Being a 4 digit net worth grad student in Europe, riding a few meme stocks just for a short-while has increased my 'wealth' and given me tremendous amount of financial freedom. I understand that the odds are against me, but really, the expectation even when accounting for variance, and adjusting for risk tolerance are a no brainer to me.
I made >40% of my net worth in the first 2 weeks of January alone, and with GME I have multiplied my net worth by (>tenfold). Yes I understand that these are 'extraordinary times', but accounting for everything. I have literally nothing to lose. I can fast for a week if I need to, I can walk instead of taking the metro. Whatever. I am not going to lose a lifestyle that I never had and I never had a safety net to begin with because being a 4 digit net worth student doesn't give you any safety net.
Keeping track of my bets even before getting into this, I was right more often than not, and I am aware of survivorship bias and confirmation bias. In the limit, it makes more sense to spend 4-5 hours per day learning about market analysis, observing trends close to me and making decisions about sectors/fields that I know about.
The trouble is that, if it works, why wouldn't you try it again? You're not only a single data point, you are also a snapshot in time. Two months ago, you didn't have much. And, unless you truly decide to stop doing what you're doing, you are likely to have about the same two months from now.
This is exactly right. Posts just like OPs can be found all over the internet, yet it doesn't change the simple facts. Rarely, if ever, do these people come back months later to report that indeed they kept trading and lost all of their gains (if not more). What you have in OP is a snapshot in their time; hardly the complete story. Time will tell, as they say.
I said this in another related discussion, but I hear countless stories from friends about their incredibly prescient trades that net 50% returns in a day. I never hear stories about the losses.
Somehow, despite funding this hobby with their outsized tech worker salaries, none of them seems to have made their millions yet.
Then you may not have been in WSB before GME blew up. Especially during March and August, there was a lot of 'loss porn' and it is always interesting to hear how people lost their money.
Fair point. By playing with the same amount of money each time, I can repeat the conditions and my behaviour. That is, I can easily 'yolo' the same amount in a year and behave in the same or similar manner. The reason being that changes in circumstances significantly alter our behaviour and perception. By simulating the conditions I can possibly emulate the behaviour and thought process.
I understand that this sounds like a rationalising gambling behaviour, and in part it is, but on the other hand, making money it is a multi-objective problem.
Maximize net worth subject to minimizing risk and time.
There are many ways to play this; you can throw a considerable amount of money in stuff like AAPL/MSFT and so on, and that is a good position to be in, infact MSFT went up 350% IIRC in the last 5 years, that's nearly +35% YOY.
Alternatively, you can gamble small amounts and capitalize on the FOMO by identifying bubbles, riding them, and getting out fast enough by not getting too greedy. This isn't the best strategy long term because you can miss good opportunities, like AMD, but this falls into acquiring more domain knowledge. Plus it sounds like trying to time the market, as many do, but I disagree. Many who try riding the bubble try to time the peak. I disagree with that approach. The goal is to get out fast enough to outpace the market.
> Plus it sounds like trying to time the market, as many do, but I disagree.
You can disagree all you want, but this is attempting to time the market. It’s literally the exact thing that’s repeatedly warned about. Trying to be the next-to-last out in a Ponzi scheme is a dangerous game, and one that many “smart” people have lost.
That’s not to say that some people won’t succeed at trying to time the market. It’s just essentially roulette: you can do well for yourself or you can lose money, but on the whole it’s a losing proposition and winning isn’t particularly correlated with skill. And—perhaps more like poker—even repeated bad plays can be rewarding in the short or even medium run.
Also like poker, taking big gambles can be profitable in the short term, but any time you put your bankroll on the table you’re risking going bust. Even a 10% chance is going to send you back to square one eventually.
Other than exceedingly rare cases, people who perform well in the markets don’t seem to be the same year-over-year, except at the rate you’d expect from random chance. Smart plays can turn catastrophic, bad plays can be profitable, and it takes a lot of honest introspection to assess whether or not a play was smart or simply bad but lucky.
I bought into AAPL early in my investing career. It was right around when Rails was taking off. I saw a UNIX system with great interface design and better stability than popular Linux distros, and developers flocking to the platform for tools like TextMate. I knew AAPL would take off in the end if they were grabbing such developer mindset.
I was right, but for all the wrong reasons. AAPL took off, but it was pretty much just because of the iPhone. It had nothing to do with what I thought it was, and in the end I was just lucky. That’s a lesson that stuck with me.
In the short term, when someone gains in the stock market, someone else loses. Because of “invisible” transaction fees that go to Wall Street, retail is losing on net. So in the bigger picture, small investors aren’t winning, despite our insistence that we are. Some of us are winning. Most of us are losing. And the net result is that Wall Street is getting richer. That’s not good.
Expected utility is positive implies that people have discontinuous utility functions wrt. money. That is, utility will jump significantly after reaching a certain net worth.
Another explanation that is consistent with gambling behavior is that people have inaccurate risk functions; that they overestimate positive upside and underestimate downside.
I am not familiar with the economic literature. But I believe that there is more evidence to support the second hypothesis. Behavioral economics has showed that humans are notoriously unable to estimate risk accurately. I have not seen as much evidence that humans have discontinuous utility functions.
Behavioral economics also tells us that humans are also terrible at estimating their actual utility functions. So I also don’t trust the original poster who claims that they have a discontinuous utility function. The only way to test that is to observe actual human behavior.
> The obvious discontinuity is "never have to work".
First, wanting to achieve "financial independence" does not imply a discontinuous utility function.
Suppose it takes $X to reach financial independence. Let's say that when I achieve $X, I have utility Y. It is possible that as I approach $X from the left, my utility continuously approaches Y.
In fact, I argue that's what happens for most people who have a FIRE goal — they get happier and happier until they reach their goal. (It's true that once they reach their goal and experience retired life, they decide that retirement's not all that it's cracked up to be, but I argue that's because their utility has dropped because of another variable has changed: they have stopped working.)
In other words, "wanting to not have to work again" and "having a continuous utility function" do not contradict each other. And the people who are dedicated to saving enough money to not have to work (FIRE) almost always have utility functions that are continuous wrt. money!
> when they talk about this stuff.
Again, people might say that they have a discontinuous utility function, but talk is cheap. Real economists (TM) measure utilities through examining a consumer's revealed preferences because what people say doesn't always reflect what people do.
It really depends on an individuals displeasure at work though right? To take a ludicrous example my utility function for eating a sandwich is has a sharp discontinuity as a function of how much Polonium is in the sandwich. So too with some people for money and work, especially when it is far away from your current state. I don't think this is an experiment that a real economist (TM) has ever performed on an individual to discover what the true utility function is (happy to be wrong though).
> To take a ludicrous example my utility function for eating a sandwich is has a sharp discontinuity as a function of how much Polonium is in the sandwich.
Well, in the real world, every sandwich likely has a little bit of polonium in it; maybe an atom or two. If that increased to three or four, you would be slightly unhappier, but not sharply so. Every little increase in polonium slightly decreases your utility until you reach a point where you do not derive any utility from your polonium-laced sandwich, and so you would not eat it. Therefore, I argue that your utility function is still continuous wrt. polonium in your sandwich.
(In economics this isn't really how you'd model utility because the assumption is that you always have the option to throw away the sandwich; therefore, having the polonium sandwich gives you more utility than not having it.)
Same with money. Imagine you had a "life changing amount of money," whatever number that means to you. Call that number $X. Now imagine that you instead had $X - $1. And then $X - $2. Even $X - $1000. How much less happy do you feel in those imagined scenarios? A lot less happy? I bet you feel marginally less happy and not sharply. Which implies a "smooth" utility function.
I believe that non-continuous utility functions can exist -- suppose someone says that they will kill you unless you give them $50,000 -- but for most people that's not a real scenario.
> I don't think this is an experiment that a real economist (TM) has ever performed on an individual to discover what the true utility function is (happy to be wrong though).
I don't think ever with polonium, but here's a short video about revealed preference theory. https://www.youtube.com/watch?v=kPXov3D1tfA. In practice, applications of revealed preference theory happen all the time.
But your example did make me think more about "continuity" and "sharpness" and I now think that continuity is not strong enough to support my original claim. Continuous does not mean "smooth" [1]. To define "smooth," I would instead say that most people have utility functions that have positive first derivatives and negative second derivatives; that is, their marginal increase in utility for a good is positive but diminishing.
> Imagine you had a "life changing amount of money," whatever number that means to you. Call that number $X. Now imagine that you instead had $X - $1. And then $X - $2. Even $X - $1000. How much less happy do you feel in those imagined scenarios? A lot less happy? I bet you feel marginally less happy and not sharply.
Talking only about myself and not claiming anything about humanity at large:
There is a particular number of USD that, if I have in my account, I feel calmer and non-chalant about losing a job. Let's call it $20000. If I have $19900, it's the same. But if I have $15000 then I'd start feeling uneasy and would revert to trying hard to refill that minimum leisure savings amount.
So IMO it's not a gradual linear function. It's more like, for values between X1-X2, Y remains relatively constant. Then for values X2 to X3, Y is a higher value compared to the previous bracket of X values but also stays relatively constant for the current range of X.
Maybe I am missing something obvious but isn't watching stocks, analyzing news and predicting stock prices so you can multiply your money, an actual work?
You do spend time and energy chasing an income, no?
You can get a net positive utility gain from a net zero money gain with a continuous function, if it were say, logarithmic. A has 1X$ and B has 10X$, then an exchange occurs where 1X$ moves from B to A, now it's 2X$ and 9X$, but the change in happiness for A could be log(2/1)~=.30 while B log(9/10) ~=-.04
This is just one utility vs wealth model that would argue wealth transfers improve net utility in some contexts.
If you buy and hold, hold, hold, the transaction fees become inconsequential. I've owned some stocks for 40 years. I've ridden some down to zero (Enron, cough cough).
My advice to you would be to have an exit plan. For example, set aside 20% of your assets in a savings account, maybe even some type of account where it's not that easy to cash out, to limit the temptation of dipping into it. Then, as your assets grow (if they do), at various thresholds, you set aside preset amounts of money. This way, if you "lose it all" one day, you don't get to "walk instead of taking the metro", you get to afford a down payment for a smaller apartment instead of a bigger one.
Look, it's great that you managed to be one of the people who came out ahead in all of this.
But while you personally have seen some success so far, it's important to recognize that overall this is a transfer of wealth from people in your financial situation to the wealthy. The fact that this one situation is so incredibly newsworthy should be strong evidence of how unlikely such successes are in practice.
Further, a lot of the people holding on to $GME right now will be caught holding the bag once the selloff begins. Once the reversion happens, there won't be buyers willing to take this rapidly-pluging asset at every price point along the way. Certainly some people will get out at sky-high prices, but the overwhelming majority will be left holding a $10 asset they purchased at $400+.
> I made >40% of my network in the first 2 weeks of January alone...
Only if you've sold. And if you haven't, I do genuinely hope that you're one of those who manages to get out in time. But even if you are, it's important to realize that the eventual winners of this scenario aren't going to be the Redditors holding on to $GME shares, but the wealthy short-sellers who manage to either predict the pop or simply have enough assets to hold on long enough for it to happen.
> I have literally nothing to lose.
No, you had 4 digits of net worth to lose. And while that might not seem like "much", it's quite literally not nothing. And while you've been fortunate to win on this play, the statistics are pretty clear that plays like this keep more poor people poor than make the poor rich.
> Keeping track of my bets even before getting into this, I was right more often than not, and I am aware of survivorship bias and confirmation bias. In the limit, it makes more sense to spend 4-5 hours per day learning about market analysis, observing trends close to me and making decisions about sectors/fields that I know about.
First off, compare your plays to overall market returns, not to net-zero. Your benchmark over the past five years should be something around +90% (about 14% YoY returns). Actually, you need to be a little better due to trading expenses and (in the U.S. at least) short-term capital gains tax raets vs. long-term gains.
Second, it's astonishingly easy to be profitable when the overall market is having record returns. The trick is not losing your shirt when the market goes upside down, and everyone thinks that part is going to be much easier than it really is in practice.
In sum, I genuinely wish you luck, but I'm sadly all too aware that the statistical reality is that spending 4-5 hours per day learning about market analysis and making trades based on your findings is overwhelmingly more likely to leave you poorer than richer.
You can find people who've become rich betting it all on black at the casino, but that money didn't come from the house. It's just redistributing funds from all of the other suckers at the table, while the casino takes home the real winnings.
Thank you for your concern, I appreciate it. Yes I have an exit strategy, and with the second semester starting again, I won't really have the time to deal with this all of this. I made enough to setup a system to run experiments and fund my research for a year or two without needing to bug professors or make commitments on topics that don't really interest me.
> But even if you are, it's important to realize that the eventual winners of this scenario aren't going to be the Redditors holding on to $GME shares, but the wealthy short-sellers who manage to either predict the pop or simply have enough assets to hold on long enough for it to happen.
What the hell are you talking about? The short sellers are literally losing tens of billions of dollars, and I believe they are going to lose several times more within the next week.
The short sellers are overleveraged right now, and unless they find some bullshit way to fuck everybody (people are switching away from RobinHood in droves) then they are going to not just lose more money, but go insolvent.
I don't know what's going to happen, and rumors are Melvin is about to get a giant capital infusion, but it really seems like the short sellers are the ones that are fucked and believing otherwise is ignoring data and simply assuming nothing ever changes. The fact that they're doubling down is a sign of desperation, not strength. It's like saying Lehman Brothers can never lose money in 2008.
> What the hell are you talking about? The short sellers are literally losing tens of billions of dollars, and I believe they are going to lose several times more within the next week.
Yes, Melvin is losing their shirts.
But if you accept that the price is going to go down, and sharply at that, then somebody is going to make an absolute killing here from a short position when the price inevitably craters. And that amount will utterly dwarf the gains from WSB redditors, mostly coming at their expense.
There’s orders of magnitude more money to be made today shorting $GME at $400 than there was shorting it at $20.
> There’s orders of magnitude more money to be made today shorting $GME at $400 than there was shorting it at $20.
I have been running scenarios of this in my head over the previous days. This play would be to short while the squeeze is near closure and force the remaining shorts to purchase your stock. The problem with this play is that eventually you need to cover, albeit at much lower price, unless, of course, the bag holders i.e. remaining retail isn't willing to sell to you at a lower price, so you can never close. If anyone else attempts to short at the rebounded prices, you can close your position, but this becomes a perpetual game of hot potato. For this play to you work, you need to assume the retail will paper hand, but if WSB is any indication, WSB can, as they put it, stay retarded longer than you can stay solvent and if they don't paper hand at those prices, they won't give it to you that easy.
The alternative play, is to make a deal with other firms where you rotate who owes the shares and you share the profits from shorting the top, but I suppose that constitutes market manipulation. If we were to assume that the market moves up and the profits can be reinvested and profit more than the interest, this play makes the most sense.
These two plays assume that all the floating shares are held by WSB, and if that is true; the bag holders will be people willing to let the prices literally moon. Then the only solution would be to wait for GME to issue more shares. The most plausible case is that WSB will be the ones holding the shares when it eventually squeezes and the shorts need to cover since all others in retail would have already sold.
This isn't a particularly good position for anyone to be in because no institution will be selling and nobody will be buying, so you will end up with a staring contest between you and WSB, and if the past few days are any indication, your only bet is your profits outweigh the interest.
If you can imagine the actual play executing in a scenario where WSB doesn't hold you by the ..., please share, I am interested.
On Thursday, Citadel reported overall retail GME activity was 50.2% sellers and 49.8% buyers[1]. Assuming they aren’t lying about this, retail as a whole isn’t “diamond handing” and holding to the moon, just a few outspoken redditors who stand to gain the more others hold.
> There’s orders of magnitude more money to be made today shorting $GME at $400 than there was shorting it at $20.
There's also orders of magnitude more money to be lost, because there's just more money on the table. At the end of the day it's a bet based on assumptions. A month ago everybody that was investing in GME was told the same thing by people that wanted to short it.
The market can remain irrational longer than you can remain solvent.
> There's also orders of magnitude more money to be lost, because there's just more money on the table.
And my point is that the losing side of this is inevitably going to be the majority of people long $GME.
> The market can remain irrational longer than you can remain solvent.
Billionaires can remain solvent longer than you can remain irrational.
Again, Melvin is almost certain to lose their shirts on this. But there’s many, many more hedge funds that are sharks circling the waters. And Melvin and WSB are both going to be their prey.
> Billionaires can remain solvent longer than you can remain irrational.
Melvin Capital has a very real chance of going insolvent. Also have you heard of Lehman Brothers? Hell, just watching Cramer get upset is enough for me to realize the rich aren't happy with what's happening. It seems pretty obvious they're worried. Why else would they pay for ads claiming to have closed a position for which they supposedly no longer have an investment stake?
> And my point is that the losing side of this is inevitably going to be the majority of people long $GME.
I said the same thing about TSLA way back when. So did David Einhorn. I still believe TSLA is more than 10x overvalued, and people continue to get rich despite my "rational" obstinance.
Also you're completely missing the point. Do you not even understand most of these people aren't trying to make money? If you don't understand that, then you don't even have a basis to start the conversation.
> Hell, just watching Cramer get upset is enough for me to realize the rich aren't happy with what's happening.
The "rich" are a large group. Much larger than the few names that have been on the news recently. There have been plenty of believable reports about funds that already made crapton of money on this attempted squeeze. Now, that everyone's eyes are on $GME, many more will make fortunes riding the stock down. Believe me, they are very happy about it. That kind of predictability on the market happens rarely, and is a gift for the funds.
There's been wall-to-wall coverage of DeepF*Value and the other lucky people who are getting out early. Half the stories on here, on Reddit, in newspapers and on TV. You sound frankly delusional claiming nobody talked about them.
(Highlighting the past winners is essential for every pyramid scheme, for recruiting greater fools.)
One redditor has made (at least if he gets out now) somewhere around $50m. It’s highly likely this redditor is one of the biggest winners from the WSB crowd.
Melvin is down $5,000m.
Who do you suppose accounts for most of the remaining $4,950m in Melvin’s losses?
> Melvin Capital has a very real chance of going insolvent
I just don’t know how many more times I’m going to have to say that Melvin is going to lose everything.
Melvin and WSB are not the only two players in the market.
> Also you're completely missing the point. Do you not even understand most of these people aren't trying to make money? If you don't understand that, then you don't even have a basis to start the conversation.
That’s the meme. We’ll see how the people with tens of thousands YOLO’d feel when things turn south.
And if that’s the point, that makes this whole thing all the more depressing. They’re sticking it to the hedge funds by… blowing a bunch of money taking out one while dozens of others profit off of them?
The point I'm making is that Melvin is going under, a few Redditors will make money if they get out in time, but the eventual impact of this will be a different set of billionaires gets richer while most Redditors are going to be stuck holding the bag.
Which isn't exactly the "Reddit gets rich off of evil billionaires" narrative that's being sold. And it makes the diamond hands strategy all the more foolish when literally the only way Redditors will actually stick it to the billionaires is if they all manage to get out in time. Diamond hands as a strategy just makes WSB the eventual suckers donating their money to the funds who shorted at $400.
Again, for many people it's not about making money.
And many (most?) people are aware that billionaires will still get rich on this trade.
You keep explaining this to me as if it's something I don't already know. The part you are failing to understand is we hold fundamentally different values.
Why not go to the casino and bet your 4 digit net worth on black jack? You probably have similar or better odds of making money compared to meme stocks.
I wouldn't say so. After running some simulations and assuming a fair dealer, it makes more sense to follow r/wsb. Doing a sentiment analysis on WSB after you account for bots and spam generally outperforms the market.
I made >40% of my net worth in the first 2 weeks of January alone, and with GME I have multiplied my net worth by (>tenfold). Yes I understand that these are 'extraordinary times', but accounting for everything. I have literally nothing to lose. I can fast for a week if I need to, I can walk instead of taking the metro. Whatever. I am not going to lose a lifestyle that I never had and I never had a safety net to begin with because being a 4 digit net worth student doesn't give you any safety net.
Keeping track of my bets even before getting into this, I was right more often than not, and I am aware of survivorship bias and confirmation bias. In the limit, it makes more sense to spend 4-5 hours per day learning about market analysis, observing trends close to me and making decisions about sectors/fields that I know about.