I didn't mean to imply that "the rich" created this pandemic, but the part about being able to buy up assets on the crash and be the only ones to prosper from it.
The rich are richer partly because many are in tech which is doing okay, but mostly because the government is pumping the asset markets with trillions of dollars in cash injections.
I was ticked off by that, because I would have made much bigger gains had stocks been allowed to fall to their true bottoms. Instead I was forced to buy in (with my entire life savings) or risk losing out.
And yeah, I could have put less in, but I've been sitting on the sidelines, waiting for a crash for years!
Instead I was forced to buy in (with my entire life savings) or risk losing out.
Can you describe the person holding the gun to your head? I suspect there's a misalignment of perspective, exaggeration, or perhaps some missing knowledge of investment, or details are left out. But no one was forcing those with large wads of cash to go buy VOO.
...but I've been sitting on the sidelines, waiting for a crash for years!
Timing the market, the classic n00b mistake. It worked out for you...this time.
I wish discussions of networth at these scales were more nuanced. If the stock of your company goes up 50% or whatever, but you can't exactly sell more than x% without tanking it or losing control of the company, it's just so much more complex than you're 50% richer.
This is not to discount that they're filthy rich, and certainly enough of it is liquid for them to buy in essence anything they want. So much discussion about billionaires in the press seems to discuss stock fluctuations as if they were cash injections directly into a bank account, which can't hold at those scales.
How much could Bezos actually liquidate tomorrow without losing control or tanking Amazon? That would be an interesting number. I don't have a clue
>How much could Bezos actually liquidate tomorrow without losing control or tanking Amazon?
Unless he had a very believable reason to need the money that is fully isolated from Amazon the company (which is near impossible for a cult ceo/founder), Bezos selling any significant amount of stock right now would likely cause a heavy crash. The market is going to be particularly sensitive right now to the fact that someone like Bezos would only be selling if they know something big that we don't know.
The same applies all the time, but particularly in uncertain, volatile time.
Of course he'd be stupid to sell all in one go and there's no reason why he'd sell big chunks at once. But of course he can (and probably is) constantly sell small amounts and take cash out.
I don't think it matters? Like if bezos wants cash he doesn't have to sell stock he can just borrow against his holdings. I don't know a lot about how the ultra-rich operate, but I have been lead to believe that this is the standard practice.
If Bezos borrows $70B against $100B in stock, then the market crashes 30% in a week, and the fed pours money in to save it, it’s too late for Bezos, all his shares are already in his brokers hands.
The myth of the fed bailing out public stocks is pretty silly when we’ve just suffered through a 30% drop in a week, and a decade ago lost over 50% in under a year.
I'm sorry, I'm still confused. Perhaps the best question to ask you is where does the risk come from him borrowing the money either way? He gets it for virtually free. The fed propping up the market devalues the currency, yes, but it just gives him more time to act and everyone else is in the same boat with him. The way I see it, even if his stock goes down, he still has $70B and a trivial amount of interest to pay.
Also, we should probably use a lower number, because I struggle to think of a scenario where a single individual would actually need that much capital at once. If we need to use someone else for a different hypothetical I'm open to that too, because Amazon's stock has risen 46% since it hit its YTD low on March 16th, which is 10% higher than its previous all-time high.
First, it’s not free money, loans have to be paid back.
Ok let’s use a smaller number. Bezos owns 55M shares of Amazon trading at $2,400 a share, worth $132B. He borrows $30B for his rocket company secured by those shares. His borrowing agreement will require the shares backing those loans maintain a minimum equity value, let’s say 50%.
Amazon drops over 50% to $1000 per share, dropping his shares value to $55B, breaching that agreement. His broker will immediately sell a few million shares to maintain his agreed equity ratio. What happens to Amazons shares when a few million hit the market in a short period?
Amazon plunges below $500, so broker is forced to sell a few million more to try to maintain that equity, driving Amazon into the low hundreds, leading to the sale of more shares, etc, etc. Eventually they dump the remainder of his shares for under $100/each just to try to recoup the last of the $30B.
He started with full control of his company, and a $130B net worth, he leaves with no shares, no control, and $30B in cash.
This scenario is a little tortured, but it is likely a big reason why Bezos sells shares to raise funds for BO. Borrowing risks giving a disinterested party the right to dump your shares at a fraction of their value due to an entirely short term event.
I'm 39. I lost my job last September, when the startup I had worked for the last four years had folded.
I don't have a 401(k), and I only had $110k saved. For my entire life, I have I kept my money out of the stock market. I only dabbled a little - only $600 of my savings came from a few shares of AMZN that I bought and sold back in 2017. The rest was from paychecks.
I started to wise up last year, when I read that the yield curve had inverted. I didn't have a clue as to what event would trigger a drop in stocks, but I knew something was coming. So my plan for months has been to buy when most people were panicking, and then to basically just sit on the stocks until cooler heads prevail.
Over a two week period starting on March 16th, I put every cent of my savings into the market. I learned on my feet, dumping the ETF shares I bought (VOO) for only an $89 loss, going directly against diversification, in favor of buying things I think I understand.
And you know what? I'm up 40 grand, and I really believe in the stocks I picked. As the other automakers drive off a cliff, TSLA is positioned perfectly (batteries, autonomy, lower TCO). And AAPL makes great products instead of depending on advertising. (I have other positions, including a bet on Chinese eVTOL maker eHang, but I'll keep this brief.)
What I'm doing is pretty damn risky in the short-term. I could still lose all my gains and much of my principal. And I only have $10k in cash to live off of if I can't find a job.
Hatred of the billionaires - whose companies invent and produce the things that drive our living standards up - also hurts conscientious people like me. Instead of envying the rich, focus on how to get rich yourself.
NB: Gains from stocks are not free money! What I'm doing feels like a full-time job, as I continually worry about losing everything. This involves an incredible amount of research and planning, the ability to take on an incredible amount of risk, and that's stuff that the envious haters never see.
No offense, but the difference between someone being able to invest cash in a down market and the structural imbalances that allow the billionaire class to flourish (in any market) are markedly different things.
We can both applaud people like you taking a risk AND still recognize that regulatory capture and market power concentration are stifling innovation and concentrating wealth in ways that we haven't seen in nearly a century.
Perhaps you've held these views regarding the merit of billionaires long before your foray into the market, but the way you write your story makes it seem like you've done a complete 180 all of a sudden because now you are also getting rich off of the market, and now everyone else is an envious hater. It sounds incredibly naive and immature.
I've been quite lucky with the market myself and it's clear to me that the game is very much rigged. Not only that, but the people who come into the market for 30%+ gains on a quarterly basis are the people promoting a business environment that incentivizes short term gains at the expense of real economic development.
It's very much luck and you should really start to believe it.
Even if you're not an expert on stocks, that Tesla rose within a few weeks from 300 to 1000, then went back to 400 and currently stands at 700 - so halving and doubling value within a few weeks - has absolutely nothing to do with fundamentals or things anyone understands, want 100% with speculation.
I've made some money on the market, including with Tesla, but I'd never put this down to anything other than luck. The forces that shape the market are much bigger than any of us normal humans can even begin to grasp, much less 'understand'.
I have a degree in molecular biology, and I took a lot of elective courses in immunology, oncology, virology. I worked in a research lab on HIV vaccine for two years after undergrad before I switched back to software engineering. So I was able to keep a cooler head about the virus than most, which enabled me to buy intelligently. I worked damn hard to earn that degree and in my time in the lab. I was a twitchy premed student that needed every grade to be perfect. NONE of the effort I poured into those six years of my life was luck. It was pure sweat.
In the immediate future, I expect that the dip in advertising will cause Q1 earnings from Google and Facebook to be lower than expected. As the Fed continues to inflate stocks, this will cause a lot more buying of TSLA and AAPL.
In the 2020s, Tesla will continue to soar because:
1) they have a huge lead in battery tech. they're about to announce that they've achieved the $100/kWh mark, which will let them sell electric cars that go as far as gas ones but don't cost more.
2) batteries are crucial for amazing tech like the emerging eVTOL scene. it's possible Tesla may enter that space and dominate it, because batteries determine everything there, too. in the meantime, I bought some shares of eHang (Chinese company, listed on the Nasdaq under EH)
4) demand is not a problem at all, especially in China (where the latest new factory is). demand for iPhones was just fine in 2008-2009! remember Ballmer reacting with, "$600 for a phone!?" when he was asked about the iPhone in 2007?
5) they now sell car insurance. they're using all the data collected by their cars to offer significantly lower rates to customers
6) they're going to get into home HVAC, which will integrate beautifully with the Powerwall and solar roof products. I have been looking at buying a cheap off-grid lot up in the mountains to build a home on (when the price is right!), and I absolutely will buy that and avoid paying significant costs to get the lot hooked up to the grid.
7) their competitors will continue to fail to invest in EVs, even though their futures depend on it. this is because they are loaded up with tons of debt, while Tesla has a lot less
8) the site for Gigafactory Berlin has been fully cleared, and it will be under construction very soon. there's another factory coming in the US later this year.
9) I should at least mention the new products! Model Y is a definite hit, and it's clear that the Cybertruck will be! the new semi was delayed only because they simply can't produce enough batteries for it and the Model Y at the moment. that's gonna change!
10) they have a new analyst covering them at Goldman, and he's bullish. I expect TSLA to join the S&P 500 this year, which will trigger a massive wave of institutional buying.
I think ARK Invest has it right. $24k/share by 2024. Out of the scenarios they give, I think their middle-range estimate of $3.4k/share by 2024 is my worst-case.
Tesla is $54.74% of my portfolio right now, and if I could go back to March and do it all over again, I'd make it 100%.
If you want to keep in touch and lord it over me when I go bankrupt, I'm maxharris9 on Twitter.
Regarding your point about TSLA's volatility, I think it would help to understand the relationship between the stock market and the economy. Stock prices go up when new information is better than existing expectations and down when it is worse. https://www.youtube.com/watch?v=0ECqDaPjjV0
None of what you are describing requires the existence of billionaires. The companies, the stock market, the inventions, they would all exist even in a world where jeff bezos' net worth is only $500mil instead of $107.8bil
The alternative is to beg a risk-averse committee (public ones are much worse than private ones in this respect, but they are similar in this context) to invest in big bets.
When Elon Musk went to Russia to try to buy a rocket in 2001, they thought he was full of shit. So he went to work on building his own.
Tesla had to vertically integrate its supply chain to build the Model S because none of the existing suppliers would take him seriously.
To the extent that they have earned their success and steered clear of regulatory capture and the like, billionaires don't need moral justification for existing. Having said that, those billions are used to fund big bets that would otherwise not happen. I am glad they exist!
> The alternative is to beg a risk-averse committee
That is one possible alternative, not the ONLY possible alternative. For example, if there truly is value in big bets, we could have systems in place to allow proven individuals to make big money bets.
You make some cash but you're not a billionaire. There is a structural difference where some gain money even when everyone else is losing (not after everyone else has lost like in your case!).
There's no issue with some people being richer than others, but having some with hundreds of billions in the bank (constantly growing) while the companies they own fire people and pay poverty wages to those that they do employ is pretty insane. We're not in the middle ages where a lord treats their serfs as they like and if some starve that's fine.
There is a process where the rich constantly scratch the profits off the economy. When it goes well they profit. When it goes badly they profit and ask the government (aka tax payers, aka middle and lower class and small companies that don't register in the Bahamas to avoid taxes) to bail out the struggling companies out of which they have drawn billions in the previous years.
And now they are conspiring to make people believe the virus is not as bad as it is, so workers can get back to slaving away, while the government pushes people into their hands by providing no assistance whatsoever.
I am not going to defend the wealth of the ultra rich, however, I do think that it is important to call out that the headline is wrong. The increase in wealth of $280B is based on a time period of March 18 to April 10. On March 18th, the market was close to its lows. The SP500 recovered approximately 4.5% from it's lows, thus making the rich $280B richer. If you had stock at this time, as a percentage, you would have seen a similar recovery.
If we wanted to measure impacts on the wealthy, we should measured from February 1st, which was closer to the market high and the beginning of the crisis in terms of knowing the world had an issue. In this case, the billionaire class would have lost roughly $3T dollars from Feb 1 to April 10th, if my rough estimates are correct.
Of everybody, Bezos has been doing very well during this down turn because the bulk of his wealth, Amazon, is custom made for a SIP environment. From February 1st, his fortunes are only down 10%. However, as a class, the billionaires have seen a clear impact to their fortunes during this crisis well beyond Bezos smaller hit.
Actually, and I don't work for Amazon, I think Bezos has done a remarkable job in creating value. Yes he has a ton of money, but he took extreme measures of risk and made incredibly smart decisions. His balance sheet is very strong, and he doesn't need a bailout to emerge very strong.
However, there is a very large class of billionaires that have made bad decisions, ran up debt, and now get the federal government to bail them out. These are the people that I believe deserve to face the moral hazard of creating companies out of other peoples money. Bankruptcy sound horrible, but in reality, if done smartly, it means that the company's assets are sold to a bidder, and the slate is wiped clean. The people that suffer are those that created the massive debt in the first place, and those that financed this massive debt or bought into the system. I am not saying there won't be people that are hurt if we allow some bankruptcies. I do question the "no large corporation should go under." If we had a good computer sim on this, I believe allowing poorly run companies with over leveraged balance sheets to go under would ultimately result in a better business environment.
39 comments
[ 3.2 ms ] story [ 91.5 ms ] threadAnd yeah, I could have put less in, but I've been sitting on the sidelines, waiting for a crash for years!
Can you describe the person holding the gun to your head? I suspect there's a misalignment of perspective, exaggeration, or perhaps some missing knowledge of investment, or details are left out. But no one was forcing those with large wads of cash to go buy VOO.
...but I've been sitting on the sidelines, waiting for a crash for years!
Timing the market, the classic n00b mistake. It worked out for you...this time.
a) You can time the market, and specifically when it's at the bottom.
b) Corona virus is now properly calculated into the market, and it's happy days from here
This is not to discount that they're filthy rich, and certainly enough of it is liquid for them to buy in essence anything they want. So much discussion about billionaires in the press seems to discuss stock fluctuations as if they were cash injections directly into a bank account, which can't hold at those scales.
How much could Bezos actually liquidate tomorrow without losing control or tanking Amazon? That would be an interesting number. I don't have a clue
Unless he had a very believable reason to need the money that is fully isolated from Amazon the company (which is near impossible for a cult ceo/founder), Bezos selling any significant amount of stock right now would likely cause a heavy crash. The market is going to be particularly sensitive right now to the fact that someone like Bezos would only be selling if they know something big that we don't know.
The same applies all the time, but particularly in uncertain, volatile time.
If Bezos borrows $70B against $100B in stock, then the market crashes 30% in a week, and the fed pours money in to save it, it’s too late for Bezos, all his shares are already in his brokers hands.
The myth of the fed bailing out public stocks is pretty silly when we’ve just suffered through a 30% drop in a week, and a decade ago lost over 50% in under a year.
Also, we should probably use a lower number, because I struggle to think of a scenario where a single individual would actually need that much capital at once. If we need to use someone else for a different hypothetical I'm open to that too, because Amazon's stock has risen 46% since it hit its YTD low on March 16th, which is 10% higher than its previous all-time high.
Ok let’s use a smaller number. Bezos owns 55M shares of Amazon trading at $2,400 a share, worth $132B. He borrows $30B for his rocket company secured by those shares. His borrowing agreement will require the shares backing those loans maintain a minimum equity value, let’s say 50%.
Amazon drops over 50% to $1000 per share, dropping his shares value to $55B, breaching that agreement. His broker will immediately sell a few million shares to maintain his agreed equity ratio. What happens to Amazons shares when a few million hit the market in a short period?
Amazon plunges below $500, so broker is forced to sell a few million more to try to maintain that equity, driving Amazon into the low hundreds, leading to the sale of more shares, etc, etc. Eventually they dump the remainder of his shares for under $100/each just to try to recoup the last of the $30B.
He started with full control of his company, and a $130B net worth, he leaves with no shares, no control, and $30B in cash.
This scenario is a little tortured, but it is likely a big reason why Bezos sells shares to raise funds for BO. Borrowing risks giving a disinterested party the right to dump your shares at a fraction of their value due to an entirely short term event.
I don't have a 401(k), and I only had $110k saved. For my entire life, I have I kept my money out of the stock market. I only dabbled a little - only $600 of my savings came from a few shares of AMZN that I bought and sold back in 2017. The rest was from paychecks.
I started to wise up last year, when I read that the yield curve had inverted. I didn't have a clue as to what event would trigger a drop in stocks, but I knew something was coming. So my plan for months has been to buy when most people were panicking, and then to basically just sit on the stocks until cooler heads prevail.
Over a two week period starting on March 16th, I put every cent of my savings into the market. I learned on my feet, dumping the ETF shares I bought (VOO) for only an $89 loss, going directly against diversification, in favor of buying things I think I understand.
And you know what? I'm up 40 grand, and I really believe in the stocks I picked. As the other automakers drive off a cliff, TSLA is positioned perfectly (batteries, autonomy, lower TCO). And AAPL makes great products instead of depending on advertising. (I have other positions, including a bet on Chinese eVTOL maker eHang, but I'll keep this brief.)
What I'm doing is pretty damn risky in the short-term. I could still lose all my gains and much of my principal. And I only have $10k in cash to live off of if I can't find a job.
Hatred of the billionaires - whose companies invent and produce the things that drive our living standards up - also hurts conscientious people like me. Instead of envying the rich, focus on how to get rich yourself.
NB: Gains from stocks are not free money! What I'm doing feels like a full-time job, as I continually worry about losing everything. This involves an incredible amount of research and planning, the ability to take on an incredible amount of risk, and that's stuff that the envious haters never see.
We can both applaud people like you taking a risk AND still recognize that regulatory capture and market power concentration are stifling innovation and concentrating wealth in ways that we haven't seen in nearly a century.
I've been quite lucky with the market myself and it's clear to me that the game is very much rigged. Not only that, but the people who come into the market for 30%+ gains on a quarterly basis are the people promoting a business environment that incentivizes short term gains at the expense of real economic development.
Congratulations on your gains.
https://twitter.com/maxharris9/status/946098382501593093 https://twitter.com/maxharris9/status/946092172301934597 https://twitter.com/maxharris9/status/946086949034401792 https://twitter.com/maxharris9/status/1193024005390778370 https://news.ycombinator.com/item?id=5956471
Congrats on your gains as well! And I don't think it's fair to either of us to call it luck.
Even if you're not an expert on stocks, that Tesla rose within a few weeks from 300 to 1000, then went back to 400 and currently stands at 700 - so halving and doubling value within a few weeks - has absolutely nothing to do with fundamentals or things anyone understands, want 100% with speculation.
I've made some money on the market, including with Tesla, but I'd never put this down to anything other than luck. The forces that shape the market are much bigger than any of us normal humans can even begin to grasp, much less 'understand'.
I have a degree in molecular biology, and I took a lot of elective courses in immunology, oncology, virology. I worked in a research lab on HIV vaccine for two years after undergrad before I switched back to software engineering. So I was able to keep a cooler head about the virus than most, which enabled me to buy intelligently. I worked damn hard to earn that degree and in my time in the lab. I was a twitchy premed student that needed every grade to be perfect. NONE of the effort I poured into those six years of my life was luck. It was pure sweat.
In the immediate future, I expect that the dip in advertising will cause Q1 earnings from Google and Facebook to be lower than expected. As the Fed continues to inflate stocks, this will cause a lot more buying of TSLA and AAPL.
In the 2020s, Tesla will continue to soar because:
1) they have a huge lead in battery tech. they're about to announce that they've achieved the $100/kWh mark, which will let them sell electric cars that go as far as gas ones but don't cost more.
2) batteries are crucial for amazing tech like the emerging eVTOL scene. it's possible Tesla may enter that space and dominate it, because batteries determine everything there, too. in the meantime, I bought some shares of eHang (Chinese company, listed on the Nasdaq under EH)
3) they have a huge lead in autonomous driving. LiDAR is a dead-end, and they're ahead of everyone else there, too: https://www.youtube.com/watch?v=hx7BXih7zx8
4) demand is not a problem at all, especially in China (where the latest new factory is). demand for iPhones was just fine in 2008-2009! remember Ballmer reacting with, "$600 for a phone!?" when he was asked about the iPhone in 2007?
5) they now sell car insurance. they're using all the data collected by their cars to offer significantly lower rates to customers
6) they're going to get into home HVAC, which will integrate beautifully with the Powerwall and solar roof products. I have been looking at buying a cheap off-grid lot up in the mountains to build a home on (when the price is right!), and I absolutely will buy that and avoid paying significant costs to get the lot hooked up to the grid.
7) their competitors will continue to fail to invest in EVs, even though their futures depend on it. this is because they are loaded up with tons of debt, while Tesla has a lot less
8) the site for Gigafactory Berlin has been fully cleared, and it will be under construction very soon. there's another factory coming in the US later this year.
9) I should at least mention the new products! Model Y is a definite hit, and it's clear that the Cybertruck will be! the new semi was delayed only because they simply can't produce enough batteries for it and the Model Y at the moment. that's gonna change!
10) they have a new analyst covering them at Goldman, and he's bullish. I expect TSLA to join the S&P 500 this year, which will trigger a massive wave of institutional buying.
I think ARK Invest has it right. $24k/share by 2024. Out of the scenarios they give, I think their middle-range estimate of $3.4k/share by 2024 is my worst-case.
Tesla is $54.74% of my portfolio right now, and if I could go back to March and do it all over again, I'd make it 100%.
If you want to keep in touch and lord it over me when I go bankrupt, I'm maxharris9 on Twitter.
When Elon Musk went to Russia to try to buy a rocket in 2001, they thought he was full of shit. So he went to work on building his own.
https://economictimes.indiatimes.com/news/science/how-tesla-...
Tesla had to vertically integrate its supply chain to build the Model S because none of the existing suppliers would take him seriously.
To the extent that they have earned their success and steered clear of regulatory capture and the like, billionaires don't need moral justification for existing. Having said that, those billions are used to fund big bets that would otherwise not happen. I am glad they exist!
That is one possible alternative, not the ONLY possible alternative. For example, if there truly is value in big bets, we could have systems in place to allow proven individuals to make big money bets.
There's no issue with some people being richer than others, but having some with hundreds of billions in the bank (constantly growing) while the companies they own fire people and pay poverty wages to those that they do employ is pretty insane. We're not in the middle ages where a lord treats their serfs as they like and if some starve that's fine.
There is a process where the rich constantly scratch the profits off the economy. When it goes well they profit. When it goes badly they profit and ask the government (aka tax payers, aka middle and lower class and small companies that don't register in the Bahamas to avoid taxes) to bail out the struggling companies out of which they have drawn billions in the previous years.
It is absurd and obscene.
If we wanted to measure impacts on the wealthy, we should measured from February 1st, which was closer to the market high and the beginning of the crisis in terms of knowing the world had an issue. In this case, the billionaire class would have lost roughly $3T dollars from Feb 1 to April 10th, if my rough estimates are correct.
Of everybody, Bezos has been doing very well during this down turn because the bulk of his wealth, Amazon, is custom made for a SIP environment. From February 1st, his fortunes are only down 10%. However, as a class, the billionaires have seen a clear impact to their fortunes during this crisis well beyond Bezos smaller hit.
Actually, and I don't work for Amazon, I think Bezos has done a remarkable job in creating value. Yes he has a ton of money, but he took extreme measures of risk and made incredibly smart decisions. His balance sheet is very strong, and he doesn't need a bailout to emerge very strong.
However, there is a very large class of billionaires that have made bad decisions, ran up debt, and now get the federal government to bail them out. These are the people that I believe deserve to face the moral hazard of creating companies out of other peoples money. Bankruptcy sound horrible, but in reality, if done smartly, it means that the company's assets are sold to a bidder, and the slate is wiped clean. The people that suffer are those that created the massive debt in the first place, and those that financed this massive debt or bought into the system. I am not saying there won't be people that are hurt if we allow some bankruptcies. I do question the "no large corporation should go under." If we had a good computer sim on this, I believe allowing poorly run companies with over leveraged balance sheets to go under would ultimately result in a better business environment.