Who is the new investing King?
Who is the new investing King?
Meet Dave Portnoy 👑
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What if I told you he wasn’t the greatest?
That a country would fail to protect its greatest natural resource?
That sometimes it is a matter of life and death?
That no one can outrun the truth?
That you can heal all wounds with a fight song?
That the man no one could stop tragically was?
What if I told you running a marathon is easy?
This may be ESPNs signature intro for its inspirational 30 for 30 series. It also describes one of the most interesting and better performing investors of 2020.
Not Warren Buffett. Not Chamath Palihapitiya.
I’m talking about Dave Portnoy.
Investing pauper to prince
Dave is the 43 year old degenerate gambler known for building the $450M Barstool Sports media empire.
Despite constantly making sports bets, Dave rarely touched the stock market. In fact, before March 2020, he only made one stock trade in his life.
Sports and sports betting vanished in March when COVID-19 shut down the country. For gambling addicts, like Dave and his army of 1.5 million twitter followers, this meant they needed a new outlet.
An ideal outlet would be one that rarely stops unexpectedly, has tons of things to bet on, and is live as much as possible. The ideal outlet they found is the stock market.
Portnoy has since set up a one man investing firm called ‘Davey Day Trader Global’ (DDTG) and he himself goes by ‘Davey Day Trader.’ He put $3 million into an E*Trade account and every weekday he livestreams himself buying and selling stocks.
His streams are not boring shows where he is doing dry analysis and clicking away. The are reality shows where he openly rationalizes his gut decisions with simple logic and passionate flair.
If you watch any clip of his, you’ll immediately see he radiates authenticity. He speaks animatedly. He speaks simply. He says what we all think.
He’s a champion for the common man.
In a time when people are pouring into the stock market, existing stock market commentary does not resonate. Most commentators on CNBC, the main stock market TV channel, talk about complex subjects, speak in monotone, and flip flop on their positions more than a fish out of water.
Who would you rather listen to?
In a time with limited live entertainment, Dave Portnoy is a savior from boredom.
When, if ever, have you seen an investor have their own hype video?
To top it off, his many, many, many meme videos bring a chuckle too.
Investing style
A key part of Davey’s appeal is his investing style. He invests in a way that is straightforward to observe.
He looks for two things in trades he makes: simple logic and commonly traded companies.
Criteria
Simple logic
Dave says he must be able to feel a stock trade in his bones. It must be straightforward. Often naively so. When he bought Boeing stock, the explanation was: “Boeing can’t fail, it’s America.”
To be honest, that’s the same type of logic many casual, hobbyist stock investors I know follow too. Who on CNBC can say that?
When Portnoy was considering buying into Dominos, his explanation was a little lengthier, but just as simple.
"I'm a pizza guy so I consider myself the number one pizza expert like in the world. I saw it was down today. I know the earnings came out. They beat earnings. I didn’t totally get it.
Pizza. That’s recession proof. That’s corona proof. That’s everything proof.
Domino’s seems like a no brainer to me.”
Commonly traded companies
Now because of Dave’s million plus following, any stock he talks about is going to get irregular attention.
As we learned in our deep dive of r/wallstreetbets (WSB), smaller, less common stocks are extra sensitive to attention than bigger, more common stocks. A WSB member influenced the forum to trade on the less common Lumber Liquidators stock. This led the trading volumes to jump to 73 times the previous 20 day average, with shares rising 18.6%.
Many of his followers want in on the same ride as him. If Dave directed his army to do something similar as the WSB example, it's a low brow move and can be illegal.
So Dave focuses on bigger, more common companies.
“Because I put a lot of money into it, I look for stocks that have high volatility and a lot of volume. Because I don't want to be like shaping the market. So I look for big stocks that a lot of people are trading.” - Davey the Day Trader
Notable trades
His live streams have led to a variety of entertaining incidents. Here are some of the notable ones:
Worst
One trade almost made Davey Day Trader Global implode. Portnoy has a love, mostly hate, relationship with Boeing.
5 days after proclaiming his love for the company, he bet against it and took a short position. He thought the stock was going to go down.
"I bought Boeing around $140, and it went up to — I want to say — $170.
So I sold it.
The next day it dropped all the way back down to $140. To me, there was no rhyme or reason to what happened."
His panic sale lost him about $2 million on Boeing alone.
Best
Fortunately, at his last CNBC status update (May 18th), he is reportedly up over $1 million.
After extrapolating ‘stocks only go up,’ in mid May, he became bullish on two types of stocks that were down in the dumps: Airlines and Cruises.
This was at a time everyone else wrote them off, including Warren Buffett.
These stocks have been massively out performing the market since.
In semi-seriousness, semi-jest, this brief success has led Davey Day Trader and his bravado to claim he is better than the GOAT Warren Buffett.
“He’s a hall of famer. He’s one of the best to ever do it. No doubt.
He’s old and he’s washed up. I’m the new breed. I’m the new generation.
Nobody can argue he’s better than me at the stock market than I am right now. I am better than he is. That is a fact.”
Troll-iest
As Dave openly muses his thoughts, his army listens, and they often shoot their trade before he can. This causes worse prices for Dave, or even, the inability to make the trade at all.
On March 24th, the boomer favorite Jim Cramer joined Dave on his livestream. Cramer recommended Dave buy into Nordic American Tanker stock, but not do so above $3 per share.
Many quick trigger followers bought up the stock before Dave could, and within seconds, the price shot up above the range Dave was going to buy in at.
Nothing matters anymore
Now even though Portnoy is all fun and games, he’s a symbol of a broader investing movement.
New breed of investor
A perfect storm has brought a new breed of investor into town.
Many Americans now have:
A bunch of free time while stuck at home
‘Free money’ through government stimulus checks
No sports to bet on / no live entertainment
Access to gamified investing services like Robinhood
According to Peter Atwater, an expert on investor mood, these are all the elements of appeal for a risk-taking young man.
This theory showed up in reality. CNBC found for American households who make $35-150k, investing in stocks was the second or third most common thing Americans did with their stimulus check.
New ethos
This new breed follows the same ethos as Portnoy.
Nathaniel Whittemore summarized it well:
The Robinhood crowd does not care about professional investors.
It does not care what CNBC, Bloomberg, or any other financial MSM [mainstream media] think.
It only cares about what its group of peers think.
And most of all, it only cares about the game.
This isn’t your traditional rational index funder or ‘buy and hold’ investor. The YOLO day trader has risen.
New rules
As this crowd doesn’t follow old behavioral norms, crazy new things are happening. We are in a bubble and people are trading like it.
Recently, this was infamously seen in the stock price fluctuations of rental car company Hertz.
Hertz took on a bunch of debt to pay for its fleet of rental cars. Before the pandemic, demand for rental cars was weakening due to ridesharing. With COVID - no one was renting cars at all.
Soon, the price of the debt was becoming worth more than the value of Hertz itself.
On May 23rd, this led Hertz to declare bankruptcy. Their stock was presumably worthless.
But that didn’t end up being the case.
Using simple logic like Davey Day Trader (“Hertz is a known brand. People will still need rental cars.”), investors saw low prices and kept on buying the stock. It pushed prices higher and higher. From a low of $0.56 per share on May 26th, the stock almost 10x’d to $5.53 per share on June 8th.
Now, everyone knows the stock of this bankrupt company is going to go to $0. So what happened?
A game of hot potato.
Two weeks ago we learned the value of a stock is measured through a tool called the Price to Earnings ratio. This helps determine the price.
On the mission to pump the price to the moon, the fundamentals toolbox got dumped out the window.
All that mattered to the YOLO traders in this game was passing the potato along to a higher and higher bidder.
Don’t blame Dave
With this dangerous behavior popping up, many financial media pundits are shouldering the blame on Portnoy.
“When somebody tells Warren Buffett that he is washed up...we have gotten to a point it’s silly season. That has me nervous about the state of the market.” - Ron Insana, Schroders NA
I think that blame is misplaced.
DDTG shouldn’t have you nervous about the market. The actions of the Federal Reserve should.
What happened
In responding to COVID, the Federal Reserve (the Central Bank of the USA), pulled out aggressive, blunt stops to maintain economic growth. This includes cutting interest rates to zero, pumping in an unprecedented $2+ trillion stimulus package, and eliminating the amount of money banks need to hold in case of a bank run. As Nathaniel Whittemore puts it again, the Fed is doing whatever it takes to prop the market up:
In a world where everything is about asset prices and number[s] go up; where the Fed will do whatever it takes with their unlimited cash to ensure that no company can fail, why wouldn’t you take this all the way? Why wouldn’t you take greater fool theory all the way to its ultimate conclusion? Why wouldn’t you pump a zombie company more than 100% in a day?
Jay Powell, Chairman of the Federal Reserve
As the Federal Reserve pumps money to signal stability, and no one seems to know what is going to happen, the smart money is with the Dave Portnoy’s of the world.
As Dave Day Trader naively states, “Stocks only go up!”
What to takeaway
Even though Portnoy has ‘carpe diem’d’ his way to entertainment and profits, he recognizes day trading is a losers game.
If you want to call out Portnoy for propagating poor behavior, he’ll be the first to say not to mimic him unless you can afford it.
Instead, he recommends following the same long term horizons we see with Warren and Chamath.
“Do not do it thinking you're going to make money. Do it for entertainment, do it for fun. I would never day trade with money that you can't afford to lose.
And if you're looking to invest, it's long term, not the short. If you're doing what I'm doing, be prepared to lose."
Like us, Dave is here for a good time. He’s a meme investor in a meme stock world.
Unlike us, he can just afford to be (and is very good at being) the source of memes rather than an observer.
Viva la stonks,