“The cemeteries are full of indispensable men.”
— Jacques Nels
Thursday links
Investigative short selling is the hardest way to make money in finance.
Short seller Christian Lamarco has been featured in the Wall Street Journal and New York Times for calling the biggest, most salacious news in corporate history six months in advance.
He's up 30%. At best.
“It's unclear if the epic corporate fiasco has made Lamarco money,” the Journal reported. “He declined to say how much he’s earned from the most prescient call of his career.”
Lamarco’s report argued that NVIDIA was selling GPUs to China long after Jensen Huang had said export controls caused their China business to fall to zero. “One former Nvidia Director-level employee we spoke with estimated that ‘20% to 40%’ of Nvidia’s data center business remained functionally Chinese even after the April 2025 restrictions took effect.”
His short thesis was that, when the 20% to 40% actually did go to zero, analysts who had taken Huang’s statement at face value would be surprised by the revenue shortfall.
Lamarco presented Jensen’s relationship with Alice Huang as supporting evidence for his theory that NVIDIA was selling GPUs they knew were ending up in China.
In hindsight, of course, it’s that part of the report that jumps off the page.
Huang, the report said, is “maintaining an uncomfortably close relationship with Megaspeed’s Alice Huang, a Chinese national.”
One Megaspeed employee described the relationship between the two Huangs as “very close.” Lamarco was also told that “many Nvidia employees wondered if there was a special relationship.”
The report also details some video evidence. When Jensen Huang is seen leaving a restaurant, “Alice Huang seems to spot the reporters who had gathered outside, and stops dead in her tracks.” An unidentified woman in Jensen’s entourage encourages her to join the group but she’s reluctant. “While Jensen and Wang serve noodles to local fans, Huang chooses to remain in the background.”
Lamarco contrasts that behavior with an event the year earlier, when Alice Huang reportedly bragged to a reporter that she could summon Jensen on command. “After export controls, however, she seemed not only reticent to approach reporters, but to be spotted with Jensen at all.”
This is excellent work. Some of the best in the history of activist short selling, I’d argue.
And yet, its author might have made 30%.
This is why I believe the capital gains rate on short selling should be zero — or negative. The service provided by Culper — spending months finding new, price-relevant information about the world’s most scrutinized company — is worth far more to the market than whatever they earned on it.
It’s a public good, so why not subsidize it?
31-year-old Lamarco doesn’t seem to see it that way. “Short sellers get sanctimonious about this but it’s like, dude, you made $20 million last year. Don’t tell me you’re doing this as a public good,” he told the Times.
But he also says he’s been sued by Elon Musk and followed by private investigators.
Whatever he made on his NVIDIA short, it’s not enough.
Some stocks really are just lottery tickets.
Finance researchers Tim Chih-Ching Hung and Chien-Jui Lin found that retail trading volumes in some stocks were sharply lower on days that a large Powerball or Mega Millions jackpot was available.
In 2020, when people bought lottery tickets they were less likely to buy work-from-home stocks like Zoom. In 2023 (after the collapse of Silicon Valley Bank), it was financial stocks like Charles Schwab.
This makes lottery tickets and speculative stocks economic substitutes.
This feels like a new low of ignominy for retail traders. Speculative, narrative-driven stocks have long been referred to as lottery tickets, but the term was meant as an analogy. Chih-Ching and Chien-Jui’s results suggest that’s literally how retail traders think about them.
Classical economists often dismiss this kind of behavior as irrational, misinformed, or impulsive - no better than believing you can beat the casino at roulette or slot machines.
But Milton Friedman said it was rational behavior. In a 1948 paper, he reasoned that people are understandably attracted to bets with payoffs big enough to change their lives by moving them into a higher socioeconomic class. Relative to that upside, a small, near-certain loss is worth accepting.
This is why millions of people display the seemingly contradictory behavior of buying both insurance policies (paying a premium to avoid risk) and lottery tickets (paying a premium to assume risk).
Friedman hypothesized a “wiggly” utility curve that predicts the behavior:
“Men will and do take great risks to distinguish themselves,” Friedman concluded, “even when they know what the risks are.”
(Why CEOs take great risks to humiliate themselves requires a different kind of hypothesis.)
In the case of lottery stocks, the risks aren’t even all that great. Chih-Ching and Chien-Jui found that lottery stocks underperform non-lottery stocks by just 3.31% over the subsequent 12 months.
Still, I wouldn’t recommend it. I’ve bought a lot of lottery stocks in my day and none of them made me even a little rich.
But at least I know I wasn’t being irrational.
Last week I wrote about my investigation of Solana accounts with easy-to-guess private keys, including the extremely easy-to-guess private key of 5, which led to an address that had 1.4 SOL on it.
I hypothesized that it was some kind of honey trap, nearly as alluring as a Chinese spy, because I couldn’t think why else $120 of crypto would be sitting there for the taking.
But a reader wrote an entire blog post correcting me: the crypto was not for the taking.
The post explains that Solana accounts can be assigned to a custom "owner program" rather than remaining ordinary wallets. Once an account's ownership is transferred to a program, even someone who finds the private key can't use it to take the crypto. Only the assigned owner program can authorize debits.
Interesting!
I don’t seem to be the only one who didn’t know that. The reader, who goes by the nom de plume of Cook Ding, explained that the low-numbered keys were claimed relatively recently, and that they’ve attracted a lot of bots.
Starting in 2024, someone claimed nearly all the small keys from 1 to 255. We don’t know why. Maybe to grab them first, maybe to set a trap that never worked, maybe just for fun. Over the next two years, dozens of addresses sent money to key 5, and none of it can come back out. If the trap has caught anyone, it’s the sweeper bots: 753 failed attempts, a fee every time, and they keep coming back.
As part of my investigation, I also looked for the lowest private key on Solana that hadn’t ever been used. It turned out to be the surprisingly low number of 258.
Just for laughs, I sent 1 SOL to the address controlled by 258 and it was taken seconds later, I assumed by a sweeper bot constantly scanning low-numbered keys for free crypto.
But Cook Ding corrects me here as well: the address was again controlled by a program, not a private key. Even if my 1 SOL had not been swept, I would not have been able to withdraw it.
So today I tried again, but on Ethereum. I looked for the lowest private key that hadn’t yet been used, which turned out to be a much higher number: 6010.
6010 controls the address 0xC8087377f2B87953164d622245EA539AA0a85560, so I sent it 0.05 ETH to see if the sweeper bots are watching.
It was gone seconds later, so I guess they are.
(Unless Cook Ding tells me otherwise.)
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