Investing in stocks, your humble blogger first turns to
, which tries to determine the "intrinsic value" of securities both from a
projection of earnings and dividends as well as the fair value of assets and
liabilities on the balance sheet. Yes, it's hard work and as boring as it
sounds, but some of the most successful investors in history have used FA to
determine when to buy or sell a stock.
More often than not, however, emotions rule markets, such as the
that has driven Gamestop, AMC, and other heavily shorted names to prices that
cannot be rationalized under even the most optimistic scenarios.
Thousands of members of WallStreetBets, a forum at the online community
reddit.com, have been leading the swarm of amateur individual traders buying
stocks that hedge funds and other institutional investors were betting
Moving in sync and en masse, such traders can drive a stock way up or down
even if each trader commits only a few dollars. Professionals, on the other
hand, are legally restricted from colluding and incur much higher brokerage
These new mobs of amateur traders resemble swarms of animals that often
coalesce in the wild. You may have seen videos of an immense school of fish
flashing in unison through the sea or a murmuration of starlings forming a
vast swirling vortex in the sky.
These swarms shift direction in swift, coordinated bursts to find prey and
Even multi-billion-dollar hedge funds can be overwhelmed by the "swarm," so if
an individual wants to participate on either side of the trade on one of these
targeted stocks, it had better be with money that he can afford to lose.
The heavily shorted Reddit stocks have been well publicized, and to this bemused
investor it is impossible to know whether they will go up or down from their
present levels, However, one tidbit caught my eye last week: the price of silver
was being discussed on the message boards, and precious-metal stocks had only
risen modestly so far.
Those of us who lived through the rampant inflation of the 1970's are dwindling
in number. We old-timers remember the
"guns vs. butter"
debate from the 1960's, when fiscal conservatives argued that the United States
could not both prosecute the Vietnam War and implement Great Society social
spending programs. The rampant inflation of the 1970's seemed to prove the
fiscal conservatives correct.
The Federal Reserve under Paul Volcker wrung inflation out of the economy by
forcing Treasury rates to the mid-teens and triggering a severe recession, and
the lessons of that period have influenced generations of economic policy
makers. Today's gargantuan deficits in the $trillions and near-zero interest
rates have not resulted in inflation...yet; but now may finally be the time when
The above is a long way of saying that I have started to shift my retirement
portfolio into hard assets like real estate, precious metals, and related
stocks as a hedge against inflation. So, back to
Reddit targets: the fact that thousands of individual investors were beginning to
look at silver accelerated this investor's decision to buy some
On Friday I purchased some Hecla Mining (HL) at $5.80, a stock that I had owned in
the past, as a way of playing the silver market. As of this writing, HL is
trading at $7.19, a 24% increase over cost.
There's been some chatter that the
big-money funds have disguised themselves online as individual investors and are
planting information to drive up the price of silver and silver stocks. It's
been fun for a day, and I'll ride it a little longer before getting out.