Friday Feedback: The “Ambulance Chasers” Edition
Great Ones, this is the moment you’ve waited for. Been searching in a bear market, your sweat soaking through the floor.
And buried in your portfolio, there’s an ache that you can’t ignore. Taking your gains, stealing your mind and all that green is left behind.
Don’t panic, it’s coming for you, running at ya. It’s only this moment, who knows what comes after. Another bull market, can’t you see it getting closer? Just surrender ’cause you feel the feeling taking over…
So, tell me, do you wanna go?
This is … The Greatest Show?
That’s right! It’s fire. It’s freedom. It’s Friday Feedback … where we light it up and don’t come down.
I’m your preacher at the pulpit answering your burning questions on investing, the stock market, options, implied volatility … and anything else you can throw at me.
Got a question you need answered? Drop us a line at GreatStuffToday@BanyanHill.com.
Now that the introductions are out of the way, let’s get right to our main event!
Klein, Klein, Klein Went the Trolly
Hello, Mr. Great Stuff!
First, thank you for all of your good, free advice and great musical references!
Having read about your feelings on Amazon, I’m wondering what you think about the Klein Law Firm Class Actions on Behalf of Shareholders of AMZN.
— Tamiko U.
Thank you for the kind words, Tamiko! I’m so glad you’re enjoying Great Stuff.
As for your question … I get these a lot. It seems like every single publicly traded stock has at least one of these “class action on behalf of shareholders” lawsuits.
They’re everywhere, as anyone who uses Yahoo Finance to search for stock and company information knows. What’s more, they’re particularly bad when it comes to less popular stocks with little in the way of headline news.
I believe the best way to describe what I think about the Klein Law Firm class action suit against Amazon (Nasdaq: AMZN) is to tell y’all what I think about these kinds of suits overall:
That is, I don’t think about these lawsuits at all. Period.
What we have here is Wall Street’s version of “ambulance chasers.” You know, the lawyers that “chase” accident victims to try and get them to sue for damages?
That’s exactly what Klein is doing here. And Amazon isn’t the only company Klein is targeting. In fact, the law firm sent out a press release just yesterday urging investors to sign on to class action suits against IronNet (NYSE: IRNT), Netflix (Nasdaq: NFLX) and Amazon.
I’m sure Klein has more suits out there against other companies. And I’m sure Klein isn’t the only law firm targeting Amazon, Netflix and the like. If a stock drops fast, Klein and its ilk won’t be far behind with a class action suit.
It’s annoying, but what are you gonna do? Wall Street’s gonna Wall Street, and lawyers are gonna lawyer.
That said, the most troubling part of all this is that these kinds of lawsuits can be very misleading. For instance, Klein’s press releases urging investors to sign on state: “Class action filed on behalf of Amazon.com, Inc. Limited shareholders.”
Thing is, this suit was probably started by Klein before any AMZN shareholders signed on to the class action. There’s no minimum number of participants needed to file a class action suit. However, for a court to take your suit seriously, you need a lot of participants.
So law firms like Klein will start a class action suit and then advertise said suit to get people to sign on so they can take it to court.
The more people who sign on, the more seriously the court will take the suit and the more likely a judge will be to certify the class action.
My thinking on this is that if you have to advertise to get people to sign on to a class action lawsuit, your suit probably doesn’t have enough merit to win. In Amazon’s case, if the alleged violations were big enough, Klein would have people knocking down its doors to sue.
Amazon is massive, and AMZN stock is held by millions of investors, hedge funds, banks, retirement funds, investment funds, billionaires … etc.
If the company messed up bad enough to warrant a class action lawsuit, wouldn’t you think those investors with the most to recoup from a suit would be first in line? Or at least file their own lawsuits?
The same is true for many other companies facing similar class action suits. However, less than half of all securities class action lawsuits make it to court. And only about half of those actually see a settlement.
So why do law firms like Klein go after these suits?
Because, while the success rate isn’t all that great … it’s certainly non-zero. And the payouts can be high.
In 2020, 326 federal securities class actions were filed. 320 of those were resolved with an average settlement value of $44 million.
Now, successful suits like these can have a big, negative impact on smaller companies … but Amazon? It’d laugh at any settlement less than $1 billion, probably. And for the settlement to even reach that high, the filing law firm would need a lot of serious participants and a few big-time investors too.
So, Tamiko, I really don’t think too much about these kinds of lawsuits. They don’t really have much of an impact on investing, and many companies see such settlements as a cost of doing business.
I hope that answers your question. Thanks again for writing in!
It’s No Class Action Suit — But These Payouts Could Be Enormous!
Experts say this new tech will become the catalyst that shapes our future — more so than electricity, the internet and even the invention of fire (crazy as it sounds).
And right now, there’s a little-known stock at the center of all the action.
In fact, this small-cap stock is still trading for less than it costs to buy a tank of gas these days … giving everyday investors the chance to get in on the ground floor of what could become an $80 TRILLION industry over the next 10 years.
Now that was a topic I don’t think I’ve talked about before. This is why it’s absolutely crucial that y’all Great Ones write in.
I probably never would have discussed those ambulance-chasing class action lawsuits if Tamiko hadn’t brought them up. It’s just not a topic I think about on a daily basis … but, clearly, many of you do.
That’s exactly why Friday Feedback exists: to answer your questions, find out what y’all Great Ones are interested in, what your concerns are and where you need more information.
Are you not entertained? No? Then email us at GreatStuffToday@BanyanHill.com and help us entertain you!
Now, let’s see what else y’all sent in:
Cryptic Crypto Valuations
Hi Mr. Stuff.
I appreciated your comments on crypto valuations and intrinsic value from the May 13 issue. However, something seemed left out.
What is the actual basis for crypto valuations? According to your thoughts, it’s only about who wants it and who doesn’t want it. Supply and demand. But what provokes the demand?
Is it simply based in how many crypto tokens or coins are needed to execute a function provided by said token or coin? That definitely creates a value for the token/coin, but the prices I see in the crypto markets don’t seem to rely on that source of valuation.
Can you explain?
— David H.
Welcome to Friday Feedback, David. Thank you for writing in!
You are correct that something was left out. I didn’t go into much depth on why cryptocurrencies have value.
The basics revolve around the Econ 101 concepts of supply and demand, but it goes a bit deeper than that.
In fact, there are two specific reasons that cryptocurrencies have value beyond “people decide they do”:
1. Utility: Cryptocurrencies, like Bitcoin (BTC), are traceable, exchangeable and not tied to any government. They have a built-in ledger via a blockchain that allows you to see how they’ve traded before and where. These factors allow cryptos to have a level of security and decentralization never before seen in currencies.
2. Scarcity: Gold, diamonds, etc. have long held value tied to their scarcity. There’s supposedly a finite supply. In the case of cryptocurrencies, this is doubly true. There are only 21 million bitcoins in existence. And there will only ever be 21 million bitcoins. Period. How’s that for scarcity?
These two factors play directly into the valuation of pretty much any asset: Gold, the U.S. dollar, oil, art, bullion, etc.
It’s the same for cryptocurrencies. Most of the popular cryptos like Ethereum (ETH) and bitcoin have both factors going for them.
For instance, bitcoin’s utility lies mainly in its decentralization. No government controls its production, value or even how, when or where you spend/trade it. A lack of government oversight is a big utility for many investors around the globe. Furthermore, there are only ever going to be 21 million bitcoins ever.
But what about other cryptos, like Dogecoin (DOGE)?
Well, Dogecoin still has the utility factor in play, but there’s theoretically no limit to how many Dogecoins will ever exist. The growth rate of existing Dogecoins will slow eventually due to the processing power and difficulty in mining new Dogecoins from the blockchain.
That said, many believe that Doge’s growth rate will eventually coincide with the average historical inflation rate of 2% to 3% annually.
In other words, Dogecoin will never command the high prices that bitcoin or Ethereum do, but it could still maintain its utility and potentially become a more widely traded and spent cryptocurrency because of its lower valuation. I mean, would you rather pay 0.00001 bitcoin for something, or one Dogecoin?
I got a bit off track there at the end, but I think that should just about answer your question, David.
Thanks again for writing in!
Still Doubting Crypto’s Comeback?
Then clearly you haven’t been paying attention to your Great Stuff!
We’ve been telling you for weeks that — according to our resident crypto expert — there’s another crypto rally headed our way. And it has the potential to be 20X larger than the last one.
But this time, the big gains won’t come from bitcoin investments. Instead, they’ll come from a “Next Gen Coin” with the power to disrupt the entire global financial industry. (Click here for the full details.)
Who Framed Mr. Great Stuff?
I absolutely loved your write up on intrinsic value. I would share it with someone I know that made a similar comment about crypto not having intrinsic value, but I think they would probably be ticked off at me for sharing.
So, my second plan is to save your write up (actually I’d love to frame it), and “use” some of your comments when I have the opportunity to reply to a person that presents an “intrinsic value” argument. Excellent write up — very thorough — no way I could have pieced together such an extensive response. Hats off. Keep up the good work.
— Mike S.
Framed? 😳 😳
Mike, I’m pretty sure the only person who’s ever framed anything I’ve done is my mother. So, umm, thank you?! I’m not sure how to take that. Lol.
And I hope you’re reading today’s issue as well because I just took a deeper dive on why cryptos have value. It should give you a bit more ammunition to use in your arguments over cryptocurrency valuations.
Anywho, thank you for that positively glowing review!
I Don’t Like Spam!
Will Spam Bots inherit the earth? They’re everywhere. They’re on every social media platform. They’re on every market trading platform. They’re creating their own means of communication on everything from soup to nuts, and there plenty things to be said about nuts.
Ironic that the word spam is used to describe the crap that we all get through our email and text messages, when it used to be a lowly canned meat product that only people who couldn’t afford Ham would buy.
Go to the Spam section at your local grocery and see how many flavor varieties of spam there are, so there must be an underground market for Spam. I for one don’t like Spam in any form, and only hope that Spam movement will not inherit the earth.
— Dick K.
Thank you, Dick. I needed that. You’re one of the few Great Ones writing in who makes me laugh on the regular.
And I’m well aware of all the different styles and flavors of Spam … even the bot kind, unfortunately.
I’ve never been a big fan of Spam either. It was the “expensive canned meat,” as my relatives called it growing up.
Though I hear Spam is considered almost a delicacy in Hawaii. Any Hawaiian Great Ones wanna write in and confirm or deny your state’s love for Spam?
I probably opened up a can of something with that one.
Well, Dick … I’m pretty sure you wrote in about Spam for one reason, and who am I to deny that:
Mr. Great Stuff: Well, there’s Twitter, Facebook and spam; Google and spam; Google, Amazon and spam; Twitter, Google, Facebook and spam; spam, Facebook, Twitter, Amazon and spam; spam, Twitter, spam, spam, Tesla and spam; spam, Facebook, spam, spam, Twitter, spam, Google and spam…
Dick: Have you got anything without spam?
Mr. Great Stuff: We’ve got spam, Twitter, Facebook and spam. There’s not much spam in that.
Dick: I don’t want ANY spam!
Vikings: Spam, spam, spam, spam. Lovely spam! Wonderful spaaam!
Dick: Maybe I should just stick to baked beans?
Mr. Great Stuff: Baked beans are off!
Just in case y’all think I’ve completely lost my mind … here’s the Monty Python Spam skit.
Not sure that means I’ve not lost my mind, but at least I might not be as crazy as you think. My mom had me tested, by the way.
That’s all for this week’s Friday Feedback. I’m gonna go let my last two sane brain cells rest for the weekend now.
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Until next time, stay Great!
Editor, Great Stuff