I'm guessing Matt Levine had fun writing this one: [...] [...] [...] [...]
I'm guessing Matt Levine had fun writing this one:
But there is another theory. This theory is that the stock market is a fun casino, and you should buy stocks because they will go up and down in exciting fashion and might make you rich quick. This is a very old theory, and I suspect that for much of the history of financial markets it was considerably more popular and better supported than the discounted-present-value-of-cash-flows thing.
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“Buy stocks, it’s fun,” doesn’t tell you which stocks to buy, or how much to pay for them. Without a rigorous quantitative model of fun, this theory makes no useful predictions.
Still it is extremely popular, and we have talked about it a lot recently. I call it, or something like it, the “boredom markets hypothesis”: People got bored in their coronavirus-related lockdowns, and they couldn’t bet on sports because sports were canceled, so they turned to betting on stocks as a form of entertainment, not investment or financial analysis. The stock market is a casino that happens to still be open.
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Naturally if you are a smart boring finance-y person trying to make money, and you own those stocks, you should sell them to the fun people, because they will overpay you for them. You can sell a $100 cash flow for $200 because someone else likes a good story and a crazy gamble.
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Hertz filed for bankruptcy on May 22. It has about 142 million shares outstanding; at its $5.53 post-bankruptcy high, the total market value of its stock was about $785 million. “Hertz’s roughly $3 billion in corporate bonds were trading earlier this week at around 40 cents on the dollar,” suggesting that the value of Hertz’s stock is at best about negative $1.8 billion.
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They seem to be bidding up Hertz’s stock because it is fun, because it’s trending on Robinhood, because they are gamblers, not because they have a reasoned expectation of recovering anything for their shares in the bankruptcy. They are buying the stock from each other. This does not help Hertz. Hertz needs help. It is tasked with recovering as much money as possible for its creditors. If it could get on the other side of the whee-let’s-buy-Hertz-for-fun trade, that would help. On Monday, Hertz’s biggest post-bankruptcy day, some $2.4 billion worth of Hertz stock changed hands. Why shouldn’t Hertz try to take a piece of that for itself, or rather its creditors?
We may not be able to maintain a listing of our common stock on the NYSE, which could have a material adverse effect on the liquidity of our common stock.
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We are in the process of Chapter 11 reorganization cases under the Bankruptcy Code, which may cause our common stock to decrease in value, or may render our common stock worthless.
I'm guessing Matt Levine had fun writing this one:
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Looks like they are really doing it? They've filed with the SEC.
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