Tagged: TSLA

Hacky Sack Stocks

“We track everything in our facilities, down to the number of gloves we use. Why wouldn’t we track everything in the market? Our primary purpose is creating

shareholder value.”

So said one of the investor-relations rock stars of the modern era over dinner with executives on a non-deal roadshow.

I learned about it by phone this week. In a non-Pandemic year I visit as many clients as I can.  I don’t miss the airports. I do miss the faces.

In 2020, I’m calling clients, the old-fashioned way to hear these fabulous examples of great IR leadership.

What did the execs think of the answer?  They loved it so much that this person is now in charge of corporate development and other business initiatives.

This IRO introduced market structure to the board of directors.  Nobody had.  They recognize now that story is just one driver of shareholder value, and not the biggest.

Now, maybe you quail at the thought of getting more responsibility by demonstrating value and leadership.  I get it. Most of us are pretty busy already.

But if adding value for your organization is on your list in 2021, IR professionals, here’s a simple way.  Teach your board and executives the basics of the market. Who else is going to do it?

Another person doing a great job teaching execs how the market works is hacky sack expert Clay Bilby, who found a creative use for the ModernIR stress ball from the NIRI Annual Conference box of goodies.

Which reminds me of a story. It’s holiday season, and it’s been a long year!  We could all use a good story, right?

So our friends Peter and Bruce are the faces and feet behind the World Footbag Association here in Steamboat Springs.  Peter said, “Did I tell you about the time I slept with Kevin Costner?”

After we recovered from the surprise, we said no, we had not heard that story. Turns out Peter was hired to teach Kevin Costner how to kick a hacky sack around for the movie Silverado.  There’s a scene in this western packed with Hollywood stars where Costner is in a jail cell.

The plan called for Costner to whack the hacky sack around in his boots behind bars. They worked and worked on it, but according to Peter, Kevin Costner doesn’t have the hacky sack gene.

Weary from the effort and waiting for other scenes to be shot, Kevin says to Peter, “Hey are you tired?  I’m beat.  I’ve got a trailer here.  You want to catch a nap?”

Peter said, “I could use a few winks.”

And so they went to Costner’s trailer and crashed for a couple hours. And that’s how Peter slept with Kevin Costner.

Alas, the hacky sack scene landed on the cutting floor.  But the story lives on.

In a way, your stock is a hacky sack.  It gets kicked all around the stock market, through 15 exchanges and over 30 alternative trading systems because it must constantly move to wherever the best price resides.  That’s the law. Regulation National Market System.

It’s why more than 53% of trading volume in the S&P 500 the past week through yesterday – during huge index rebalances and options-expirations – was Fast Trading. The hacky sack players of the stock market, kicking the bag all over the place.

And they were the top price-setter the past five days.

Investment driven by fundamentals (Active), and flows from indexes, Exchange Traded Funds and quant funds (Passive) actually declined 6% last week, a key reason the market has been down.  More hacky-sacking, less investment, stocks fall.

In fact, if supply and demand were perfectly balanced, stocks would decline.  Why? Because the bid to buy will always be lower than the offer to sell, and 53% of the market’s volume comes from hacky sackers paid about a half-penny at a time to kick it around.

Also rising to over 18% of volume in the S&P 500 last week were trades tied to derivatives (Risk Mgmt). That is, 18% of the time last week in a given stock such as TSLA, a trade occurred because somebody had to buy or sell stock tied to puts or calls.

Add those up. It’s 71% of market volume.  The remaining 29% was investment, about 9% tied to stock-picking, 20% following indexes, models.

That’s market structure. It’s no harder than hacky sack.  Unless you’re Kevin Costner. And we’ll coach you. Just ask.

Resolve to make 2021 the year when your board knows what market structure is.  But before that, we hope your holiday season, however you mark it, is full of joy and gratitude, peace and reflection, and cheer.

We feel those feelings for all of you.  Happy Holidays!  We’ll see you on the other side.

Boxes and Lines

 

In the sense that high-speed transmission lines connecting computerized boxes are the stock market, it’s boxes and lines.

Also, stock exchange IEX, the investors exchange, hosts a podcast called Boxes and Lines that’s moderated by co-founder Ronan Ryan and John “JR” Ramsay, IEX’s chief market policy officer. I joined them for the most recent edition (about 30 mins of jocularity and market structure).

In case you forget, the stock market is not in New York City.  It’s in New Jersey housed in state-of-the-art colocation facilities at Mahwah, Carteret and Secaucus.  It’s bits and bytes, boxes and lines.

It’s superfast.

What’s not is the disclosure standard for institutional investors.  We wrote about the SEC’s sudden, bizarre move to exclude about 90% of them from disclosing holdings.

The current standard, which legitimizes the saying “good enough for government work,” is 45 days after the end of the quarter for everybody managing $100 million or more.

We filed our comment letter Monday.  It’ll post here at some point, where you can see all comments. You can read it here now.  Feel free to plagiarize any or all of it, investors and public companies. Issuers, read our final point about the Australian Standard of beneficial ownership-tracing, and include it with your comments.

Maybe if enough of us do it, the SEC will see its way toward this superior bar.

Without reading the letter or knowing the Australian Standard you can grasp a hyperbolic contradiction. The government’s job is to provide a transparent and fair playing field.  Yet the same SEC regulates the stock market located in New Jersey. Boxes and lines.

FB, AAPL, AMZN, NFLX, GOOG, GOOGL, MSFT, AMD, TSLA and SHOP alone trade over 2.5 MILLION times, over $80 billion worth of stock. Every day.

And the standard for measuring who owns the stock is 45 days past the end of each quarter.  A quarter has about 67 trading days, give or take.  Add another 30 trading days.  Do the math.  That’s 250 million trades, about $7.9 trillion of dollar-flow.  In 10 stocks.

Why should the market function at the speed of light while investors report shareholdings at the speed of smell? Slower, really.

Do we really need to know who owns stocks?  I noted last week here and in our SEC 13F Comment Letter both that online brokerage Robinhood reports what stocks its account holders own in realtime via API.

That’s a communication standard fitted to reality. True, it doesn’t tell us how many shares. But it’s a helluva better standard than 97 days later, four times a year.

Quast, you didn’t answer the question.  Why does anyone need to know who owns shares of which companies? Isn’t everybody entitled to an expectation of privacy?

It’s a public market we’re talking about.  The constituency deserving transparency most is the only other one in the market with large regulatory disclosure requirements: Public companies.

They have a fiduciary responsibility to their owners. The laws require billions of dollars of collective spending by public companies on financial performance and governance.

How incoherent would it be if regulations demand companies disgorge expensive data to unknown holders?

As to retail money, the Securities Act of 1933, the legislative basis for now decades of amendments and regulation, had its genesis in protecting Main Street from fraud and risk.  The principal weapon in that effort has long been transparency.

Now, the good news for both investors and public companies is that you can see what all the money is doing all the time, behaviorally. We’ve offered public companies that capability for 15 years at ModernIR.

Take TSLA, now the world’s most actively traded – we believe – individual stock. SPY trades more but it’s an ETF.  Active money has been selling it.  But shorting is down, Passive Investment is down 21% the past week.  TSLA won’t fall far if Passives stay put.

That’s market structure. It’s the most relevant measurement technique for modern markets. It turns boxes and lines into predictive behavioral signals.

And investors, you can use the same data at Market Structure EDGE to help you make better decisions.

Predictive analytics are superior to peering into the long past to see what people were doing eons ago in market-structure years. Still, that doesn’t mean the SEC should throw out ownership transparency.

Small investors and public companies are the least influential market constituents. Neither group is a lobbying powerhouse like Fast Traders.  That should warrant both higher priority – or at least fair treatment. Not empty boxes and wandering lines.

PS – Speaking of market structure, if you read last week’s edition of the Market Structure Map, we said Industrials would likely be down. They are. And Patterns say there’s more to come. In fact, the market signals coming modest weakness. The Big One is lurking again but it’s not at hand yet.