Forum Topics Strawman Compounding
umop3pisdn
3 years ago

Can the success of this investment club be detrimental to a company share price?

Something Andrew said when Premium kicked off has me pondering this phenomenon. I think it may have been in reference to a cap on member numbers.

I can't speak on behalf of everyone here, but my investing decisions are heavily weighted toward companies that are discussed here. As exampled by the Strawman Index, we are pretty alright when it comes to beating the index. I'm going to make the assumption that many of you are like me and your RL investments are heavily influenced by the companies favoured here.

Over time our returns will compound and the capital we will have available to deploy on new investment ideas will be larger. We as a group favour the smaller end of the market.

Could our investments lead to an inadvertent pump and dump scenario down the road?

I'm making some pretty large assumptions, but are there examples of other investment clubs doing this? And is there a solution?

Edit: Didn't something similar happen recently with Dicker Data (DDR). TechBunny read an article and posted about it here. The theory appears to have unfolded as the article stated; the market is correcting the correction

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umop3pisdn
3 years ago

All good points that I hadn't really thought through. As Strawman isn't setup as a "buy or sell" recommendation, that tends to protect against mass buying or selling.

I was looking further into the future, say 10 or 20 years down the road, where compounding has done some magic on our returns and we have an average combined $3m dollars in one position (say a 10% position in one stock [ 300 users x $10k ]). Perhaps being ambitious this could be closer to $30mil, or more likely somewhere in between. If we have a CEO of a company chat with us and we act on purchasing shares in that company (as appears to have happened with SP3), the market cap of the company may only be 10-20mil.

In that scenario, our purchasing power will significantly affect the share price, causing volatility. This may play out over a week or longer. Inadvertently, our price action may benefit some members who bought early and then sell as we push the price up. I'm extrapolating and making a myriad of assumptions, but my query was regarding how we protect against this? Is this a "future Strawman" problem, or should we be thinking about this now?

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