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There’s More To This Rally Than A Meme Driven Bubble

Unless you don’t pay any attention to the market, you’ve surely heard about GameStop stock. As of this writing, it’s currently trading at $210 (after hours price), up from $30 last week. That’s right, a more or less defunct company’s stock is up around 7 times in a few short days and is now worth $14 billion in total.

In a previous post, I go into some of the technical details behind why the stock is surging.

But stepping back, we can see this two ways. First, there’s the rational approach (which I generally subscribe to) that says there’s no way that the stock could be worth this much. What would an informed buyer pay for the entirety GameStop’s business? I assure you the answer is significantly less than $14 billion. …


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Photo by malith d karunarathne on Unsplash

How A Band Of Redditors Inflated A Stock Bubble That Dwarfs All Others

As various bubbles around us keep inflating, I’ve decided to document them in real time as best as I can. I’ve often wished there were more books about the original Dot Com Bubble (that burst two decades ago).

It’s one thing to look back at the stock prices and crazy valuations. It’s another thing to read about what people were thinking. Similar to current times, 1999 must have been an intoxicating cocktail of greed, FOMO, and crazy herding behavior.

The bubble that I want to discuss today is GameStop, whose shares opened last Friday at around $43, which was already massively higher than the $3 it was worth in April of 2020. …


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Photo by Perfecto Capucine on Unsplash

To Sell Ebooks And Diversify Its Revenue (Probably)

If you squint, Medium’s current business model looks a lot like the traditional magazine business model minus the advertisements. In other words, source content that people will pay for.

Medium is like a giant online magazine where anyone can write, but not everyone who writes will be read. Distribution of a writer’s content is largely in the hands of Medium’s algorithms and to a lesser extant a publication’s editors. How and what content is distributed is done in such a way as to maximize subscribers, which maximizes both Medium’s and well-read writers’ earnings.

Medium has doubled down on the magazine model by emphasizing publications (both its own and third party ones). Each publication, by focusing on its own niche or set of topics, is like a mini-magazine. The main difference being that instead of subscribing separately, a Medium subscription grants access to all publications. …


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Think Hard About The Odds Before You Bet

Not intended to be investment advice.

Everyone seems to be an options trader these days. When stocks are surging, options which grant leveraged exposure to those stocks become all the rage.

But much like stocks can become overvalued, options can too. Take GameStop call options for example. GameStop stock has had a massive run since the beginning of 2020 (it quintupled). Speculators who were lucky enough to hold GameStop calls at the right time made a fortune.


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Photo by Obi Onyeador on Unsplash

China Presents A Potential Future For How Commerce Is Done Over Social Networks

A few months ago, my girlfriend showed me videos of a Chinese influencer named Austin Li. The fellow was trying on different lipsticks and critiquing the shade and color. But Mr. Li was no run-of-the-mill cosmetics Vlogger. Within a few minutes, he had sold more than a thousand sticks of lipstick. After a few minutes more, his inventory was all sold out, and he moved on to the next product, instant milk tea. After a few more minutes, all the milk tea was sold out too.

“What the heck just happened?” I wondered.

Being unfamiliar with Chinese social networks and its e-commerce landscape, I thought of the Home Shopping Network (the most obviously similar U.S. business). But this was so much more, it was like the Home Shopping Network on steroids. People were buying boxes of lipstick, way more than they needed, not because they loved the product, but rather because they loved Mr. …


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Photo by SpaceX on Unsplash

Network Effects Dampen The Equalizing Impacts Of Competition

It seems like today’s high flyers keep rising higher and higher (both in terms of revenues and share price) putting more and more distance between themselves and their more ground-bound competition.

We can observe this via the nosebleed valuations of leading tech companies, the hype around hot IPOs, and the massive outperformance of growth stocks over value stocks. Why is this happening?

Network Effects

Many of today’s best performing companies (like Google, Facebook, Snapchat, Square, Apple, Amazon, Zillow, etc.) own global marketplaces that benefit from network effects. This means that the bigger they get, the more competitive and profitable they become. Think of a two-sided marketplace — more buyers attract more sellers, which attracts more buyers, which in turn attracts even more sellers. …

About

Tony Yiu

Data Science @Solovis, Doing my Best to Explain Data Science and Finance in Plain English. Follow my publication at: https://medium.com/alpha-beta-blog

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