While in bankruptcy, some fools ran up the price of Hertz stock. Then, while the price was up in the middle of bankruptcy proceedings, Hertz sold some new shares to the same fools. The final result of the bankruptcy wiped out all of the shareholders.

While the buyers were obviously fools, Hertz should have known that zero shareholder value was a likely outcome. How was selling more stock in that situation legal? I see that the sale was quickly shut down... but it shouldn't have happened in the first place.

They asked the bankruptcy court, and the bankruptcy court's job is to maximize value for the bondholders. Turns out that selling worthless stock (for money) is really good for the bankruptcy proceedings (getting maybe 70% of the money back instead of 60%).

Then the SEC came in (whose job is to protect retail investors), and the SEC told them to knock-it-off.

Different jobs for different courts and bureaucracies. Ultimately, the SEC determined it was illegal for them to proceed. But I guess the SEC assumed the bankruptcy courts would do the right thing. When that clearly wasn't the case, the SEC stepped in (a bit late: after $29 million was raised. But better late than never)

But why not try? What if they sold so much stock that the bondholders could just be paid back? Why do the stock sale specifically planning for failure? Why include a limit that guarantees failure even if you would have otherwise succeeded?

Lets say a hypothetical company is overall $-4 Billion in debt (total assets - liabilities). You successfully raise $5 Billion from some means.

Now you're in a position where you sold $5 Billion worth of shares on a company that (by all fair evaluations) is only worth $1 Billion after the capital raise.

Further, in the case of a company doing what you describe, they would in fact be ensuring their current shareholders, pre-$5b stock sale, don't lose all of their money.

One common scenario for exiting chapter 11 is that you wipe out equity holders so that you can pay off your debts. (That's a major reason why stocks tend to get lower returns than bonds: less risk, less reward.) So, selling common stock like this in order to raise money is effectively robbing - or, more accurately, swindling - the poor to give to the rich, who tend to be the carriers of more senior debt. Which Hertz knew they were doing. Technically, they wrote, "We're selling you lots of $0 for the low low price of $2.50," in the prospectus, but they did that in the full knowledge that Robinhood users don't actually read prospectuses, and that Robinhood users were the only ones who would be buying these shares. So there's your deliberate deception.

The spot where they "buy some breathing room and recover" is the bit where you wipe out your equity holders in order to pay off your lenders as well as you can, restructure whatever remaining debt you have, and carry on. That's more-or-less what chapter 11 (as opposed to, say, chapter 7) is.

Even in bankruptcy, it is not uncommon for investors or banks to give the company bridge loans which the lenders knows full well might be lost if the restructuring doesn't work.

As for this case, it is not robbing shareholders. Chapter 11 is in not an automatic wipe out for shareholders, in fact you'll see other comments here about proposals for alternate plans for Hertz that would not wipe out shareholders. This is, if not common, certainly not unheard of: Restructuring a public corp and keeping it public post chapter 11 means it will still have stock on the market, and in some cases prior shareholders are able to exchanged their old shares for new ones.

It is also not robbing because even retail investors know full well what "bankruptcy" means and no reasonable person would buy this stock without realizing the significant risk for total loss. And in any case, how would Hertz selling stock, knowing the likely risk for a complete loss, be any different than some other institutional investor selling their stock, also knowing the buyer has an excellent chance for a complete loss?

Under no circumstances is it better for the new investors to pay billions before the bankruptcy.

The "under no circumstances" clause is not necessarily the case. If it's a large enough company and investors can get their investments to be senior debt, then it can be a reasonable, if still high risk investment. If the bankruptcy occurs, they'll be first in line to get paid out of the remaining assets, even if they don't get everything back. If it doesn't occur, they've got a nice high yield bond. Basically there are ways for investors to make money investing in a company at any point, if done the right way. And probably equally many, or more, ways to lose money.

In the case of Hertz? Yeah, buying their stock when it went meme doesn't look like a very smart move right now. Of course the bankruptcy plan might be amended to slow redemption of old stock into new stock post-bankruptcy, but I'd say that's success by pure luck rather than anything else.

That's entirely reasonable if you think that by keeping the company alive you can build it back up until the point that it's worth more than $5B. This is indeed what every CEO thinks -- that they can make the company worth more next year than it's worth this year.

In addition to the court finding that a bankruptcy is no longer appropriate, either the debtor or the creditor can petition the court to dismiss a bankruptcy. This is not entirely uncommon, even when a company might have more liabilities than assets, when creditors believe their interests are harmed more by bankruptcy than a less drastic measure. This avoids companies declaring bankruptcy out of convenience rather than necessity. Shareholders are themselves creditors, and so they too could petition the court to dismiss a bankruptcy under such circumstances.

Finally, while companies (mostly) won't enter bankruptcy if they see other options, bankruptcies do not automatically wipe out shareholders, though that is probably the more common outcome. It is possible however to retain your shares, which would usually be exchanged (possibly at a discount) for shares in the newly constituted company post-bankruptcy.

Bankruptcy protects the company and allows a company to come back stronger. That's the ultimate issue: with debts this large, it makes sense for Hertz to give up on its debt rather than try to pay it off.

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Its not like Chapter 11 is a death-knell for a company. GM went Chapter 11 years ago, and came back much stronger in the past decade. Bankruptcy protects the company, while (usually) wiping out the shareholders... and bondholders only getting a fraction of their promised payments back.

That's the deal: investors get screwed, but the company survives. A bankruptcy court helps decide if the case truly is as terrible as they are pleading.

But ultimately: that's why Hertz's board voluntarily entered Bankruptcy Protection last year. Its to Hertz's advantage to declare bankruptcy.

---------

If you have a comeback plan for Hertz, it will be an even stronger comeback plan if you wiped out a huge portion of debt. It just makes sense.

But to clarify, not all investors get screwed. (or at least not completely). Stock owners, unless they're of a class with a higher claim than normal common stock, will usually (though not always) lose everything. However, many bondholders will receive some of their money. How much is determined by many factors, including the type of bond and how senior the debt associated with it.

Under your logic no company would ever raise equity to pay off debt.

In this case, the buyers of Hertz stock were most likely wrong, although things are not yet finalized and another comment here notes that alternate plans are being proposed that would not wipe out share holders.

Or do you think, that like most other bankrupt companies, HTZGQ will be worthless once these bankruptcy proceedings are done?

The stock is almost certainly going to go to $0. That's just what happens as bankruptcies play out. If you disagree, you're welcome to toss your money into buying some HTZGQ yourself.

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The issue is that Hertz CEOs / board / CFO have extra information and better ideas into how those bankruptcy proceedings are happening. For them to issue shares in this time is grossly immoral. Especially when they're publicly pointing out that yes, bankruptcy proceedings are carrying on as expected: shareholders are expected to be wiped out and assigned a big fat $0.

(I cannot reply to your response when you edit so often... looks like it resets an anti-spam timer or something)

The proceedings behind a deal at this scale are so private that it is rare to see major salient revisions after a public announcement like this. Nevertheless, I concede the point that it isn't completely final. Presumably they'll be de-listed once that actually happens.

https://www.prnewswire.com/news-releases/hertz-global-holdin...

As of a few days ago, the PLAN (not yet executed) is to give Knighthead new shares and wipe out the current set of shareholders.

---------

There is a rival plan to keep HTZGQ shareholders alive. These sorts of plans go back and forth, discussed by the board, the bankruptcy court, and so forth to determine the best course of action.

No plan is ever 100% certain... not until the plan is executed. Still: the current plan is that Knighthead will be the new owners, old shareholders will be wiped out, and old bondholders will get 70%.

If bondholders are only able to get 70% under the current plan, it seems unlikely that any alternatively proposed plan would bring that to 100% somehow (the precondition before old shareholders of HTZGQ to get value out of this...). The plans will change, but the amount of assets that Hertz owns will not change. So I'm not entirely sure where another 500-million buckaroos will come from to make the bondholders whole.

Hertz just cut out the middle men here and sold directly to suckers, maybe a lot of their executives were also creditors.

Can I interest you in an Iraqi Dinar?

May I interest you in some Aaa-rated subprime mortgage backed securities? How about some negative -yield bonds?

Institutions can have conflicts of interest, which individual investors can make up their own mind on. (Whether that's a winning strategy is another question, I admit)

If I sell my broken car while clearly noting that it’s broken, hat makes it ok, not worse than if I’d left it out.

Do you hold this view for sellers of hertz stock that aren’t hertz? What about sellers of stock that bought the stock post bankruptcy?

Then if some idiots think it's not the case, and there is value, let them bet if they so want, they obviously know better than Hertz. Hertz only decided to issue shares when their share price went over the roof, driven by those same speculators.

As long as things are correctly disclosed ("our stock is worthless, but buy it if you want"), caveat emptor.

Now with that out of the way, I think there's more of a gray area here than you might think. While there are many situations where people enter into a transaction with the belief that it's a win-win for everybody involved, I think there are legitimate situations where you can trade with people ethically while also believing that the other person is making a huge mistake.

Bitcoin is a pretty great example of this. Suppose I'd been gifted a bitcoin in December of 2017. That was right around the peak of a huge rally for Bitcoin. If I'd sold it to someone for $15k I would have thought that the person buying it from me was an idiot. They may have thought the same of me. As long as we were honest with one another, that seems okay to me.

The situation with Hertz was just kind of weird. It's as though I was taking out the trash one day and someone walked up to me and offered me $1000 for my trash. I don't really have any strong moral intuitions about whether taking their money is okay because it's such a goofy and unexpected thing to do.

> It’s pretty straightforward. I’ve been in this industry for 20 years. This is the best time to raise money ever. It might be the best time for any kind of business in any industry to raise money for all of history, like since the time of the ancient Egyptians. It’s certainly the best time for late-stage start-ups to raise money from venture capitalists since this dynamic has been around.

> And as a board member and a C.E.O., I have a responsibility to our employees, to our customers. And as a fiduciary, I think it would be almost imprudent for me not to accept $160 million bucks for 5-ish percent of the company when it’s offered on favorable terms.

I think that trips people up, in stories like this, is that the SEC has a pause button but not a reverse button. What's done is done, for the most part.

Perhaps the court can do this without violating the law? This is fraud.

Ever heard of the phrase "you cannot have two masters" ?? By splitting the job into two organizations, we ensure that both jobs are accomplished. Otherwise, only one job gets done (at the expense of the other).

The prospectus clearly stated that there was negligible likelihood of return.

On the flip side, from the creditor's perspective: "We loaned you a bunch of money, you can't pay it back, and there are some people who would like to buy shares in your company today? How can you not sell it to them?"

The unsecured creditors in this situation don't appear to be investment banks, they appear to be auto repair companies, perhaps exposed to counterparty risks from transacting with Hertz[1].

Your question brings to mind part of an exchange from one of my favorite pieces of financial cinema [2]:

SAM ROGERS: And you are selling something you know has no value.

JOHN TULD: (cuts him off cold) We are selling to willing buyers at the current fair market price, so that WE may survive, Sam.

SAM ROGERS: You'll never sell a thing to any one of them again.

JOHN TULD: I understand.

SAM ROGERS: Do you?

JOHN TULD: Do you!!! This is it, Sam, this is it!

[1] https://www.repairerdrivennews.com/2020/05/25/hertz-will-con...

[2] https://www.youtube.com/watch?v=7prnY2FOxns

While I readily admit that the law does not forbid all forms of unethical behavior, I do believe that it should forbid blatantly exploitative acts. Like this one.

This is much more-readily seen post-GameStop. The AMC theater chain, mid-hoopla, managed to discharge much of its debt. The gamblers at home literally saved a major US business from dire financial straits. Some of them got paid for it, too. The company is in an undeniably better position today, as are any of the retail investors who bought and held. (The share price is up 10% today, too. The world is a complicated place.)

On the scale of exploitative acts, enabling informed gamblers to play chicken with the Bankruptcy Bus, while it may be exploitative at some level, may not be as egregious as other exploitation (Casinos? State lotteries?) that we tolerate every day.

In fact, I'm even okay with defaulting to strict-laws and then one takes a test to allow being a loose-law who can interact with other loose-laws.

Then, yes, strict-laws can live a nice safe life better than ever before and spend their time arguing on the Internet about how r > g etc. etc.

But the problem is that strict-laws won't allow loose-laws so until you put that distinction in place, you should know that it is true political war and no loose-law will give any quarter because while we want to let you to be able to occupy your space, you don't want to permit us to occupy ours.

I wish the requirements were intelligence/knowledge-based rather than resource-based but I suppose the real test of intelligence was knowing that you can lie about being an accredited investor and no one can tell so I actually failed it.

If the USA is anything like Australia, this is still illegal. So maybe not so much about "intelligence" as it is "willingness to break the law when it's unlikely you'll be found out".

I suspect the latter strongly correlates with financial success more broadly, too.

Why not? If the person checks the "medical experiments" box in return for $100k, are we saying they shouldn't get the money? People willingly trade increased risk of death for increased pay all the time. Should it be illegal to be a lumberjack, or to work the overnight shift at a 7/11?

However, that’s slowly been changing over time.

I like your "disclose your way to arbitrary medical experiments" analogy. Things can't be just black and white. That said... who is buying Hertz stock during bankruptcy proceedings?

I don't see why this exploits vulnerable people in particular. As the op says, it's a real gamblers' trade.

Anyway, I think it's an insider-ish trading question. Selling stock once you already know the price to be zero is a step too far.

2) People were buying (and selling) Hertz stock every day, before, during, and after Hertz's brief offering. If it should be illegal for Hertz to sell the stock, why should it be legal for anyone else to sell the stock? (The obvious reason is "well, what if Hertz had information nobody else did?", but in this case, they didn't. And they were required to disclose that they didn't.) In a pretty real sense, the victims of Hertz selling stock is not the people who bought it (they would have done so regardless), but the other sellers who might have lost out on a sale (or more likely, made the sale, but for a fraction of a penny less than they otherwise would have done) to a sucker who ended up buying from Hertz instead. And it's hard to feel too sorry for people offloading worthless stock to suckers, no?

(Of course, note that nobody who bought the stock from Hertz will have seen those disclosures. It was an at the money offering; the purchasers won't have any idea who they bought their shares from or how old those shares were. But again, US securities law is extremely focused on disclosure to the exclusion of all else...even if the disclosure won't be seen by anyone.)

Hertz was in bankruptcy because it couldnt pay its debts, a capital injection might have raised enough cash to pay off its debts and exit the bankruptcy proceedings.

They disclosed the low likelyhood of such a thing happening but its not the law or the SECs job to make everyone take wise financial decisions.

While I do agree that it shouldn't be illegal, wouldn't they know how much money they would raise, and hence be able to determine if the capital raise would provide sufficient capital?

Hertz’s job in bankruptcy is to try and pay creditors, if a bunch of dummies want to give you money even though you tell them you’re bankrupt and their investment will likely be worth nothing then how is that Hertz’s fault? Arguably Hertz even has a responsibility to sell shares if they're able to raise money to pay creditors.

The dummies are speculatively buying swings, or more likely just seeing the stock advertised as high traffic in Robinhood.

Or if other people can sell the stock, why not Hertz?

Hertz tried to create and sell new shares that would never be worth anything.

If Hertz had been dishonest or misleading about the situation then that would be a problem, but they were completely upfront about the risks.

This disclosure helps:

https://www.sec.gov/Archives/edgar/data/1657853/000110465920...

Since it went before the bankruptcy judge, they might have been obligated to bondholders to sell more shares.

The relevant quote:

> Really I can’t decide how to feel about this. On first principles, you should not sell a billion dollars of stock in a bankrupt company to small retail investors who just installed Robinhood on their phones a few months ago. On the other hand, people are definitely doing that anyway [emphasis original]; a notable feature of this weird pandemic market is exactly that hundreds of millions of dollars of stock in Hertz, which is bankrupt, are being sold to small retail investors every day. Hertz just wants permission to do some of that selling itself.

Hertz executives were in possession of no such information. The information was very public.

AKA business.

> That's wildly different from issuing new shares when you have inside information which prices them at zero.

That’s wildly different from Hertz’s bankruptcy being public information.

If people want to gamble on unlikely outcomes, that’s their business.

Imagine two lotteries that each sell ten million $1 tickets, and will only sell one ticket per person.

One has a jackpot of $7 million. The other has a jackpot of $15 million.

Math would tell you there's a significant difference between the two, wouldn't it?

But I would say the right answer is that the difference in payout doesn't matter. And you probably shouldn't buy either ticket.

Am I reading it wrong, is 'math' supposed to mean something else here?

And almost anyone playing the lottery can tell you the chance of winning a jackpot is very low!

Why not use Hertz stock as a proof of stake? It's as good as any other made up currency.

It's morally and ethically theft. Gross, filthy, self-conscious theft.

The fact that people just laugh and say, "That's business!" is an indication of how morally bankrupt the business world is.

This is a discussion about informed buyers who want to gamble on minute probabilities, not suckers.

If someone still wants to buy their stock while they are in court loudly proclaiming their stock is worthless why would you make that illegal?

Hertz has issued a regulatory filing that basically says "lol this is worthless, but we can sell you some shares" and then sold some shares. Look up the filing, it's kind of hilarious. I've posted it on HN and it got popular, titled it jokingly as "Hertz Initial Bankruptcy Offering", the moderation has changed the title to the official name of the document.

Besides, how is this different than any other shareholder selling their stock, also knowing full well it is entirely likely to be worthless?

I don't know if that's an important difference, but it has a different feel to it.

“We are selling to willing buyers at the current fair market price.”

- Margin Call, 2011

But in the hindsight, I don't really understand why Hertz wanted to do that. It's obviously good for bankruptcy court, that's clear. It might be good for WSB, for some independent speculators. But what does Hertz as a company gain from that? How can it benefit any of decision-makers? They are going bankrupt anyway, whatever they raise is not their money anymore. Surely they didn't hope selling stock would save them from bankruptcy? So why even bother doing something so sketchy?

Meme stonk buyers: Guys, look at this loss porn. I lost $2.5 mil on Hertz LMAO my trust fund is gone.

Other meme stonk buyers: HAHAHA you fucking retard

Third party worrywarts: How could we let this happen?

Did this step actually happen? From what I understand, it was the SEC, not meme stock buyers, who disagreed with the sale.

Why should it not be?

Consider the following situation:

1. Alice owns 5 shares of Hertz.

2. Hertz owns 5 shares of Hertz.

3. Bob is an ape. For some stupid reason, Bob wants to buy 5 shares of Hertz.

Is it immoral or illegal for Alice to sell her 5 shares to Bob?

If not, why should it be immoral or illegal for Hertz to do so? Especially if they are up front about their incredibly bleak financial prospective.

Is the sale defrauding someone? Who is it defrauding? Bob? Bob wants to buy the stock anyways, because it's a meme stock - why does he care if it's Alice, or Hertz selling him that stock?

If allowing Bob to buy stock is such a bad thing that we need to protect Bob from it, then the correct thing to do is for the stock to be delisted.

2. RJ Reynolds owns many cartons of Camels. Reynolds creates a cartoon camel called Joe Camel, who is as recognizable to 6 year olds as Mickey Mouse.

3. Bob is a 11 year old. For some stupid reason, Bob wants to smoke Camels and be cool like Joe.

Is it immoral for Reynolds to sell to an 11 year old? Is it immoral for Alice to sell her cigarettes to Bob?

Since, uh, nobody has an issue with regular stock holders selling their shares to other stock holders.

If Bob is not 'sophisticated' enough to be allowed to buy shares of Hertz regardless of who is selling them, then sure, prevent him from buying. Delist the stock. Require you to be an accredited investor to buy shares of a company undergoing bankruptcy. These are all reasonable solutions to the problem. Stopping Hertz from selling shares... Is not. Because if Bob is an informed/sophisticated/accredited investor, then Hertz selling him shares isn't actually defrauding him.

It is bad faith and fraud.

The prevalence of the “it’s just the market” argument and corresponding ethical gap here is disturbing. Read the Ben Horowitz “why I didn’t go to jail” post that was reposted earlier this week. End of the day, everyone who signed off on the Hertz offering decided to paper over an obvious moral hazard with sophistry and bullshit to enrich themselves (via bonuses) and bondholders by defrauding the public.

In fact, if Hertz sells enough shares, they are no longer bankrupt - which actually makes buying their shares with the intent to hold a rational decision. That's not why Bob is buying them, though, he's buying them because it's a meme stock, and he, I guess, wants to buy meme stocks. He not so unsophisticated that he fails to understand that Hertz is a shitty company.

Why are we protecting him from Hertz, but not from Alice?

If this were a problem, then companies would not be allowed to dilute shares. They are, though.

Would you rather own all the shares of a worthless company, or some of the shares of a company with a value > 0?

With snake oil, we would way that it is immoral for ANYONE to sell it. As a result, we (mostly) make it illegal too.

With Hertz stock, nobody seems willing to say that all sales of such stock are immoral. And certainly they're not illegal; people have been buying and selling an enormous volume of Hertz stock.

Snake oil is intrinsically bad. We all agree it's bad, and thus, nobody is allowed to sell it, even if they disclose that it is snake oil.

But Hertz shares are apparently not bad. We're clearly happy to see people buying and selling them. Before, during, and well after Hetz's abortive at the money offering, thousands and thousands of people were selling Hertz shares, and I haven't seen anyone suggest they should have been prevented from doing so.

In fact, it seems like the only entity we, as a society, seem to feel shouldn't be allowed to sell Hertz shares is Hertz. Which would be really strange if Herz shares were, metaphorically, radioactive, no?

Selling stock, when you make it clear that your stock is worthless does not misrepresent the product.

And, again - note that Alice is not even required to make such a disclosure, when selling her stock to Bob. The assumption on the stock exchange is that as long as public companies are up front and honest about their financials, it's Bob's responsibility to not buy stupid, overpriced crap.

The degradation of even the appearance of an orderly market is the story. The money movement (volume of excess trades X magnitude of price change) seems out of reach of unleveraged retail. Faith in private and public institutions is justifiably poor, but also under organized attack.

This is going to end badly for everyone, except perhaps for China.

IMO, it's good that people are beginning to see the stock market as a casino. If people want to "invest," they'll figure out more pro-social ways to do it than the stock market, and if they want to gamble, well, there's always the stock market.

There have always been periods of irrationality in the markets but there's no reason to believe that equities are fundamentally untethered from their inherent value in perpetuity.

Eventually most of the overnight WSB stock picking geniuses are all going to lose their shirts and we'll see less of this GME nonsense. They make up a tiny fraction of trading volume anyway.

It happened in '07-08, late 90s dot-com bubble and about every decade or so before that for different reasons

Yes, but human lives are finite. Of course the current market is mostly a ponzi, but what if it lasts yet another decade? That's a major fraction of anyone's lifespan.

Fundamentally the ponzi started to collapse in 2007/2008, but it was bailed out by the government. Increasingly it looks like the only way the ponzi can actually collapse is by dollar inflating, everyone getting poorer and ponzi games collapsing in real terms, but not nominal terms. Unfortunately, probably the best thing to do in the meantime is to try to win at ponzi games and try to leave others with bags.

And I think people have always given the stock market more credit than it's due as being "the economy," when really the stock market is a set of signals about the economy. The economy is the people and machines and the buildings that do stuff and make things, and the economy remains regardless of what's happening in the stock market.

If a bunch of silliness happens around a certain stock, or if the stock market becomes wildly detached from reality, it doesn't have anything to do with peoples' ability to produce value.

while you are not directly investing in capacity like you might in an IPO, purchasing stock does create the same outcome. It's just not _you_ who is doing the capacity investing directly, but someone else who does so, as a result of the chain of investments.

If you could _only_ invest directly into capacity, the amount of dollars that people would be willing to put in would be much smaller than today's. That's because the risk profile is singular in direct capacity investment.

The reason the stock market can fund IPOs is because it allows the different stratas of risk to be separated, and taken on by different parties that want those risks. So without your dollar buying an existing stock, thus letting early investors for an IPO an exit, they would unlikely to want to invest in the IPO in the first place!

Here are 99% of the things you can invest in as a person without a very large amount of capital:

- real estate (your own home or rental units)

- bonds (another security - same issue as equities in your analysis)

- private business

Are any of those inherently more pro-social than equities?

The stock market encompasses both WSB speculators and “buy and hold forever” investors.

Will they? Is there any such thing as a pro-social 401K or Roth IRA? If money is going from your paycheque into your retirement fund, bypassing you entirely, it adds significant friction to moving it out into something with more direct impact.

But then that would require that traders go get actual jobs, and produce actual value. I think these people would rather see the US burn than do that.

Cynical because it doesn't acknowledge the value that a well functioning and regulated financial system can create. Efficient flow of capital only sounds bad if you haven't seen the absence of it, like projects failing for lack of funding while bad ones are burning money.

Optimistic for thinking that the masses have anything approaching the same level of access. I was hoping anyone with fintech experience could chime in disabuse others of this, but the masses don't have anything. It's depressing to watch so many people (on average) just destroying their savings while they're young and can make the biggest impact on their future savings.

You don’t need gambling to have a well functioning financial system.

The price of goods at Walmart is not based on what uninterested bettors think the price should. It’s just based on supply and demand.

We don’t need gambling to have a functioning financial market.

The financial engineering of modern day has managed to separate risk (which is what causes price fluctuations) from their underlying commodity/goods/etc, and sell that risk away to people who want to take it.

This allows those who want to not have risk (and thus stable prices) to have it - albeit yes, they pay a small premium for that. But ask any farmer and they prefer a lower, but stable price for many years, rather than the fluctuating price of produce.

So the gamblers, who by definition, want risk, take on all the risk. Thus, a functioning financial market is how this is all conducted.

Could you elaborate?

The company was bankrupt.

People who bought HRTZ after bankruptcy had to have known it was a game of financial musical chairs, much like GME, TSLA or BTC.

I don't know how many times I saw people claiming GME would go to $1000 because the new CEO has a brilliant new scheme to turn the company around by going digital! Why "going digital" in 2021 means your company is worth 100X what it was a few months ago I'll never quite understand. I guess no one had yet discovered the opportunity of these computer machines and the World Wide Web!

Or "it's the short squeeze" By people who didn't even know what a short was 72 hours before, long after the shorts had covered their positions.

Sure some people acknowledge they are essentially gambling in equities, but tons of people truly think they have some stunning insight into a business because of some anonymous WSB shitpost they read this morning.

As mentioned elsewhere in here, it’s ultimately gambling. It’s putting money up, exposing it to risk that could completely wipe you out. If someone doesn’t understand that about stock investing, I think they’re very similar to someone not realizing a casino could wipe out your money. But making sure everyone fully understands this - educating people who are risking money - certainly seems like a thoughtful thing for countries to incentivize.

But unless all the financial websites have to be styled to look like a casino, or areas of a physical bank space put up neon lights and blinking signs to emulate Vegas casinos, I don’t know if we can ever drive the point home clearly enough.

There's also the thing where buying equity in a company can seem very simple because you see something like Apple where they made a cool thing and obviously their stock went up. People just have no idea about how complex the markets are.

They also don't remember the very smart people who claimed the Iphone would be quickly overtaken by Android and other cheaper alternatives (Clay Christensen predicted this a guy generally very smart on tech/business)

Hindsight always makes it seem like it was easy to pick the great companies that were OBVIOUSLY going to do well.

They don't understand how incredibly sophisticated professional investors are who dedicate their lives to it, and on average even THOSE people don't 'beat the market'.

Understand it or not, it happened. Going from $3 to $300 in under a year.

Just because some people stated seemingly silly reasons for their predictions doesn't mean everyone betting on it is stupid. They may be trying to encourage others, have an intuition, hope to detect the peak and quickly sell, or even not care about money and be playing it as a game. But at the end of the day, whoever makes money is not the stupid one. Today GME is $250. Plenty of them can be getting rich now.

I have a thought that understanding how the stock market works doesn't matter much. Most of the knowledge from that is already bakes into share prices and the movements are pretty much random. So you very well could win by not knowing what a short is.

Most of the WSB equity analyst is the equivalent of the blackjack player sure he's going to win it big because Mercury is in retrograde!

Errr.. this doesn't follow at all.

Plenty of people get lucky by winning the lottery. This doesn't make lotteries a smart investment in general (and yes I'm aware of some exceptions to that).

Getting in on the GME short squeeze was smart.

More than that means you are thinking there is something other than the short squeeze going on. There doesn't seem to be much evidence for that.

I genuinely, no bullshit, think TSLA is more irrational than GME, and has been for years. I put my money where my mouth is and I'm up 5x in 2 weeks. I know it won't last, but hey TSLA is crashing too. Nothing lasts forever.

Not financial advice, I thought Tesla was laughably over valued at $40 a share, never bet more than you’re willing to lose.

Remember when it was impossible for real estate investments to lose money 15 years ago?

I guarantee there’s hedge funds who infiltrated the group playing up this one. Fictional fresh faced MBA from Jamie Diamond‘s outfit, “too the moon homie. Hold forever. They can take my wife, but not my GME. We tards are bringing down Capatalism.” (I used the T word because that the vernacular they use.)

I find it sad that the Retail naive investors will get fleeced again, but by professional billionaire trading outfits.

You are likely right that finance bros were (and still are) behind the polished 24/7 rocket memes, but they were likely small single-PM funds and non-regulated private players, posting behind 7 proxies to provide anonymity and plausible deniability against the SEC.

Other notable differences include actively building the largest and most advanced factories on every major continent, disrupting the entire automobile industry such that even jaguar is going full electric by 2025, mainstreaming self-driving, and cutting the costs of residential solar in half.

Meanwhile, gamestop is trying to make a profit out of a portfolio of dusty commercial real estate.

They are not the most advanced factories, not even close. Tesla uses much more human labor per vehicle than its competitors; the "alien dreadnought" never materialized. "Toyota remains well ahead of Tesla in terms of manufacturing efficiency, producing more vehicles per employee, while utilizing its fixed assets and inventory more effectively":

https://www.forbes.com/sites/greatspeculations/2020/02/11/co...

> disrupting the entire automobile industry such that even jaguar is going full electric by 2025

The industry shift towards electric vehicles is because it's finally becoming profitable to make them. This is largely due to a dramatic reduction in battery costs which is driven by R&D for smartphones, not cars. Personally I don't believe Tesla has much to do with it.

> mainstreaming self-driving

They are mainstreaming dangerous driver assistance technologies well before they are ready because they've been pre-selling "full self driving" for years. They are nowhere close to completing an autonomous cross-country drive, something they promised would be done five years ago. Waymo is far ahead of Tesla on self-driving technology.

> cutting the costs of residential solar in half

I'm not sure there's even any point in arguing this because solar is an insignificant fraction of their business. They are a car manufacturer, nothing more. But in my personal opinion, I think the SolarCity acquisition was a fraudulent bailout of Musk's family, the solar shingles were mostly a sham, and Tesla has no significant proprietary solar technology at all.

As much as I agree with the rest of your comment, I have to disagree with this part. Yes, there is a shift towards profitability with electric vehicles now and that has a lot to do with battery advancements from smartphones. But EVs still aren't exactly profitable, and when they are it's usually because of tax credits (granted that still counts, but it's important to mention).

It's important to remember traditional automobile manufacturers have decades of accumulated knowledge from spending hundreds of billions, if not trillions of dollars, on R&D for the internal combustion engine. Their processes are set up for it. Their tooling is set up for it. And more importantly, their business model which almost always focuses on maintenance costs is set up for it. It's like how Kodak invented the digital camera, but decided to continue with their legacy business because they were already set up for it.

There are many things I dislike about Tesla. But I genuinely believe they are responsible for bringing EVs to market ~3 years before it would have happened without them.

This feels vaguely ahistorical. The best-selling electric car platform in Europe today is the Renault Z-E platform (or at least it was; VW may have overtaken by now). That platform was announced in 2009 or so, with the first cars in 2011, and the first Zoe (the popular car based on the platform) in 2012. The Nissan Leaf came out in 2010. The Tesla Model S came out in 2012.

So given that, it's hard to see what Tesla had to do with it, really. Some of the most popular models came to market BEFORE Tesla (if you ignore the roadster, a contemporary of the Z-E concepts, which you almost certainly should).

You are correct about timings. What you are missing is

1) Adoption and perception. The public and mainstream media love 'EV Jesus' and his perceived dedication to 'the mission'.

2) User experience, in particular charging. Tesla still today has the biggest charger network and charging is a crucial remedy for range anxiety.

Not to say they're not a significant electric car manufacturer, but "coming third in the biggest western market, behind Renault, who apparently still exist" is not a great argument for them being either a market leader or having a particularly sticky brand.

The disruptive product doesn't have to be the first.

By contrast, a Leaf or Zoe that you buy today is just a better version of the Leaf or Zoe you could have bought before the Model S came out.

You know what else "their tooling is set up" for? Being changed in a short period of time for whatever the next hotness is.

But I genuinely believe they are responsible for bringing EVs to market ~3 years before it would have happened without them.

How do you reconcile that statement with the fact that while folks were waiting for Tesla to fill their Model S pre-orders, we were already driving a Nissan Leaf? The Leaf was going to happen whether or not Tesla ever built a single car, or even if Tesla never existed. I mean it's nice that Tesla fans jumped on the EV bandwagon, even if a little late, but let's not pretend Tesla wasn't late to the production EV game.

Teslas maintain most of their retail value.

There's a reason. If leafs were the archetypical EV, public perception of EVs would be leafs. Which are garbage.

Also consider that the tesla gigafactory will build the entire frame and body of the vehicle as one part in under a second. Nothing close to this is being done, because the machines to do it are being invented for tesla.

If you'd like to discuss your other points with me, i'm down. But I don't like the "I disagree with every one of your points so here's a pdf" format

Ryan Cohen, the guy who founded Chewy, is on the board for GME and leading an initiative to transform Gamestop into an e-commerce store. In other words he wants to compete directly with Steam, and while many don't realize it yet, Amazon. And this is one of the only people in history who has successfully beat Amazon in a product category before. Chewy absolutely dominated the pet market for e-commerce.

What I think Gamestop should do is compete directly with twitch, and set up an online game store on top of that. Basically do what twitch is doing but better, because twitch is shockingly bad for an Amazon acquisition. Then Gamestop could host online game tournaments, and they could even draw attention at local brick-and-mortar stores. They've got the real estate, they've got the brand recognition, and they've got the goodwill of the public right now (which is something you can't even buy, Amazon doesn't have that even with a trillion dollar market cap).

I don't think this will happen. But if it did, GME would be ridiculously undervalued right now.

Do you mean you don't think they'll compete with Twitch, or you don't think they'll compete with Steam and Amazon?

Personally I think investing in GME today is no different than investing in Blockbuster ten years ago. Competing with Steam is a terrible idea. EA tried it with Origin and despite having huge exclusive franchises, they're essentially throwing in the towel by abandoning the Origin branding and moving their newest titles back to Steam. There are also few physical goods to ship anymore so the experience in selling pet supplies online is irrelevant. Something like 80% of PS5s sold are the digital-only model; they don't even have a disk drive (and 99% of modern PCs don't have one either.)

Most of GameStop's profit was on used games. A game would get purchased, completed in a few days, then sold back to GameStop. When GameStop re-sells it as used, that's pure profit; the original publisher doesn't get a cut. Rinse and repeat a few times and within a few weeks of the launch of a game, GameStop has made more money off of it than the game developers. This is no longer possible with digital game sales. These games are locked to accounts and cannot be individually transferred. (And if you think GameStop's digital storefront will support game resales to try to capture this profit, no publisher in their right mind would publish their games on it!)

I do not think Gamestop is going to compete with twitch. I will be very surprised if they do not try to compete with Steam.

I mean they can say they want to, so can McDonalds. But their plan is magical thinking and not sure why folks fall for this.

The worst but though is that they have a terrible reputation with gamers. Every gamer I know hates them. Some shop there like some tolerate Comcast, but they don’t have a fan base.

But there is a market and nobody likes the only player. Eventually somebody is going to figure it out. And I am extremely confident it won't be Amazon. I'd short twitch in a heartbeat if it weren't propped up by the most valuable company on Earth.

Twitch is essentially a hardcore user's platform. Engagement is extremely high vs other platforms. That's what keeps content creators on twitch, even if they're making the bulk of their income from putting the VODs on youtube: they can't create the same content and interactions on other platforms.

Again, as explained in a sibling comment, competing against twitch is a terrible opportunity. It's a miserable business to try to make a profit margin on, and your #1 competition doesn't care if twitch loses money all day. The ad market for streamers is all wonky because so much of the content is radioactively toxic.

I too hear a lot of complaints about Twitch too but I feel that most of them have nothing to do with the product, but the zero-sum and competitive nature of gaming streaming. It's just difficult to succeed as a gaming streamer (or content creator more generally) and the vast majority of people who try will never make any meaningful amounts of money, so frustrations tend to be attributed to the arbitrary quirks of the platform, even though that's just the nature of any content business.

Everything and everyone. Seriously, even the people making literally millions on twitch hate the DMCA takedowns, the completely capricious bans, the ridiculous barrage of forced ads which twitch has straight up lied about, the fact that Amazon streamed anti-union ads on twitch and then pretended it was an accident, the fact that titty streamers get special priveleges...and that's what I thought of in just 30 seconds off the top of my head.

twitch is fucking awful because it's owned by Amazon. It was great before the acquisition and shortly thereafter.

I never said it was easy. I'm saying twitch fucking sucks and when somebody makes something that doesn't suck it will instantly be an 11 digit market cap company. Right now the most likely contender is Gamestop, even if I'd only put that at about a 1% chance of happening.

Why would GameStop not do these things? They wouldn't be immune to copyright problems. They'd surely need to implement automated ban systems. They'd surely need to advertise. They'd surely want to make money on "titty streamers".

They're giving up on streaming because they hate twitch that much.

https://dotesports.com/streaming/news/over-27-9-billion-hour...

We're not going to agree. I'm exiting this thread.

But the market leader in any market always gets the most complaints.

And, Ryan Cohen has no operational role at the company and changing an existing company is very different from building a new one. It's not just having some grand vision, but having the culture and talent to execute on it at every level. And it's unclear Ryan Cohen himself would have any particular expertise here - selling digital goods is very different from selling physical goods.

I don't massively disagree, but perhaps you underestimate the prevalence of their brand right now. Gamestop is salient in the gaming and internet communities.

What of 'irrational' consumer behavior?

The only thing happening with GME is some opportunistic behavior around their sudden unexpected ability to raise speculative capital. Jeff Bezos himself could take over GME and there is zero chance it's going to become some sort of online ecommerce competitor to steam. They have absolutely no comparative advantage for that. All that's happening is GME management finding every way they can to redirect this influx of cash into their bonuses.

Indeed, I think we get as many Chewy boxes as Amazon boxes. Of course three dogs and three cats will do that.

Chewy used to send every customer a handwritten personalized Christmas card each year. I think they had every employee spend some time writing these cards when they weren't busy.

Later they switched to printed cards using a handwriting font, but those early years of handwritten cards certainly left an impression.

(It seems clear to me that this isn't a valuable enough capability to justify the current price of BTC, but I guess that's a separate discussion.)

Trading happens on the pure derivative of stock prices, yeah, and people get rich off of it, sure, but ignoring the trillion dollars a year that flows from the profits on the economic activities of the S&P 500 back to the investors in the stock is ... oversimplifying things.

Even so, that figure isn't really relevant to the GP's point. Their point was that in addition to the price of the stocks, people who owned those stocks got cash money paid into their pockets, via dividends. That amounts to about 1.1% interest on money you spend buying the shares[1].

(That's not actually a great number. 2% is more common over the last 20 years. It suggests that as of right now the market is overpriced. But that's also for 2020, which is not a typical year. So far for 2021, it's more like 1.5%)

[1] https://www.multpl.com/s-p-500-dividend-yield

(My vague understanding is that for complicated and silly reasons, many more companies have preferred stock buybacks to dividends in recent decades, but it's still money flowing back from companies to investors.)

Yes, cycles of hype and supply and demand do distort stock prices, but it’s still a capital allocation market. GameStop can choose to sell shares into the hot market, much as AMC did, to raise money. Buyers of those shares are allocating capital into the company.

One of the draws of Bitcoin as a speculative instrument is that there are no fundamentals. Without fundamentals, there is no mechanism to suggest if it’s undervalued or overvalued. The only thing a Bitcoin purchase funds is more energy expenditure on mining.

What? Why not?

Not only can we continue to trade stock in a defunct corporation, we do. Take a look over here: https://www.liveauctioneers.com/item/85889867_imperial-india...

for traders, it's something that has a ticker, a price and some volume. whatever works.

It’s not “we don’t have any more money” or “we aren’t making any money”, it’s “we need a little court-mandated breathing room (from our creditors) to change x, y, and z, and then we’ll be ok”.

More like: "and then we'll pay back as much as we can to our creditors, and then if there's still money left at the end we might be ok"

> It’s not “we don’t have any more money” or “we aren’t making any money”, it’s “we need a little court-mandated breathing room (from our creditors) to change x, y, and z, and then we’ll be ok”.

It really depends on which "we" you're talking about:

1. What you said is probably true, from the perspective of the organization itself (which includes its officers).

2. It's almost always false, from the perspective of the current shareholders. They're going to get wiped out.

A better criterion would be "when transaction fees aren't worth enough to incentivize enough mining to keep the network secure". But even that isn't a very clear concept because you can always just wait longer for more blocks to confirm.

In case of a sudden huge decrease of BTC price for a whatever reason, the cost of electricity for mining would become much larger than the cost of all the expected reward (the newly mined part plus the txn fee part). If such a situation would cause major miners cease mining, then there's a gap where there's a lot of unprofitable [proof of] work too be done until the next hash difficulty adjustment, which happens every 2016 blocks - which usually should be roughly every two weeks, but if there's a large sudden hash rate decrease, then it can take months to mine those blocks, the adjustment won't happen until (unless!) someone sacrifices something like 100 million dollars in electricity costs to mine the remaining blocks while the difficulty rate has made it unprofitable at the unexpectedly lowered BTC price - and, of course, the impact of that hashrate drop would make BTC transactions very slow and act as a further downward push on BTC price.

TL;DR - there's a mechanism where a sudden large, rapid drop in BTC price might perhaps cause a sustained collapse of BTC price.

This scenario is known as the "chain death spiral". When BCH forked from BTC, the BCH backers hoped to cause a death spiral on the BTC chain, so that it would die and be replaced by the BCH chain, the later having a modified algorithm which adjusted the hash difficulty faster. IIRC, they failed for two reasons: first, there was a large enough group of miners which didn't defect and stayed on the BTC chain even while the BCH chain was more profitable, keeping the hash rate high enough that the difficulty adjustment kept working; second, the faster difficulty adjustment of the BCH chain led it to oscillate between long periods without any block and periods in which many blocks were mined very quickly, most of them empty. IIRC, this ended when the BCH chain hard forked again to change its difficulty adjustment to one which didn't oscillate as much; however, the hype caused by all this mess (whoever had Bitcoin had doubled the amount of coin they had! Of course, half of it was BTC and half of it was BCH) led to an increase to the price of Bitcoin (and a few more forks).

They basically have to pivot into ecommerce and somehow compete effectively with Sony, Microsoft, and Valve. I don't give them good odds of success there, even with Ryan Cohen.

If Hertz was somehow rescued, I could make some money and have an interesting story. Maybe the shareholder meetings would be ridiculous parties with other crazy retail investors.

But even if existing shareholders would be wiped out, I wanted to see first hand what happens in this sort of situation. (So far I haven't received any paperwork.)

If you ever find yourself with money in a bankruptcy and it is worth more than the lawyer's fee, definitely get a lawyer involved. They know what to file, to whom, when to take which step. The trustee or administrator is not going to come knocking on your door with your dues just like that.

literally AMC said they have trouble opening their theaters ---> wsb likes the stock

Currently priced at $0.90.

But hey, I've 4x'd and 2x'd my GME bets on both spikes so who am I to talk, really?