HX Weekly: June 9 - June 13, 2025

Hello reader, welcome to the latest issue of HX Weekly!

So, what's HX Weekly all about?

Each Friday, we bring you a new edition of HX Weekly that includes three distinct sections.

In the first section, Thoughts on the Market, we'll offer insights into current economic and market news.

In the second section, HX Daily Redux, we'll revisit investing concepts, tactics, and more from past issues of HX Daily.

And in the third section, Market Wizard’s Wisdom, we’ll share thoughts, quotes, and theories from the greatest investing minds of all time.

Now, let's dive in!

I: Thoughts on the Market – What to Do with a Stock That’s Down a Lot

With the market nearing all-time highs again, it’s safe to say that we’re in a risk on environment.

When everything is going up at the same time (stocks, crypto, gold) things are starting to feel a little frothy.

Here at HX Research, we’ve never shied away from this type of market. After all, they can be quite fun and profitable.

Our thirty plus years of experience, however, has taught us that sometime what goes up, must come down.

In this type of environment, we’ve all placed a trade that turned upside down quickly. That’s just part of trading.

This brings up the question, what do you do with a stock that’s down a lot?

Watching a stock fall is definitely frustrating. But that doesn’t always mean it’s a serious problem—unless you believe the stock will keep dropping, or you’ve invested so much that it’s putting your whole financial health at risk.

The first and most important thing to do is to understand the company’s financial health. This means looking at its balance sheet to see if it’s making a profit, if cash flow is positive, and if the company is carrying a lot of debt.

When a stock is down, the money you’ve lost is what economists call a “sunk cost.” You can’t undo the past, just like you can’t take back a car accident once it’s happened.

But you can decide what to do next. After a car accident, you move to safety, call for help, and gather information. In investing, you need to calmly review your situation and make a thoughtful decision.

It’s important to look into why the stock dropped and whether that reason will stay the same or might change.

Some problems may only last for a while, while others could mean the company’s future is at risk.

You also need to think about whether the original reason you bought the stock still makes sense.

Staying objective is key!

Big losses can cause panic, but many of the best-performing stocks in history once fell hard before they rose to great heights.

Selling too quickly after a drop could be a costly mistake.

Besides the stock itself, you also need to think about your whole portfolio. If one stock falling is hurting your overall finances, you might need to reconsider how much risk you’re taking or how you build your portfolio in the future.

Long-term investors don’t need to own hundreds of stocks, but holding around 10 to 15 can spread risk enough to protect your investments.

It’s also helpful to learn from mistakes. Sometimes, stocks fall because the market was too excited, and prices were too high. In those cases, being willing to take profits earlier could make future losses feel less painful.

But after all this analysis, the best move is often to simply stay put.

If the company is still strong and the reasons you first invested remain true, patience can be your greatest tool.

Over time, this approach tends to bring rewards.

II: HX Daily Redux – George Soros and GameStop

Today, we’ll revisit an HX Daily post from July 2024 titled "George Soros and GameStop – How His Theory Saved the Company.”

GameStop has been all over the financial news recently due to its recent acquisition of Bitcoin and issue of a new convertible note to raise funds to buy more Bitcoin.

Last summer, GME was all over the news as well, only for a different reason. At that time, we wrote a post about how George Soros’ theory of “reflexivity" may have actually saved the company.

We thought we’d share that post with you today as GME is once again dominating the headlines. Enjoy!

Regular HX Research readers are familiar with one of the most essential concepts in this newsletter...

We are buying stocks, not companies.

When you buy a share of stock, you own an economic stake in a business. This means that the stake technically gives you the legal right to the cash flows of that business.

But that doesn't mean a whole lot.

Most companies don't pay out that cash flow, and even if they do—via dividends—it's only a small amount.

In fact, some of the best stocks (and companies) of all time have never paid investors a dime of their cash flow. Just look at e-commerce titan Amazon.com, Inc. (NASDAQ: AMZN) and Warren Buffett's Berkshire Hathaway Inc CLASS B (NYSE: BRK-B).

Unlike a bond (where there are actual cash flows), stocks are valued based on opinions. At any given point, you can have more or less the same business trade at dramatically different values.

The only difference is that investors' perception of value may differ for several reasons.

Frankly, those reasons don't matter, only that you can identify them.

The famous phrase "perception is reality" is often accurate regarding stocks. Legendary investor George Soros illustrates one of the best concepts of this.

Soros adapted a sociology term—"reflexivity"—and applied it to economics and the markets. Reflexivity refers to the idea of a feedback loop: Investors' perceptions can affect economic fundamentals, which in turn can change investor perceptions.

Let's use a bank as an example. Banks take deposits from customers and then make loans equal to a multiple (five to ten times) of those deposits. Those loans will pay out over many years. If all the depositors don't come and ask for their money back at once, it's no problem.

If depositors become concerned about the bank's viability, though, they may rush to withdraw their money. The more people who withdraw their money, the more people become concerned, and the next thing you know, there's a "run on the bank," and the whole structure collapses.

Reflexivity is a powerful concept. Soros notes that if you can identify where something like this is about to happen, you've found a massive moneymaking opportunity.

Here at HX Research, we have frequently discussed the effect of human psychology and biology on financial markets, and these reflexive situations contribute to this.

Human beings are inherently emotional. They become excited (greedy) and panicked (fearful). Identifying where those emotions are about to flare up can be a great way to identify winning investment opportunities.

These concepts are always applicable to the stock market, but they are sometimes more useful than they were at other times.

Recently, we saw Soros's concept of "reflexivity" play out in one of the most unlikely places—the meme stock GameStop Corporation (NYSE: GME).

We are sure you are aware of what happened last month, but in mid-May, we saw the re-emergence of the meme stock influencer known as "The Roaring Kitty.”  He is a real-life investor named Keith Gill, but we are going to refer to him as "RK" for short.

On Sunday, May 12, he posted to X/Twitter for the first time in almost three years. He posted this image…

It appears to be someone holding a game controller and leaning in. We are not sure exactly what it was supposed to mean, but the stock market – and the meme stock army – read it as the return of RK to the action.

This sent the stock of GME flying. Here is the chart from early May 2024 until July 2024…

You can see that the dormant stock price quickly exploded, from a little more than $10 per share to almost $50 per share within just a couple of days.

In the ensuing few weeks, RK made many more cryptic posts. Eventually, though, he confirmed that he had returned to an active role in GME stock and disclosed his position.

He even hosted a (somewhat painful to watch) live event where he took viewer questions and rambled on.

Anyone with a traditional stock market view might think the world had gone crazy as the stock repeatedly rallied on this social media train wreck.

Funny enough, we don't think Soros would think the stock market had gone crazy.

Soros fundamentally understands our view about stocks. When you buy (or TRADE) a stock, you are not buying the company—at least in the short term.

Any number of factors can drive buyers' enthusiasm, including the return of a social media personality like RK.

What we find most interesting about the GME situation is that it is a notable example of Soros’ concept of reflexivity. The idea is that people's perceptions of the future can influence the future.

First, the excitement about RK's return to the situation drove an investor frenzy. This drove the stock up towards $50 twice, and it is now (still) trading close to $25 per share.

This may not persist, but investor perception has created a momentary reality.

Second—and this is much more interesting to us—the investor perception has undoubtedly changed the company's prospects!

How might you ask?

The company recognized an opportunity and issued new shares to raise capital. We wrote about this on June 13, click here to read. 

The company issued an additional 120 million shares, raising them over $3 billion.

As we detailed in our note at the time, the company was already sitting on $1 billion of net cash and was burning around—$200 million per year. Thus, it was in a fine position to invest and reposition the business.

Now, however, after raising the additional $3 billion, they have a massive war chest! Their net cash is almost $10 per share.

What will they do with it? We don’t know. Will they produce positive value from it? We also don’t know.

What we do know, though, is that Soros' concept of reflexivity in the markets presented itself here and fundamentally changed the company's future prospects. Investor perception CAN change the future…

III: Market Wizard’s Wisdom - George Soros

To follow the George Soros and GameStop piece in section II, we thought we’d share a more straightforward retrospective piece we published last October titled “The Macro Master – the Intellectual Insight of George Soros.”

We’re sure you can learn something from this market wizard’s wisdom.

Enjoy!

Last October, I had the opportunity to take my first real trip in many years.

Over my lifetime, I have visited fifty-three countries. I'm not sure my goal is to visit all of them before I die, but I certainly want to visit a lot of them.

For most of the last thirty years, I have been able to hit a new one or a few new ones every year. In the previous six years, though, I have not visited ANY new ones. Between work, COVID, and life – my travel has been curtailed.

After successfully launching HX Research earlier this year, I decided to visit Eastern Europe.

The first place I visited—and the one I was most excited to see—was Budapest, Hungary. I honestly know little about the place but have always been very intrigued by it.

As we walked around this ancient city, I thought about one of its natives, George Soros, who became one of the greatest investors of all time.

Most of you are familiar with Soros. His story is an incredible one.

He was born in Budapest in 1930 to a non-religious Jewish family. They stayed in the country and survived the horrific events of the Nazi occupation and the holocaust. There were over 550,000 Hungarian Jews who did not survive.

He left in 1947 and eventually attended the London School of Economics. After working at several merchant banks after graduation, he founded his first hedge fund—Double Eagle—in 1969. In 1970, he used it to start Soros Fund Management and changed the name of the fund to Quantum Fund.

Over the next four decades, Soros built one of the most legendary track records in investment history.

He has generated some controversy in recent years with his strong political advocacy.

While this has led to some detractors, no one can doubt his ability to use powerful intellect to master the global markets.

Soros is one of the investors who has most influenced my own strategies, but he is also one of the most difficult to understand.

Soros is not known for simple quotes. Here are a few of our favorites, along with our thoughts…

Soros is known for his complex thoughts, but this is a simple and powerful trading insight.

We discuss this often when discussing our strategies. Everyone would prefer an approach that wins most of the time. Our TRADING strategies make money in over 70% of all our positions.

To make BIG money, though, you should aim for big returns. You also should manage your losses. This combination is how you compound wealth over time.

This is what we do in our INVESTING strategies. However, we will point out that most of our stocks make money there, too!

It isn't always what happens that is most important; rather, it is what happens relative to what investors THINK will happen.

Once an investor understands this concept, they are in a much better position to make money and manage risk.

The concept of expectations driving the market is an important jump to make to be successful.

This is one of our favorites.

My partner Whitney Tilson once asked me what strategy we use in our investing and trading. I think he was expecting an answer like "value" or "growth.”

My answer was that I was a “make money” investor.

The environment changes, and your strategies need to adapt to be successful.

This is a more typical Soros quote. It also raises one of the most powerful concepts in investing: Soros's theory of "reflexivity.”

This is the idea that investor perceptions of the future can influence the outcome.

This insight can occur at key market points and with particular stocks. IF you can identify these points, you can make an absolute fortune!

We hope that you’ve enjoyed this week’s issue of HX Weekly…

Do you have any thoughts, questions, or feedback? Tell us more in the comment section or at [email protected].