2270: Picking Bad Stocks
|Picking Bad Stocks|
Title text: On the news a few days later: "Buzz is building around the so-called 'camping Roomba' after a big investment. Preorders have spiked, and..."
Cueball and Ponytail are discussing the stock market. Ponytail explains that there has been no reliable way to consistently pick stocks that outperform the market average. She also states that there could be a corollary to that; there is no way to consistently pick bad stocks (presumably for this discussion, bad stocks refers to stocks whose value is expected to go down). Cueball states that he could consistently pick bad stocks, and the last panel shows him at a trading terminal purportedly buying bad stocks, while White Hat and Megan use his bad stock picks as indications that those stocks should be removed from whatever stock index they manage.
Generally, people invest in the stock market hoping to make money. They buy stock in companies whose value they expect will increase, and sell stock when they feel its value is about to stop increasing or start decreasing. Someone who could tell whether a stock's price will rise or fall (more than the average stock) in a given time interval could make a lot of money, but this is an infamously difficult problem. Market prices already reflect the consensus estimate of what a stock should be worth based on all public information about the company. Some investors use fundamental analysis, that is, they attempt to understand companies based on their financial statements and market position to identify which stocks are likely to become more or less valuable over time, while others use technical analysis which seeks to identify patterns in the stock prices themselves. Technical analysis was featured in comic 2101. However, while the rise and fall of stock prices are sometimes connected to real events (strong or weak profit statements, new product announcements, major scandals) that one person might predict better than another, they more often exhibit random-walk behavior. Many studies, such as the long-running "Investment Dartboard Contest" run by The Wall Street Journal, have found that an index of stocks that represent the total market, or even a set of randomly-selected stocks (often colloquially stated as "picked by a monkey") beats paying an expert to choose your portfolio.
Realistically, in investing, someone who purposely trades in bad stocks is called a short seller, and someone who could consistently pick bad stock could make a lot of money in the stock market. Short selling consists of selling a stock before you own it, with the anticipation that the stock's price will drop soon, and you can later purchase the stock to fulfill the sale. The difference between the selling price and the purchase price is your profit, just as with any normal ("long") purchase and sale. However, in US stock markets, it is illegal to sell stocks that you don't own, so when you short a stock, you need to borrow that stock from a third party (possibly the trading firm you're working with, or some other firm that the trading firm has a stock loan relationship with, that currently holds a position in the stock you're shorting) to cover the sale. This is all done automatically by the trading platform you use. Between the time you sell the stock until the time you repurchase the stock on the open market, you will have what's called a short position on the stock, and you need to pay interest to the company that lent you that stock. Because of the interest payments, short sales are almost always short-term positions, as the interest paid on the loan can quickly exceed any profit you might make on the sale. A. Gary Shilling, a financial analyst, famously remarked that "markets can remain irrational a lot longer than you and I can remain solvent." Ponytail attempted to explain short selling to Cueball in 2094: Short Selling (perhaps that comic and this one are part of the same conversation), although Cueball found Ponytail's advice much less helpful than he has found this comic's conversation. However, in this case, Ponytail is not describing short selling but instead, investing in every stock except for the bad ones
Cueball's statement about wanting revenge on a ghost may be a reference to 2259: Networking Problems, in which Cueball was driven insane trying to debug network problems and came to believe in ghosts. Perhaps the CEO of company #208 has had a similar experience with a network.
If Cueball's statement that a company is developing a "camping Roomba" is correctly attributing the trademark (as opposed to genericizing it to refer to any small cleaning robot), then presumably company #1434 is iRobot. While a Roomba for camping may sound like a ridiculous concept that is not likely to make much money, developing a robot that can navigate and move around natural environments would be a major advancement leading to new opportunities for both their civilian and military product lines. A campground offers a more challenging environment than indoors, while being slightly more controlled than a truly wild area, making for a good development step. Dropping iRobot from this company's index is probably not a move that would be suggested by a stock broker who is earnestly trying to make money, but maybe Cueball's "market anti-sense" knows something we don't.
In the title-text, it seems that Cueball is worse at picking bad stocks than he thinks he is; a legitimate investor could have seen what Cueball saw and taken it as a good sign. This only validates Ponytail's point regarding the stock market - there is no way to consistently identify what stocks will go up or down.
[Cueball and Ponytail are walking together.]
- Cueball: I feel like by now I should know about the stock market.
- Cueball: What is investing? Do you just open a website and pick the companies you like?
[Cueball and Ponytail are still walking; Ponytail is holding out her hand palm-up.]
- Ponytail: Well, you totally can.
- Ponytail: But there's a lot of evidence that no investing strategy consistently picks stocks that outperform the average of the whole market. A lot of fund management is a myth.
[Close-up on Ponytail, who has turned to Cueball.]
- Cueball (off-screen): Huh, okay.
- Ponytail: But there's a weird corollary to that idea: it implies that, ignoring fees and stuff, it's just as hard to consistently lose money by picking bad stocks from an index.
[Cueball and Ponytail are both back in frame. They are standing still and facing each other.]
- Ponytail: If someone could consistently buy bad stocks, you could beat the average by hiring them, letting them pretend to invest, then buying every stock except the ones they pick.
- Ponytail: In a way, bad judgement is just as helpful as good judgement.
[In a frameless panel, Cueball and Ponytail are standing facing each other; Cueball is raising his hands.]
- Cueball: Oh my God.
- Cueball: I can do that!
- Ponytail: No, it's just an example--
- Cueball: This is the job I was born for.
[Cueball is either sitting in a box or being viewed on a camera screen. He is sitting in front of a computer console, and a camera is pointed at him. Megan and White Hat are viewing him, and White Hat is holding a tablet.]
- [Text box: Soon...]
- Cueball: Hey, this company's CEO wants revenge on the same ghost as me! I'm buying!
- Cueball: Ooh, and this one is planning to develop a "Camping Roomba." That's a sure bet!
- Megan: Drop companies #208 and #1434 from the index.
- White Hat: Done.
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