Matt Levine, 30 June 2021
A recurring theme of this column is that if you have the power to make the price of a financial asset go up, you should (1) do that but (2) buy a lot of it first. So for instance Tesla Inc. is a big company and its chief executive officer, Elon Musk, is a famous influential guy with a lot of Twitter followers. So when Tesla announced that it would start accepting Bitcoin as payment for its cars, the price of Bitcoin went up. This was very predictable. So what did Tesla do? It bought $1.5 billion of Bitcoin before announcing the news, and then Bitcoin went up and it had an immediate gain. 1
I am a simple man and to me this seems good. Buy a thing, create good news for the thing, announce that news, watch the price of the thing go up. In general I think it is under-utilized, as a strategy. You don’t hear stories about, like, Moderna Inc. running a successful trial of its coronavirus vaccine and buying a ton of call options on cruise lines and airlines before announcing the news. That would have been a good trade!
Of course one has to be careful. Insider trading laws are complicated, and you might worry that this trade — you buy the asset when you know your plans and the market doesn’t — raises legal risks. 2 You might worry about market manipulation: If you do this trade, you want to make sure that you’re doing something real to create economic value for the thing you’re buying, not just saying “I like the stock” to get a short-term pop. There might even be antitrust concerns, where one company buys stock of another company to bet on the effects of the first company’s actions. And even if it’s all legal, it’s potentially bad public relations, for reasons that are not fully intuitive to me. People seem to think that this trade is bad, because you know something that the market doesn’t know, and you use it to make a profit. Whereas I think that this trade is good, because you know something that the market doesn’t know, and you use it to make a profit.
Amazon.com Inc. is a big company, and if it decides to partner with a smaller company it can steer a ton of revenue and attention to that smaller company. Amazon might reasonably think “we are sending all this revenue and attention to the smaller company, and they are going to profit from it, and we want to extract as much of that profit as possible for ourselves.” One way to do that is to set the commercial terms to be as favorable as possible to Amazon — pay suppliers as little as possible, etc. — but arguably a better way to do it is to (1) cheerfully create value for the smaller company but (2) buy some of that company first. 3 You bestow Amazon’s blessing on other companies, this blessing makes those companies more valuable, and your stake in them benefits from your actions.
