If 90% of your volume is between 930a-4p ET, why would you report outside market hours, public companies?
For NIRI members, I’ll address this question and much more in 20 minutes between 305-325p CT in Chicago Monday June 8, at the NIRI Annual Conference. Join and throw things (preferably not tomatoes)!
The question looms larger as US exchanges prepare to expand trading to 23 hours per day, five days per week. The Nasdaq is aiming for December.
Meanwhile the CEO of SIX, the Swiss operator of markets there and Spain and the UK, says they see limited demand for overnight trading.
Frankly, the more volume after hours, the better. Markets work best when they aggregate demand and supply. Those can be sharply skewed to one side or the other when there’s no mob on hand.
I said to the CFO of a smallcap, “If 95% of your volume is in market hours, why would you report outside them? If that 5% all have bear bets, nobody will take the other side of the trade, and you get crushed. You serve your shareholders best where competition is greatest.”
He said, “I’d never thought of that.”
We’re schooled in our profession to provide information in a manner that permits its digestion. Right? Have you used AI? I’m sure you have.
We built a statistical model with scads of data: 22 discrete Excel files with fifteen columns and hundreds of rows each. AI can consume all of it and run z-scores and build the model in seconds.
Well, how hard do you think it is to digest your earnings release? It’s done in literally microseconds.
If those microseconds are all bearish, there goes 20% of your market cap and nobody can contest the outcome because there aren’t enough participants outside market hours when you reported all that information.
It’s rather like the so-called Byzantine Generals problem. You know it? It’s core to bitcoin. It’s game theory.
I’ll merely summarize here. The notion is generals have a binary choice: Attack or retreat (kind of what happens when you report earnings, public companies). The outcome turns on consensus. A certain number of generals will disagree but so long as you have a majority, your strategy is intact.
In effect, a system needs a majority of honest actors. Apply to bitcoin (whoever Satoshi Nakamoto is, he referenced the Byzantine Generals problem). A distributed open-source network depends for security on a consensus. If more than half the participants are nefarious, Proof of Work fails and the ecosystem collapses.
The success of the Byzantine Generals launching an attack requires agreement. Subterfuge, rebellion, can turn the tide of battle.
And in the stock market, game theory applies. Will you have a better chance dispersing a rebellion during market hours when the ranks of your big holders are on hand to offer defense, or outside them when the marauders are running loose and pillaging?
Look, it’s one small thing. There’s much more to the plan. But public companies, you move from random and accidental to purposeful and intentional by having a PLAN. You plan your outreach to the buyside and sellside, right? You have a unified message?
Well, why wouldn’t you do the same with the rest? You can’t control those behaviors. But you most certainly can apply game theory and influence them.
And you owe it to your shareholders. In fiduciary roles, we have a responsibility to do everything we can for those who committed capital to our endeavor. If you’re intrigued, come to my Express Talk Monday, June 8.
Now, what about the stock market? Can SNDK, MU and the rest of the Catalyst Cast carry us onward to new and dizzying heights?
I guess we’ll find out. The 20 largest stocks, from Nvidia to AstraZeneca, are over $40 trillion of market cap. Twenty stocks are more than HALF the market.
Is that bad?
Well.
Given that they’re all in more than 500 ETFs on average (NVDA is in nearly a thousand), which have options traded on them, and nearly all are in the S&P 500, which has options and futures, and nearly 60% of volume ties to its 0DTE options (this week 0DTE options began trading on the DJIA at the CBOE too, as if we need more “gambling” as Warren Buffett called them), it’s hard to call it good!
It’s a tangled derivatives web, a pyramid of intertwined obligations owned by everyone.
And get this: The average price of S&P 500 components is lower today at about $218 than it was at the end of November 2024 ($219). That means the average stock has lost ground the past 18 months as the AI trade memed its way to the stratosphere.
At some point, we need to get back to basics, seems to me. Form capital. Stop speculating on everything. But what do I know?
Meanwhile, the beat goes on. I’ll see you public companies at NIRI AC next month.
