Can't Fight This Feeling

August 12, 2020·11 comments·Money

Retail investors now openly share tips on detecting insider trading patterns and coordinate around suspected manipulation, treating it not as a secret edge but as common knowledge. The casual normalization of this behavior mirrors the dot-com bubble's boundary testing, but with a crucial difference: back then, consequences eventually came. Now, nobody seems to expect them to.

• Retail speculators are using paid services to track unusual options activity before major announcements. Reddit forums and Discord channels openly coordinate around these signals, discussing them with the same matter-of-factness they'd use for weather forecasts.

• The mechanics are openly visible. Insiders sell massive positions immediately upon vesting. Services tweet about insider activity on stocks under SEC investigation. Yet the infrastructure supporting this hasn't changed and the enforcement apparatus hasn't visibly responded.

• What's shifted isn't the behavior but the shame. In the late 90s, people knew they were gambling and knew they might get caught. Today's retail participants seem to operate from a different premise: everyone knows the game is rigged and everyone knows nobody will pay a price for playing it.

• Institutional players have stopped even pretending otherwise. Insider selling at companies like Moderna happens on such a scale and with such timing precision that it reads less like trading decisions and more like extraction strategies with confidence that consequences won't materialize.

• The transformation of capital markets into something other than price discovery is now explicit rather than hidden. If markets are entertainment utilities where insiders know the house odds and retail knows the game is rigged but plays anyway, what does that mean for why these systems were supposed to exist at all?

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Comments

David_Robertsonover 5 years ago

Yup - totally agree.

What causes “us” to change? My sense is that most people don’t feel as if they can afford to actively push back. As a result, it is unlikely much will change until the costs of these transformations migrate from being abstract concerns to immediate, painful, and personal challenges.

I wish it were otherwise, but I just don’t see the evidence. What you and Ben are doing is as close as it comes to changing that.

Olsenoidover 5 years ago

Corzine was my personal a-ha moment. When I realized that (some people) could basically do whatever. Unless of course one is stealing food or passing counterfeit $20s or something. #bitfd

Blasherover 5 years ago

Rusty, great but disturbing analysis. I would appreciate hearing more about “I don’t have any reason to think we’ve got a bubble that’s about to burst.” At what amount or duration of boundary-testing behaviors do you start to think that a burst is coming?

tromaresover 5 years ago

Hi David

My gut level feeling what has caused “us” to change is fear. Ben’s question ( paraphrased here because I probably will mess it up) “When did the future stop being a promise and become a threat” has hit home to millions… Survival to some means finding the next meal and to others it means keeping up with a debt load supporting a life-style and spending pattern. By any means possible.

There has never been a better time to care for others and practice forgiveness. Best path out of a dark place. EP provides some light along that path,

Desperate_Yuppieover 5 years ago

Great stuff, Rusty. I remember being in college at the same time–in this case quite literally as it seems we graduated the same year–and my experience of the dot-com bubble was from a different perspective. My father was at the time what we would call a broker (banish the word from the modern era! We are advisors, dammit!) and I watched as he was consumed by the carelessness and greed of the market implosion. Although he was not a risky investor, his clients would hound him to buy whatever the latest, hottest future bankruptcy was in the zeitgeist. It was tough on him, and it left a lasting impression on me. Even today I’m a more cautious advisor than I would have been than if I had simply breezed through that time, oblivious to what kind of real pain was being caused by rampant speculation and the amateurization of a profession. And that’s why I write this next part:

The Chief Medical Officer of Moderna (MRNA) currently owns ZERO shares of the company’s stock. Nada. Zilch. Within months of his options vesting he simply exercises. So far he’s managed to rake in ~$74,000,000 (my estimate) by selling stock. Since April. April 2020. He doesn’t strategically sell, hunting for the right price. His sales are immediate and indiscriminant. Insider selling can mean a lot of things, as Peter Lynch said, but buying can mean only one thing. Before the $1.5b government contract was announced he sold again, netting a little under $1,000,000. Those 20,000 shares that Dr. Zaks sold probably ended up in the hands of a bunch of naive Robindhood traders who, since then, have seen the stock close well below the price Dr. Zaks got. Why would someone want to invest in a company where every single Form 4 transaction in 2020 has been a sell?

Insiders of every questionable company ought to buy the guys who founded Robinhood a few rounds next time they’re in Menlo Park. They built the perfect machine to hoover up unwanted shares while the insiders get to walk away with piles of dumb retail money. It’s a voluntary wealth transfer the likes of which is matched only by casinos. At least with roulette you know the odds are against you.

Flat_Arthurover 5 years ago

I have been following this too D_Y. I have never seen a 10b5-1 plan (never mind several for insiders at the same company) that would sell so much on so many different days of the week/month. The 10b5-1 plan also seem to absolutely nail the headlines EVERY ONE OF THEM. It’s sickening.

Rusty, what does the change look like? I don’t know what else I can do other than voting with my wallet and whining on Twitter & ET.

ZeroMugenover 5 years ago

I wonder how WE change when there doesn’t seem like there’s anything to change TO… maybe I just haven’t found it yet; I’m looking for the community-centric Plan B. If anyone knows, please advise.