Reflexivity & Markets

“Reflexivity theory states that investors don’t base their decisions on reality, but rather on their perceptions of reality instead. The actions that result from these perceptions have an impact on reality, or fundamentals, which then affects investors’ perceptions and thus prices.”

This has always been the case… A great salesperson sells an idea and raises capital (or bootstraps the company) and hits their metrics (subscribers, engagement, revenue, gross margins, whatever), and raises more capital, and hits their metrics, and raises more capital… and so on. Each round values the company HIGHER!

Think Amazon, wasn’t that shorted all the way up by the “smart money”?  How about Tesla, wasn’t that shorted all the way up by the “smart money”? Eventually the “smart money” converts because they’re tired of having their teeth kicked in.  Reflexivity.

Now imagine Game Stop holds a vote to be allowed to raise 3 billion of capital (market cap of 20 BN right now?) to turn itself around into an online gaming Giant with their stores being in person video game Apple store like places. The shareholders (us) agree and the SEC allows it because WE LIKE THE STOCK! WE LIKE THE STORY! WE LIKE RYAN COHEN!

And they do it, and we HODL because the “smart money” remains short but we HODL with diamond hands.  And boom! Reflexivity.

EXTEND THIS IDEA. We give money to transformational companies that will make this world better… not strip mining bottom line growing leeches…. and we HODL those stocks with diamond hands until reflexivity occurs.