Irresistible to leave this moment alone - a thread to share some investment lessons:

1/ Size matters.
Melvin entered 2021 circa $12 billion in AUM and runs a highly levered balance sheet. That’s a lot of short exposure to move around if needed.

2/ WSB/Reddit captured a market inefficiency.

Stocks are not supposed to have over 100% short interest. Naked short selling is illegal. This set-up should never happen. Kudos to those who took advantage.
How it happened and what it means has rampant ramifications, but in this moment the individuals captured the anomaly.
3/ Be careful dismissing “in theory” for those rare moments when it becomes “in practice.”

Keynes said “markets can be irrational longer than you can be solvent.” I suspect this won't take down any significant hedge fund, but it definitely hurts.
3b/ Be careful dismissing “in theory” for those rare moments when it becomes “in practice.”

Academic finance teaches that “a short sale has unlimited downside and limited upside. Those events almost never play out, until they do.
4/ This isn’t the first drive by shooting I watched.

On the short side, VW stock in 2008.

And on the long side (leveraged), CMBX in November 2008

Both traded to completely irrational levels for a time. True left tail events for those in the positions.
5/ We don't know what will happen.

Peter Bernstein’s famous line about risk. A global pandemic leading to a soaring market? Negative interest rates? Online traders crushing monster hedge funds?

Beware those who think in certainties instead of probabilities. @AnnieDuke
6/ Timing is impossible

We know the outcome of this with near certainty (99%+ probability). GME stock will fall back to a fundamental level when the weighing machine takes over from the voting machine. We have absolutely no idea when - a day, week, month, 5 years? No idea.
7/ The short side is just brutal

My understanding is that Gabe Plotkin is one of the very best investors (process, not outcome). I highly doubt #melvincapital missed much in advance. And yet, here we are. No rebates, volatility, untethered trading - shorting is brutal.
8/ Size matters.

Melvin entered 2021 circa $12 billion in AUM and runs a highly levered balance sheet. That’s a lot of short exposure to move around if needed. And obviously, it's not alone in shorting stocks.
9/ 2nd order opportunities

Textbook hedge fund portfolio management is to deleverage amidst losses. Not just Melvin – this likely already cascaded to multi-manager platforms and will continue.
9b/ 2nd order opportunities.

Think about other places where deleveraging could take down stock prices and make attractive risk-rewards. I have my eyes on SPACs – large ownership from event driven funds, sold off yesterday across the board, and could get to cash value in trust.

More from Finance

The Dutch regulator and DNB as financial supervisor are a tough cookie to deal with. In essence they hyperregulate EU-rules into goldplated Dutch rules which go beyond what is prescribed in Europe.

All NL-customers at British banks may thus be kicked out on brexit.

Thread

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If we start with the capital requirements directive, it says attracting deposits is forbidden. In article 9.

https://t.co/RYl7SXligC


Now the translation of that rule into Dutch law is slightly expanded to not only prohibit attracting deposits, but to also prohibit, having those deposits under custody ('ter beschikking hebben').

That's not in EU law, but it is in our Dutch law.

https://t.co/PsbWfNY3PA


So if you wonder how this would work out for UK banks and Payment institutions servicing Dutch customers. Have a read at the technical explanation of DNB, the financial supervisor and their summarising table.

https://t.co/LL0fAnYkRJ

Passive servicing of Dutch is not allowed!


Any bank or PSP in the UK that continues to serve Dutch customers (as in retail customers, professional players are excepted) can thus be subject to fines and policing under Dutch law.

Meaning we not only have Accidental American issues in payments, but also Accidental Dutchies

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Recently, the @CNIL issued a decision regarding the GDPR compliance of an unknown French adtech company named "Vectaury". It may seem like small fry, but the decision has potential wide-ranging impacts for Google, the IAB framework, and today's adtech. It's thread time! 👇

It's all in French, but if you're up for it you can read:
• Their blog post (lacks the most interesting details):
https://t.co/PHkDcOT1hy
• Their high-level legal decision: https://t.co/hwpiEvjodt
• The full notification: https://t.co/QQB7rfynha

I've read it so you needn't!

Vectaury was collecting geolocation data in order to create profiles (eg. people who often go to this or that type of shop) so as to power ad targeting. They operate through embedded SDKs and ad bidding, making them invisible to users.

The @CNIL notes that profiling based off of geolocation presents particular risks since it reveals people's movements and habits. As risky, the processing requires consent — this will be the heart of their assessment.

Interesting point: they justify the decision in part because of how many people COULD be targeted in this way (rather than how many have — though they note that too). Because it's on a phone, and many have phones, it is considered large-scale processing no matter what.