Bitcoin Forum

Hi all,

Im gauging interest in a GLBSE bearish fund. This fund would be run on the assumption that nearly  everything currently on GLBSE will, in the long run, produce a negative ROI, as almost all the assets are overpriced, insolvent, a scam or (indirect) passthroughs to (other passthroughs to) overpriced assets, insolvent assets or scams.

The reason I believe this to be the case is that everyone is trying to “make his coins work for him” by investing and searching for the highest possible APR at a perceived risk level they deem acceptable, but the reality is that almost none of the companies listed on GLBSE create any added value that could sustain these returns.

Think about it, which company listed there offers products or services you are willing to pay for? Precious few. The vast majority (including mining bonds and companies)  only produce promises to generate you more coins than you put in. That obviously cant work, and therefore, a few small exceptions aside, the only ones that create "added value", create it for themselves, either as plain scams, or by issuing bonds/shares and taking their cut before their investors lose their principal due to their own or other assets crashing or defaulting.

Now, if you also believe thats true, you may wonder why do I start a fund and how on earth could it profit?  Bearmarkets are an opportunity too, especially if you are one of few to realize it and act on it. PuppyBear will try to short assets by borrowing them from other investors, provided there is enough liquidity to make it feasible and provided we can find willing investors to borrow them to us on acceptable terms. This would be our primary business.

PuppyBear will also try to identify small windows of opportunity to invest in, should they arise, even high risk ones, but we will generally hold most or even all of our assets in bitcoins, either as collateral for shorting or ready to be used  if/when an opportunity arises. Puppybear willl not try to invest in “the best of the worst” as all other investment funds seem to do. Puppybear realizes that its far better to have bitcoins and 0% APR  than a crappy investment that pays high dividends but ends up losing 10% per month. If there is nothing worth buying, we wont buy "nothing" (but we will try to sell short overpriced assets if we can).

Trying to preempt some questions.

Q What ROI  do you expect to achieve?
Let me put it this way: In the long run, I am convinced  we will provide a better ROI than ~98% of all other GLSBE assets. If you think thats a bold statement, its not and this fund is probably not for you, as  Im fairly sure that a cold wallet would have provided a better ROI than 98% of all investments on GLSBE over the past year. If we can beat a cold wallet, I will consider it a success. I am not going to guess by how much we can beat it, but I will take 1% APR over -10%.

Q will you run off with the coins?
Nope. I will get fully verified on GLBSE, and Ill be as transparent as I can be. If we short shares, the collateral will probably be put in a trusted escrow service. Im also thinking cold wallet bitcoin storage addresses will be provided to shareholders or made public.

Q What makes you think you are qualified?
It wont just be me, I assume anyone investing in this will  be “like minded”, so I will gladly listen to and consult with my shareholders to identify opportunities, whether it is for investing or shorting, or doing nothing. Unlike many other "CEO's", I realize the coins actually belong to you, the shareholder, so you will have your say. But never having been scammed once so far,  realizing whats going on GLBSE, and being able to perform first grade arithmetic with very few errors already gives me a clear leg up over 99% of the other “fund managers”. Iif you think Im not qualified, dont invest.

Q How would you structure the IPO, how would you structure dividends? What will the contract state?
I havent quite thought this through yet, and I wont until I see sufficient positive response. Im open to suggestions, though I certainly would avoid a never ending IPO like DMC. As for dividends, as I see it, dividends will only be paid if there are substantial and sustained profits, and after shareholders approval. Dividends will be the exception, like after we completed a very successful shorting, it wont be the rule, they wont happen daily or weekly.
Same goes for issuing new shares, only if shareholders approve it, and in a way that rewards early shareholders, rather than dilute them.

Q what will your cut be?
Up for debate.  Whatever it is, it will be humble and most of it should be performance dependent.  I dont think I should get paid a fat fee for losing your coins, most of you are quite capable of doing that yourselves without my help :).

Is GLBSE really a platform you want to issue your asset on?

Sure it is a great place to short stuff, but need you base your own shares there?

A corp that specialises in shorting things sounds like a great potential customer for General Credit Corp (https://bitcointalk.org/index.php?topic=113709.0); shorting is something I have been exploring for a while (https://bitcointalk.org/index.php?topic=93356.0).

-MarkM-

I hadnt heard of it yet, I will check it out. But since the assets we would be most interested in  are traded on GLBSE, and we would need to sell them there anyway, it seems logical to host it there, no?

Not if it might miff "His Nibs"...

-MarkM-

Im not too concerned by that. Remember, we would generally be short in GLBSE assets, and our actual assets would be bitcoins, most of them in escrow elsewhere or cold storage. If GLSBE would go tits up or get closed down, it would probably be the best thing that could happen to us. And if Nefario for whatever reason freezes only our account, there wont be much in it anyway.

That said, I do have a fair level of confidence in Nefario. He has made his mistakes, but generally I think of him as reasonable and fair. And I dont see why he would object to this project, it should help correct inflated prices and help provide early warnings for scams, thats not against his interests at all.

I'm interested - but I think that the problem will be trying to find investors willing to loan their shares so as to short.

The problem is three-fold:

1.  You have to convince them that the deal is safe enough for them to take part in it.
2.  They believe you're wrong in shorting (or they'd sell the shares not loan them) and so they'll strongly believe it to be a scam.
3.  When you offer to borrow their shares to short (AND pay them for the privilege) the (luckily few) smart ones may look again at the share, realise why it's an obvious short and sell it rather than lend it.

Unlike most 'businesses' on here I can actually see profit potential in this one.

Those three reasons are part of why General Credit Corp exists.

However, GLBSE assets you'll be shorting seem likely to be such mindbogglingly worthless shares that even GCC might prefer not to actually have any on hand to loan. They might maybe though be interested in picking them up afterward if they can pick up >50% of the shares for less than the price of registering an asset, if owning a majority of the shares confers effective ownership/control of the asset. (Which I am not sure it does; I get the impression assets tend to dissolve instead of being picked up as cheap ready-to-run-with corps...?)

I guess the thinking that led to GCC figuring on owning lots of "worthless" altcoins maybe doesn't carry over to its also being potentially useful to own lots of "worthless" shares...

-MarkM-

I agree with your concerns, which is why I also dont expect to be shorting all that much all the time, but that should not stop us from trying.

Also, I think we can alleviate the perceived risk by finding a truly trustworthy escrow. I dont mean a reputable forum member (or it would have to be someone like Gavin himself), but didnt Tangible Cryptography offer escrowing services? Something like that is what I would want to use. Or Usagi. (j/k).

As for your third point; I kinda doubt it. Some investors might see the light of course, but its rather clear to me that most of them are easily blinded by high dividend payments, or they wouldnt be investing in the first place,  and if we offer even higher ones with a completely trustworthy escrow, there will be customers. Worst case, we find none at all, and we still end up with not losing a penny and therefore outperforming most other stocks :)

Very interested in this part of your idea.

I didn't study finance back in school (a related field). When I first discovered GLBSE, one thing was obvious - and didn't require a background in finance to realize:

The easiest way to realize a loss of principal would be to buy into a security at IPO or early on. Can anyone hear name a security that trades at or above IPO price? There are probably some on the market, but they seem to be the exception not the rule. Real world IPOs are supposed to generate a return for their investors, yes? At least a few people have talked about changes in IPO structure. It has become obvious, even to someone clueless about finance like myself, that properly designing and deploying the IPO is a make-or-break factor. It's too bad - we will see perfectly good business ventures fail in the future because of ill-designed IPOs!  :-\

This fact is even more obvious for some "genres" of GLBSE securities - I'm looking at you, fixed Mh/s mining bonds. This dead horse has been beaten enough but it's still a good example. We can all agree - mining rewards go down, mining difficulty goes up, hardware value only depreciates. Northern hemisphere miners If I wanted to IPO a mining company today, I feel like I wouldn't be seeking out capital so much as charity.

On to my real point. Does anyone here know about the IPO options available through GLBSE? Because I am not familiar.

Hypothetically, it seems that "PuppyBear" could realize profits through exploiting problematic IPOs. Even with assets that aren't overpriced, are very solvent, and not scams.


I agree with the confidence in Nefario (though it seems like he's cut off from the internet or something). I also think that listing "PB" on GLBSE would be good. Could the fund's trading activity help with solvency on the exchange? I imagine it would, even if not a significant amount.

Cheers

edit: I don't have time to read the whole BAKEWELL thread, but I'm sure some of you already have. It looks like it's relevant to what I was talking about.

To Ian:

I don't know if it is realistic, but as for the ideal solution to the ceiling...

It would be best if the asset could be "relisted" under a new IPO. Obviously something special would have to be worked out with GLBSE, but I think that it's in the best interest of your shareholders, yourself, as well as GLBSE if we could engineer an IPO "redo."

If anything occurs to me in the future I'll be sure to post it on your thread.


I wonder, then, if the fund would have to use some sort of exclusion criteria to rule out catching dead assets.

In other words, it will invest in the cream of the crap.

I'd be willing to sell put options on NASTY shares at the IPO price if you were interested in taking a short position.

1.  I would never buy a PUT option from the operator of a company because:
   a) There's asymmetrical information in their favour,
   b) If they scam the company they obviously won't honour the put call.

2.  Doubt very much puppet's plan is to short EVERY company - just the worst ones.

3.  Following on from 2., your company is one of the minority on GLBSE that has an A grade in my personal list.  Don't be TOO flattered by that - as I pretty much only day-trade and A grade just means that I believe the price is stable enough within a range that I feel comfortable leaving up bids overnight.  A B grade means I'll trade in it but not leave bids up whilst afk, below that means I won't trade it at all.  There's more securities with ratings below B in my list than As + Bs combined.

In short, yours isn't one of the securities I'd look to short - there's far better targets.

Puppet may, of course, have a different view.

Yeah its a pain when even your own sockpuppets steal your ideas without crediting you isn't it? :D

-MarkM-

What time-zone are those time-stamps in?  Would be interested to see when that is relative to this (and MP's thread on a similar topic) being made.

Would also be interested to hear what Puppet has to say.

>:( As a shareholder, all I have to say is:

thefuq are you talking about?

What will this do for the value / further dilution of my shares, etc.

Sure hope you don't plan to do something like this without first putting it up to a vote.

LOL, its micrea who just copy/pasted it from my post. I dont even use IRC.

Deprived already made most of the points I wanted to make. But let me add;  I would avoid betting on the short term, this market isnt always very rational or quick to understand, and low liquidity could hurt us. More importantly, right now, I would be wary of shorting (or buying) mining bonds or shares in general. The asic switch is difficult to predict, we dont know how many devices will be shipped, when they will be shipped, who will get them first and how long it will take for the others to receive them. Its even more difficult to predict how investors will react on what I expect will be a brief but very substantial gain in dividends (especially for those who get them early), to be followed by very sharp and prolonged decline towards nothingness. Most likely this will create great shorting opportunities at some point, but I wouldnt start the bet today, I would rather wait until these companies are mining with asics and see if enough investors get fooled by the apparent spectacular rise in perceived profitability and/or dividend payments.

One last thing, not directed to you in particular, but the fact the vast majority of assets on GLBSE are IMO not worth buying, shouldnt be viewed as criticism on all the issuers. Its not (always) their fault if investors will buy the "least worst" at whatever the current price,  or hang on to shares that are ridiculously overpriced.

Welcome to the party.

troll topic of the year

That's why I asked about time-zone - as one pretty obvious interpretation of Mirceau's irc chat was that he was intentionally quoting from this thread, then his next line was commenting (in a joky fashion) that you were stealing his idea.

I don't take anything usagi says at face value.  I was also accused by it of being an account made on mirceau's behalf in early august this year.  Despite the FACT that my account wasn't even created this year - let alone in the week that it alleged.

It's like I was telling OGNasty the other day on IRC:

"I'm new to such things. only ever had a broker manage my stuff prior to bitcoin"

As such, I don't understand this "short" thingy? All I saw here in the post was:

"... something something something I'll sell for cheap ..."

Which I might have misunderstood?

And by diluting shares, I meant the value / dividends would be less if there are more outstanding shares because of this sale. Currently only about 7000 outstanding shares but if even another 3000 were sold there would be less dividend payment per share. Nothing more was meant by "dilution" than the common use.

Mr P. sez: Indeed the quote was from this thread, and indeed the comment was mostly humorous.

If OGNasty entered into either selling a short OR a PUT option then it would have no effect on number of outstanding shares.

Easiest way to ythink of it is that it's a bet (below is very simplified) -

OGNasty bets that NASTY shares hold their value, the other side bets that they lose value.
It's really nothing more than that.

Only risk to shareholders is that someone shorts the share then tries to talk the price down.  But if there's nothing wrong with the share then:

a)  It probably won't work,
b)  IF it does drop (and there's nothing wrong) then those who aren't misled get to buy more for cheap.

And there's no need for shorters to try to talk down targets anyway - why try to talk down a decent share when there's plenty of bad ones you can short and let collapse on their own without any need for interference?

So if it happens there's no real issue for shareholders - and, in any event, it's not gonna happen anyway.  OGNasty's post was more of an "I dare you to bet against me" than an offer he'd have had any expectation of being accepted.

When you short an asset (or sell it short), you sell an asset that you do not own, but that you borrowed from someone else.

Assume you have a share in company X, and I think the market price for that share will drop, and you think it wont;  I could ask you to lend it to me for some time; we agree on minimum and maximum terms, I pay you a fee it, and then I can sell the share at the current high price, and some time later, I will buy it back (at a lower price hopefully) and return the share to you. Its simply a bet the price will fall. As the short seller, my potential profit is the difference between sell and buy price (minus your fees) and it can never be bigger than the asset value, ie when the price would drop to zero and I could buy it back for free.  My risk however, when unhedged is in theory unlimited, since the price of the asset could go arbitrarily high.

A put option works similarly, but its a contract between buyer and seller that doesnt necessarily involve a transfer of the asset. There is also a difference in risk and potential profits; the risk to the buyer of the put option (who bets on a price drop) is limited to the premium paid to the seller. If the buyer loses his bet, and the price does not drop below the strike price, his option becomes worthless, but thats it. His potential profit is limited to the difference between current price and the agreed strike price.

eck, I see deprived posted while I typed..

This is a great idea.  I too suspect that the GLBSE has overall been a huge transfer of wealth from investors to asset issuers and scammers.

This is a good explanation.  Me willing to sell PUT options is only a bet that the share price is currently undervalued, and it's a bet I would be making with my own funds.  The only effect it should have on shareholders, is to inspire confidence that I'm willing to bet the share price will go up.

http://polimedia.us/dtng/c/src/134654389322.png

18 months and counting!


The problem with your theory is: if you had the money available to cover this bet it would make sense for you to buy back your own shares (or, if your normal business allows, expend more capital to expand it at the same ROI level). If you aren't buying back your shares it's likely you don't have the money (it's also possible you're not thinking things through, obviously).

If you don't have the money available you'd be writing what are essentially naked options, which you (in spite of what you might think) aren't either qualified (intellectually) or prepared (financially) to do. I know, I know, it's easy to think you're a big kahuna in BTC finance based on forum circlejerking. So thought kludge, so thought Rosenfeld, so thought all sorts of people who are now selling their cars & wives to cover for their inept dealings.

As others, as well as I, have pointed out to you: buying puts from the underlying owner makes zero sense. If you default they're useless and if you don't default they're useless.