The recent frenzy in SPACs, meme stocks, NFTs don't make sense until you realize people aren't buying investments. They are buying entertainment and hope. It's all a big casino, and people don't act rationally in casinos.
The market for growth tech/speculative stocks has been irrational for almost a decade now.
New metrics always being invented to justify this/that, but plenty of stocks were at 100x Price Sales just a few months ago... Which pretty much never will make sense for a decently sized company.
Yet somehow the FAANGs which are effective monopolies sit at 20-30 PE, while Costco is at 45.
The market is not efficient at all, and I don't know if it's just blind index investing, herd behavior in fund managers or what.
Seems to me we need a real correction to flush a lot of the idiocy out of the market. The government has supported speculators at every turn since the GFC, which is creating a weird moral hazard, most prominently now in housing.
Fortunately inflation has forced their hand, and 10y rising even to 3-4%, and mortgages to 6% will crush most of the speculation.
Costco pays dividends. Without dividends, stock is mostly worthless except for the speculative aspect. A Google that paid dividends would be a sound investment, if you neglect the social externalities, and would burst up thru the PE ratios.
Intrinsic value of stocks comes from dividends or the potential for future dividends. Any stock that doesn't pay a dividend could pay one in the future from their earnings/cash flow.
So even stocks without dividends have a measurable intrinsic value
In fact it would be a cool subject for some study to see if there's a link between gambling and it's motivations/addictions and these type of products (including some trading cards).
My uneducated guess is that the motivation for collectors and gamblers are quite different.
I'd say it's more like they have nothing left to lose. In this economy, most of their lives won't change much if they lost their life savings on meme stocks but can significantly improve if they won.
I appreciate how the author captures the mindset involved in this kind of trading. I would cash out if I had 6,000% gains, but that same mindset is what prevents me from getting 6,000% gains in the first place, because I’d never go all-in on a risky trade.
Then again, that mindset also prevents me from losing all my money.
I sometimes wonder, "what if I put that money I had lying around into crypto or GME," then I realise pretty much the same as you. Not only am I late to the game, I just don't have the same relationship with money that these people do.
I had that phase but luckily I was a poor teenager. So I would spend my $50-$1000 I could scrape together per month from odd jobs and allowance on scratch tickets, online gambling, etc. Getting my first real salary made me realize how dumb it was as a way to “make money”
I have been holding NFLX & TSLA for the last 10 years. Every time, the stocks reached all time high, i became greedy and changed my target date to sell.
Now NFLX is down crazily and waiting for TSLA to split again. 10000% gains and I will sell it.
If a stock I own ever doubles, I sell half and put the proceeds into an index tracker. Knowing that I've got the money back and it's (relatively) safe makes it much easier for me to be rational about how I treat the remainder. Obviously that might just be my own mindset...
I think he does a decent job of discussing the psychology of it. I've been following this stuff SPAC/WSB through Bloomberg et al and they can't really put themselves into the headspace of the traders like this (or even get significant quotes), so it's the first time I've heard a deep explanation for "What are they thinking?"
This person's individual story isn't particularly interesting, though it's well written and explained, but I think the psychology behind why more normal people are "yolo-ing" money into investments is a really important one to think about on a societal level and is going to explain a lot about the coming years.
because it's good to let people know these things happen as opposed to the onslaught of material that you're gonna make it rich in crypto and web3 investments. It's everywhere. I can't watch financial (tv) news anymore. I want legit financial discussion but all I see are fintech and crypto execs promoting their warez. I had to go back to being much more selective and reading everything based on headlines rather than passively ingesting it all. I guess that's probably a better way anyway.
I’ve been able to extract 6 figures per year for the last 3 years in the options market. This year may end up at 7 figures. I’m also well aware that I could lose it all. We’ll see. The basis of what I do is look for irrational behavior of the masses, patiently wait for the realization of truth to start spreading and buy long dated options into it. The real challenge is knowing and recognizing your own cognitive biases and understanding that almost every human shares the same biases. So in knowing yourself, you can know the irrationalities of the masses and the next realization they will come to. This is an incredibly important tool. Another is patience. Short dated options will kill your account. It’s only a matter of time.
I had a friend Dan and we both worked on the same team at Google. He figured out this idea where he sold SPY puts each month to generate enough income to live. Covid tanked the market temporarily as this story touches on and he lost everything. Turns out he was leveraged as well and got margin called. I think he was playing with around $300k in real capital. He filed for bankruptcy last year. Its tempting to think we can outsmart the market there are so many of these stories.
The funny thing is I also quit Google shortly after Dan did and independently had been trading stocks to live as well. Fortunately I started as a result of the pandemic dropping the market. Once I started raking in money, I left the job. I know of Dans story bc I went to him for advice. I thought he was still in it.
His story was a reality check and made me somewhat more cautious. But really only in the back of my mind sitting next to another question: “when is it my time? When will I need to back to work bc I have nothing?”
It’s crazy that Millennials and Gen Zs are already some of the poorest generations in recent history, and then on top of that bad investment decisions like this end up making them even poorer for life.
God damn, I feel like growing up we leaned too hard on hokey “Money can’t buy happiness” or “Money isn’t everything” narratives, and thus people never prioritized making as much money as possible. Now so many problems faced by these younger generations all have a common denominator: not enough money. That’s why we see these risky gambles and moonshots and digital pyramid schemes.
My message to future generations would be this: You need money, you need a LOT of money. There are many amazing things in this world but they will all be out of reach for you if you do not have money. If you’re not making enough money, you’re doing something wrong, and the longer you’re in that state the worse off you will be. Get money.
I would expect this to be a consequence of the "do what you love" mentality that seems to be popular of late, especially when coupled with irrational educational decisions ($250k for a social work degree at NYU etc).
It's almost as if the "oh i actually need money" epiphany only happens later in life and leads to the dynamic you mentioned.
From my perspective as a millennial...it's because getting enough money seems like an impossible task. Salaries at companies are not keeping up with inflation, it is difficult to get a higher paying job. Companies don't reward loyalty. Housing and rent are increasing at an absurd rate. We're getting married in our 30s+ (if we get married, a lot of people in my generation don't want to start a family) rather than starting a family in the early 20s like older generations did so there's not much need for money. It increasingly seems like hard work and effort are not rewarded.
And so life for millennials and younger is way different than it was for boomers and older. Life is more like being a vagabond rather than the stereotypical financially-successful family-oriented life of older generations. I blame the social breakdown over the last two decades and I blame the failed economy. Just have to live life day-by-day and whatever happens, happens.
Do not blame social breakdown and failed economies, first and foremost blame yourself.
It is not difficult to get high paying jobs. I also don’t understand what loyalty has to do with anything. I’ve not been loyal to any company and have only gotten better and better jobs with ever increasing salaries.
That may or may not be true in general, but individuals can still make a good life for themselves. Education is usually they key (there are always exceptions). As older people retire, people move up in companies. There will be and are people of your exact generation and age moving up and making a good living. You can do it too.
I really enjoyed this piece, and it is probably more interesting than the comments (you know who you are). The quote at the end is a great take-away. How do you know you are good at trading or just got lucky? How long will it take to work that out? And is it worth the energy?
Question from someone that has never played with stocks: when someone like the writer or some random friend tells me that stock X is undervalued or overvalued, do they really have any objective way to evaluate that? What do they think they know over other people that are willing to sell the stock to them?
Over the past two years I have seen more and more friends starting to do day trading, some of them even waking up hours earlier before work to read about stocks and organize their trades for the day. Is this really just irrational gambling with extra steps? And if so, why aren’t those people, which I consider pretty reasonable otherwise, are led to believe their reasoning and knowledge will give them an edge.
You can evaluate long-term value by doing your due diligence by researching the company's strategy and financials. You can tell if a stock is undervalued by calculating its price to earnings ratio. Day trading is gambling. Valuation and long-term forecast is irrelevant to a day trader. Stocks constantly fluctuate and gains on one time scale can be losses on another. This is just one reason a seller of an undervalued stock is not necessarily stupid.
> Do you consistently (over several years) beat the reference index ? [after fees]
Most fund managers don't achieve this:
"Most active fund managers in the US failed to beat the market over the past year, according to another dispiriting report on an industry that often claims it will come into its own during periods of volatility."[0]
An a complete outsider to that field, I'm curious how (and why) they keep their jobs.
> Maybe you only trade for a few hours during the day, but the market will plant roots in your subconscious. You'll be thinking about it, even if you aren't actively playing it.
I was thinking about this re: knowledge work. It's pretty much impossible for it to be a 40 hour a week job, as you will be thinking about the problems and working through them all the time, in bed, while exercising, whenever. It can become all consuming.
I like the article, but for the author to say they’ve ‘mastered’ the markets at 23 is just laughable. He’s doing a higher level of /biz/ trading which is essentially betting based on memes and sentiment. This is gambling. Anything other than value investing is gambling.
He didn't mean that literally. It's a tongue in cheek way of saying "when you're a 23 year old and you think you've mastered the markets, you don't think about wealth preservation."
Original quote:
"When you have mastered the market at 23 years old, and you're up 6000% in less than a year, you don't think about wealth preservation."
I know that this comment is going to get heavily downvoted, but why is this interesting? Teen greed, paired with arrogance and disrespect for the money he “earned” :-(
Basically. Though I've seen worse on wsb. Some dude inherited 200k from his grandmother and lost it all. He had half of it in a single stock for some used car sales company. His logic? He liked them and got a good deal on his car from them (others pointed out that they actually have bad prices...)
Ever since HN allowed non technical news I find it actually kind of rare to have a high percent chance what I clicked on be related to coding. I see it more like an alt reddit nowadays.
I agree that HN has for a long time been focused on interesting and illuminating posts. The past several years, though, have been marked with reddit refugees, far fewer interesting posts, and far more average midwit discussion.
If you go through the comment section on posts from 10 years ago, you'll find a higher concentration of posts from C-level execs, startup founders, and experts with deep domain knowledge.
> Nov 6, 2009 | on: Ask HN: Is it just me, or are HN comments becoming...
> I'm at a year and a half. Hacker News is turning into Reddit. It's following the exact same path, albeit thankfully slower, and the causes behind that path—influx of users, need for attention, karma lust—aren't causes that Paul is looking to fix.
> Reddit's not the worst thing in the world, but make no mistake, we're headed there.
I was curious about the history of this, so I checked on the Wayback Machine. Originally (at least as of July 2014, the earliest archived date), this rule had an "if your account is less than a year old" clause. The rule went away entirely in August 2017, and then came back again in November 2018 without the clause.
HN has always allowed non technical news. The only criterion is that it gratify intellectual curiosity.
Actually, this particular type of article (sensational business-related blog post, let's call it) used to appear a lot more than it does today. Note that it got flagged in this case.
lol that's what I tell my friends: "imagine reddit with good moderation with much improved signal to noise ratio". Which I guess upon reflection of typing that isn't reddit at all, but my powers of description are very limited as I didn't do well in my writing classes.
It's safe to say that most engineers with a 401K and 20+ years experience gained and lost a lot more than $150K in a day several times in the last few years. This is extremely uninteresting.
I agree, however this story is about options, which are realized gains or losses. Real actual losses on other gains, in which you may not have put aside for tax. This can be a real problem.
The fluctuations on a 401K really are only significant if it occurs during a time in which you are relying on those funds, near or at or during retirement. Nobody with a 401K 'lost' anything in the last few years unless they withdrew from it.
I read up until he mentioned reading wallstreetbets.
Then I thought, "yup, another reason to avoid active trading, which I already know in my bones is a poor use of my time, money and energy" and stopped reading.
how much money do you think "most engineers" with a 401K and 20+ years experience have in their 401k? and what has been the largest single day swing in SPY in the past 5 years?
Two years ago the S&P 500 fell 12% in one day. You'd need about $1,250,000 invested in it to lose $150,000 in that day. That doesn't sound like an unlikely balance for a 401K after 20 years to me.
Bitcoin and Ethereum? Sounds like they bought high and panicked at a 50% drop. Plenty of documentation that this approach is guaranteed to fail, and always corrects in a few years. Appreciate the downvotes.
