Lots of pain and no gain

Happy Friday!

One of my resolutions for 2021 was to refrain from ripping on Millennials, but incompetent day traders are not getting a hall pass. Elon Musk tweeted the following on January 7th

On January 6th, shares of Signal Advance (ticker: SIGL) closed at $0.60. On January 7th, it closed at $3.76.  

There’s just one issue. Signal Advance is a micro-cap biotech company, and Musk was referring to Signal, which is a messaging platform/app that not only is a private company but a nonprofit. As in, this company is never going to generate earnings because it’s not supposed to… because it’s a nonprofit. 

Stories of traders confusing stock tickers make headlines a few times a year and always deliver joy. It’s like finding a $20 in the back pocket in that pair of jeans you haven’t worn since last winter. But they also resolve themselves in about 24 hours. Traders realize they were clumsy and usually take this mistake to their grave to avoid public ridicule.

In fact, on the scale of financial pain, confusing tickers tends to be the equivalent of stubbing your toe. It hurts for a while, but really you just feel stupid because you know the fault lies with you. No major long-term side effects other than an impaired ego.

But the crazy part about this story is that the stock continued to rally even after the truth was discovered. On Monday, it soared to over $70/share! It’s come down since then, but still gained over 36% on Thursday to close at $11.50. 

More than one reporter has labeled this behavior as “crazy,” but given the events of the last year, I’d say it’s rather “consistent.” Don’t forget what has transpired. We’ve seen everything from laughable valuations of IPOs to Hertz doing a stock offering after declaring bankruptcy. Oil even traded negative. Why is anyone surprised that SIGL soared higher even after Musk’s minions learned the error of their ways? 

Consider the very likely possibility that this is the same cohort that gets excited every time their immortal leader dilutes them upon a newly announced equity offering (this happened three times alone in 2020). This “thank you may I have another” attitude towards Tesla’s stock could also be why its market cap is now higher than Facebook’s (despite FB having something like 16 times more earnings-per-share on a TTM basis). 

Again, not crazy. Just consistent.

Now, let’s move along to another story that sits on the exact opposite end of the financial pain spectrum.

The New York Times published a story this week about people sitting on millions in bitcoin, but they’ve forgotten the password to their digital wallet. Matt Levine also covered this story on Tuesday (his newsletter is free and one of the very few I read every day). 

I’m not talking a few million either. Some programmer in San Francisco is sitting on $220 million, but he lost the piece of paper with his password. OMG!!!

On the scale of financial pain, this is equivalent of… I don’t know. The military reminds recruits that the best thing about pain is that it lets you know you aren’t dead yet, but I’m not really sure that is the case in this instance. 

But by far the best part of this article is how the NYT continually mocks him in their patented smug way. Take the pic below (downloaded from the article). Imagine being the photographer. You ask this guy to sit on the one park bench in all of San Francisco that’s not caked in Hep-C and then tell him to look out into the distance, as if waiting for the love of his life to return. And you then snap a few photos while the ice water running through your veins keeps your laughter at bay. 

Because it isn’t a long lost love. It’s $220 million. And while money can’t buy love, it can buy mansions, private planes, and immunity from 99% of prosecution in the U.S. If he figures out that password, he’ll be fighting love off with a stick.

I really don’t know what this guy did in a prior life to deserve this sort of punishment. I mean it’s bad enough that he has to live in San Francisco, but then to be worth nine figures and unable to use any of it to load up on zipped hoodies, plant-based tacos, and a lifetime supply of allbirds must be excruciating. At least he may be able to renegotiate his rent this year:

But this story did get me thinking a bit about why his digital wallet is worth so much, and I’d wager it is because he lost the password. Had he been able to sell years ago, he probably would have at a much lower price. 

It’s sort of like how private investments work. You put your capital into a fund, that fund locks up, and you can’t get it back for a long time. That’s one of the key reasons why private equity returns have clobbered public equity over the long run – the inability to sell during COVID, the financial crisis, etc.

Anyway, I hope this ends on a positive note for him. According to the story, he has two more attempts to get his password before his wallet gets wiped. Maybe one day it will be worth a few billion, he finally remembers his password, converts to U.S. dollars, and then is fortunate enough to pay California’s impending 64% state income tax.

Have a great weekend…