high interest in shorting GameStop at the end of 2020. In January 2021 a long position idea existed with the idea that a pivot to in-person gaming meetings could be a way forward. Michael Burry was featured in the Big Short and he had advocated for a potential bright future for GameStop lending credibility to the value position. Melvin Capital was known for this, and was pretty aggressive in advocating for the short position.
“Deep F…ing Value” (aka “Roaring Kitty”) entered the scene with the WallStreetBets crowd and advocated for buying GameStop and driving up the price. Around GameStop there was herd mentality forming and a desire to squeeze the hedge funds. It was equivalent to an ‘occupy Wall Street movement’. Everyone online had to going to buy Game Stop stock and not sell it for the short squeeze to work. These are known as “diamond hands”, which also happens with cryptocurrency. It became the ‘Prisoners Dillema’, a trust game, where everyone has to stay the course and not sell. A religious fervor built up as online investors from Robinhood wished to take down hedge funds that were seen as greedy.
We discuss the typical scenario around short selling and short squeezes. There is some value for markets to have short sellers as they act as a shock absorber. Contrarian short sellers are naturally unpopular due to the historical interest in companies continuing to succeed. A set of factors aligned in 2021: the bull case for the stock, an online sentiment to stick it to short sellers, and the natural appeal of using Robinhood to become wealthy from the comfort of one’s own home. Meteoric rises in the price continued until it had reached three hundred dollars per share. This scenario may serve as a sign that retain online investors are coming online. It’s a case where people with limited investing skills scored a victory in this risky scenario.
Some people may have participated simply to experience the thrill of being part of this movement as entertainment for some people. It is not healthy for society overall to have people treating the stock market like a casino. It had a sports betting feel to it.
AMC theaters was on the way to bankruptcy, but took advantage of a price rise to raise capital to help their business. GameStop might have done this same thing. Financial markets serve a purpose and this type of scenario goes against the natural functionality of markets. The risk levels always rise with betting on perception this way.
Perhaps GameStop will act as a gateway stock for people to begin investing careers.
$AMC
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GameStop $GME shops mainly sold physical video games. They would also stock many resale items. The physical locations capitalized on the same type of business that comic book shops often had by selling collectibles as well. Many projected that Game Stop had a very limited future and had been cut out of the supply chain as many electronic games are simply sold online in recent years.
Hedge funds had high interest in shorting GameStop at the end of 2020. In January 2021 a long position idea existed with the idea that a pivot to in-person gaming meetings could be a way forward. Michael Burry was featured in the Big Short and he had advocated for a potential bright future for GameStop lending credibility to the value position. Melvin Capital was known for this, and was pretty aggressive in advocating for the short position.
“Deep F…ing Value” (aka “Roaring Kitty”) entered the scene with the WallStreetBets crowd and advocated for buying GameStop and driving up the price. Around GameStop there was herd mentality forming and a desire to squeeze the hedge funds. It was equivalent to an ‘occupy Wall Street movement’. Everyone online had to going to buy Game Stop stock and not sell it for the short squeeze to work. These are known as “diamond hands”, which also happens with cryptocurrency. It became the ‘Prisoners Dillema’, a trust game, where everyone has to stay the course and not sell. A religious fervor built up as online investors from Robinhood wished to take down hedge funds that were seen as greedy.
We discuss the typical scenario around short selling and short squeezes. There is some value for markets to have short sellers as they act as a shock absorber. Contrarian short sellers are naturally unpopular due to the historical interest in companies continuing to succeed. A set of factors aligned in 2021: the bull case for the stock, an online sentiment to stick it to short sellers, and the natural appeal of using Robinhood to become wealthy from the comfort of one’s own home. Meteoric rises in the price continued until it had reached three hundred dollars per share. This scenario may serve as a sign that retain online investors are coming online. It’s a case where people with limited investing skills scored a victory in this risky scenario.
Some people may have participated simply to experience the thrill of being part of this movement as entertainment for some people. It is not healthy for society overall to have people treating the stock market like a casino. It had a sports betting feel to it.
AMC theaters was on the way to bankruptcy, but took advantage of a price rise to raise capital to help their business. GameStop might have done this same thing. Financial markets serve a purpose and this type of scenario goes against the natural functionality of markets. The risk levels always rise with betting on perception this way.
Perhaps GameStop will act as a gateway stock for people to begin investing careers.
$AMC
Mental Models: Lessons for finance, economy, & human behavior. Book review of “Sapiens”: #69
Mental Models Podcast It's not a brain in a jar, that's the gist!
32 minutes 29 seconds
4 years ago
Mental Models: Lessons for finance, economy, & human behavior. Book review of “Sapiens”: #69
Brain and Investing lessons that we took from the book Sapiens by Yuval Noah Harari (2017). An excellent read covering many surprising insights about human behavior from individuals to global institutions.
From a scientific standpoint this book highlights the unique cognitive capacity of Homo sapiens. We can imagine theoretical constructs that cannot actually exist. This tendency gave rise to our ability to create other fictions that we live by. These include monetary systems, corporations, and law structures. Group behavior and trust underlie many phenomena that we take for granted in our lives.
The book discusses the development of money, a powerful fictional construct that works because we all believe in the fiction and agree upon its value. Money can be viewed as a contract that enables us to transact on the fly. For more depth on this topic, please listen to Episode #2 of this podcast “Value drives our lives”
Another remarkably important development the book covers is the willingness of people to admit that they do not know something. Professing uncertainty serves as a driver for human progress. Admitting ignorance gives us a reason to explore the world and run experiments so that we find better answers. Our quest for learning enables us to fill in the blindspots that exist within our mental models of the world.
Another fascinating feature of our lives is that we now imagine a better future filled with dramatic progress. This is a new phenomena relative to many prior civilizations that did not have reasons for optimism, since they were much more subject to disease, lack of progress, and stagnation. Trust leads to cooperation which leads to growth. This leads to greater optimism and even more trust, which can transform a society for the better.
Chapter 16, The Capitalist Creed is likely the most interesting chapter for our audience. The insight that trust underlies credit is fundamental to progress. With credit, growth is possible in a nearly magical way. Paying back loans led to further extension of investment and this drove history forward, rather than the dictator model where a monarch determines that land should be acquired by conquest.
History is not predetermined. Rather, it is a dynamic series of complex interactions that can take unexpected turns and is often only predictable in retrospect. Please see our previous episode #13 on the Hindsight Bias if you find this topic compelling and want to hear more.
A final interesting point about human progress is asking the question “are we happier?” after all of the progress that we have made. This remains open for debate and may inspire new research aimed at addressing our core needs as our lives become further enmeshed within technology and widespread information availability. We end by touching upon the intriguing topic of “brain hacking”.
Links: Sapiens by Yuval Noah Harari (2017)
Read more on Amazon https://www.amazon.com/Sapiens-Humankind-Yuval-Noah-Harari-ebook/dp/B00ICN066A/ref=as_li_ss_tl?pf_rd_m=ATVPDKIKX0DER&pf_rd_p=fcaa6d12-8b2b-4ad7-b277-864b2da79f6e&pf_rd_r=6FFDPEP8Z6AEX1RBSPTF&pd_rd_wg=Rl5OI&pf_rd_s=desktop-dp-sims&pf_rd_t=40701&pd_rd_w=T017i&pf_rd_i=desktop-dp-sims&pd_rd_r=3fdfa333-966e-11e8-a126-fd3c94bb211d&pd_rd_i=B00ICN066A&psc=1&refRID=6FFDPEP8Z6AEX1RBSPTF&linkCode=ll1&tag=natsite-20&linkId=42ececba032ff9e0d90705e1943bacac&language=en_US
Mental Models Podcast It's not a brain in a jar, that's the gist!
GameStop $GME shops mainly sold physical video games. They would also stock many resale items. The physical locations capitalized on the same type of business that comic book shops often had by selling collectibles as well. Many projected that Game Stop had a very limited future and had been cut out of the supply chain as many electronic games are simply sold online in recent years.
Hedge funds had high interest in shorting GameStop at the end of 2020. In January 2021 a long position idea existed with the idea that a pivot to in-person gaming meetings could be a way forward. Michael Burry was featured in the Big Short and he had advocated for a potential bright future for GameStop lending credibility to the value position. Melvin Capital was known for this, and was pretty aggressive in advocating for the short position.
“Deep F…ing Value” (aka “Roaring Kitty”) entered the scene with the WallStreetBets crowd and advocated for buying GameStop and driving up the price. Around GameStop there was herd mentality forming and a desire to squeeze the hedge funds. It was equivalent to an ‘occupy Wall Street movement’. Everyone online had to going to buy Game Stop stock and not sell it for the short squeeze to work. These are known as “diamond hands”, which also happens with cryptocurrency. It became the ‘Prisoners Dillema’, a trust game, where everyone has to stay the course and not sell. A religious fervor built up as online investors from Robinhood wished to take down hedge funds that were seen as greedy.
We discuss the typical scenario around short selling and short squeezes. There is some value for markets to have short sellers as they act as a shock absorber. Contrarian short sellers are naturally unpopular due to the historical interest in companies continuing to succeed. A set of factors aligned in 2021: the bull case for the stock, an online sentiment to stick it to short sellers, and the natural appeal of using Robinhood to become wealthy from the comfort of one’s own home. Meteoric rises in the price continued until it had reached three hundred dollars per share. This scenario may serve as a sign that retain online investors are coming online. It’s a case where people with limited investing skills scored a victory in this risky scenario.
Some people may have participated simply to experience the thrill of being part of this movement as entertainment for some people. It is not healthy for society overall to have people treating the stock market like a casino. It had a sports betting feel to it.
AMC theaters was on the way to bankruptcy, but took advantage of a price rise to raise capital to help their business. GameStop might have done this same thing. Financial markets serve a purpose and this type of scenario goes against the natural functionality of markets. The risk levels always rise with betting on perception this way.
Perhaps GameStop will act as a gateway stock for people to begin investing careers.
$AMC
