11 ms·

The pandemic turned my parents into day traders

96 points by prostoalex 6y ago

pips4profit 6y ago
https://youtu.be/jjs94JNEXaw https://youtu.be/jjs94JNEXaw
mjburgess 6y ago
Why do stock markets bubble & collapse? ... > One afternoon my mom and I found an envelope in the mail with the Nielsen consumer confidence survey and two dollar bills enclosed. The cash was enough incentive for my mom to start filling it out, ticking a box that indicated the business environment in our Iowa town was as good as it was before the pandemic. > “Really?” I asked. “You think so?” > Her rationale was simple—more optimistic answers would help bolster the market. “I want stocks to go up,” she responded. --- NB. markets are not faith-based. They are evidence-based. The trader believes, eg., IF P(stock-increases | evidence) > risk THEN buy You create bubbles by believing, as all propagandists do, that reality doesn't exist. That belief is evidence. That works only until people re-evaluate their evidence. As soon as you look at, eg., actual productivity, the whole thing collapses.
- deleted 6y ago
  [deleted]
- BatFastard 6y ago
  >markets are not faith-based. They are evidence-based. Which is why we are seeing close to record highs in the middle of the worst pandemic in 100 years? Markets are irrational as far as I can see.
  - mjburgess 6y ago
    The markets always track the future. At the moment, the market expects a boom. (It is probably incorrect; it might not be). That expectation, however, is being exaggerated by other people who likewise expect it. Sure. But we shouldn't characterise the market as irrationally faith-based, if it were, it would never go bust. It doesn't go bust because, for some random reason, people loose faith. Rather, their beliefs are revised with updated evidence, which propagates thru the market. This "correction towards reality" is always at work, but people attend to the evidence at different rates: when the whole market looks, then you go bust. There is a deeply tyrannical and propagandistic undercurrent to the view that human action is simply a matter of our "faith about the world", and not evidence. It encourages people to act as-if false things were true; and requires others to do so; to cause great catastrophes precisely because the false things arent true.
    - pjc50 6y ago
      Not a believer in Keynes "animal spirits", then? > encourages people to act as-if false things were true Your last paragraph, which I broadly agree with, is at odds with the rest of it, which is classic naive efficient-market-hypothesis stuff. It's complicated to discuss what "evidence" means for events in the future, because it rapidly heads into deep waters of philosophy, but like the 538 election prediction the best we can do about the future is have a probability distribution of outcomes. And as a result there are three big effects: one is low-probability events turning out to actually happen sometimes ("black swan"), another is events you wanted to be uncorrelated turn out to be correlated (which blew up mortgage "tranches"), and the third is that other people's action is market-driving information even if it's irrational; panic selling causes more panic selling, bank runs are real, etc.
      - darawk 6y ago
        > It's complicated to discuss what "evidence" means for events in the future, because it rapidly heads into deep waters of philosophy, but like the 538 election prediction the best we can do about the future is have a probability distribution of outcomes. And as a result there are three big effects: one is low-probability events turning out to actually happen sometimes ("black swan"), another is events you wanted to be uncorrelated turn out to be correlated (which blew up mortgage "tranches"), and the third is that other people's action is market-driving information even if it's irrational; panic selling causes more panic selling, bank runs are real, etc. Markets make point estimates. Derivatives markets make distributional estimates. The information is all there, and if you disagree with it, you can make bets to that effect. But most people won't do that, because they don't actually believe that the market is inefficient. There's very good justification for the present stock market rally, especially if you pay attention to the market's internal structure. The pandemic is driving consolidation, and changing habits. Changes that primarily benefit high scale businesses. The disconnect between the state of the economy and the state of the S&P 500 is driven primarily by this distinction. The market is correct to price in a boom. You are also correct to fear a recession. These things are only mutually exclusive if you mistake the stock market for the broader economy. It's also true that there are major tail risks present. The market is not ignoring them. The market is saying that the expected value, inclusive of those tail risks, is positive. You can see the market pricing those tail risks in if you look at the implied volatility surface of options right now. It's there. It's really important to understand that the fact that a price turns out to be wrong does not make markets inefficient, or even incorrect. Gamblers making statistically correct bets are wrong all the time. That's just the way uncertainty works in the world. There are people arbitraging uncertainty at all points of the distribution, from the tail on up. It's true that markets are less efficient around low probability events. But it's also true that they quickly learn from their mistakes
  - dasudasu 6y ago
    Consider that trillions in new money were created out of thin air and that bond yields crashed. The discount rate for equities just got massively re-evaluated. Also, only select sectors that were already overweighted by indices are up significantly from pre-pandemic levels.
    - iaw 6y ago
      Any thoughts on whether this is actually going to represent a wave of inflation?
      - dasudasu 6y ago
        Asset inflation, probably, which is what many people agreed happened in the last decade.
- athriren 6y ago
  in a strict sense, all markets guaranteed by the government of a single state are faith-based, given the market-as-it-exists is dependent on the state for enforcement of laws and as a guarantor of some basic standards allowing for the market to function.
  - pmiller2 6y ago
    Exactly. Currency markets are kind of the ultimate in this sort of “faith-based” market.
  - mjburgess 6y ago
    well the institution of the market relies upon the institution of the gov, and is "based" in this sense not on "faith" -- but on the monopoly of violence of the state to enforce the laws which enable market activity the sense of "based" relevant to market behaviour, though, is whether buy/sell/etc. activity (ie., trader actions) is based on faith or not -- and it is largely, not each action is the result of an evidenced-belief, and as the quality of the evidence improves, and spreads, the market changes. It is (inefficiently) responsive to evidence, rather than based in faith.
    - athriren 6y ago
      the faith every agent in the market demonstrates in the market is that the market itself will not collapse as a result of the behavior (or sudden non-existence) of the state. faith and “evidence based belief” are perhaps more entangled in my head than yours, though. my only point is that at some point each actor comes to the conclusion that they have enough information, that this information is predictive, and that the future is comprehensible. it is impossible to know future outcomes, so on some level every best-judgment action people take in a market demonstrates this baseline “faith”.
- nathias 6y ago
  Based on evidence would mean that there is an established transparent peer-reviewed process of buying stocks, based on belief means that people decide what evidence to believe for themselves. Guess which one markets are.
- jiofih 6y ago
  > markets are not faith-based. They are evidence-based. That is only true on the surface. The “evidence” that guides the majority of trades is made up of signals created by all kinds of irrational behaviour. Something that is appraised by its future value, by definition won’t ever be purely evidence based.
- rjkennedy98 6y ago
  This sounds very rational but it is mostly wrong. Stock market like many other assets are driven mostly by credit cycles. Bubbles are created by natural credit cycles. The vast majority of money in the USA isn't hard cash, its credit. And low interest rates and other things can rapidly expand the amount of credit. We are in a period of extremely low interest rates and quantitative easing as well as deficit spending by the government. Hedge funds like Ray Dalio's track credit and do it to a precision that is widely regard as even better than the federal reserve. https://www.youtube.com/watch?v=PHe0bXAIuk0 https://www.youtube.com/watch?v=PHe0bXAIuk0
  - darawk 6y ago
    Credit cycles are orthogonal to the issue of market efficiency. Credit cycles do not prove that the market is irrational, quite the contrary. The problem with credit cycles is that we are not yet good enough at forecasting exactly when they will end, which is why the market rewards people like Dalio who do the research to try to work that out, but even they are often wrong.
- munificent 6y ago
  I think a better mental model is to realize markets are a Keynesian beauty contest [1]. You don't make money in a market by correctly observing the ground truth, you do so by correctly predicting the behavior of other market participants. [1]: https://en.wikipedia.org/wiki/Keynesian_beauty_contest https://en.wikipedia.org/wiki/Keynesian_beauty_contest
- okprod 6y ago
  You can talk semantics all you want, but at the end of the day, look at your average Robin Hood trader on StockTwits and we can see exactly what the market is.
- marketgod 6y ago
  It's late Autumn and the Indians on a remote reservation in North Dakota have asked their new Chief if the coming winter is going to be cold or mild. Since he was a modern-day Chief he'd never actually been taught the old indian ways or their secrets, so when he looked at the sky, he just couldn't tell what the winter weather was going to be like. Nevertheless, in order not to disappoint the tribe and to be on the safe side, he told them that the winter was indeed going to be cold and that they should collect firewood and be prepared. However, being a practical leader, after several days, he got an idea. He went to the phone booth, called the National Weather Service and asked, “Is the coming winter going to be cold?” “It looks like this winter is going to be quite cold" they responded. So the Chief went back to his people and told them to collect even more firewood in order to be better prepared. A week later, he called the National Weather Service again, “Does it still look like it is going to be a very cold winter?” “Yes”, replied the man at National Weather Service this time, even more certain,“it's going to be a very, very cold winter.” So the Chief went back to his people once again and ordered them to collect every scrap of firewood they could lay their hands on. Two weeks later, worried about the mountains of wood and the hard work the tribe was putting in collecting it, the chief called the National Weather Service just to be absolutely sure."Are you definitely sure that the winter is going to be very cold?” “Absolutely”, the weatherman said, “It's looking more and more like it's going to be one of the coldest winters on record.” “But how can you be so certain?” the chief asked. "Well, for a start" the weatherman replied, “the Indians are collecting a shedload of firewood.”
  - nicbou 6y ago
    This is the sort of comment I come here for
keyle 6y ago
Oh boy that reads like a horror story to me. Follow up article in 6-9 months, "How the pandemic ruined my parents".
- viraptor 6y ago
  The problem is, nobody wants to be the loser in public. Those stories will be less common and more boring than "retired mom made thousands in a few days".
  - baq 6y ago
    this is why the r/wsb culture of posting loss memes and losses themselves is actually a success: there's no shame whatsoever in losing 99% of your account, multiple times. with the right mindset you can see that day trading is gambling with a hint of the house not caring about players cheating.
    - mjburgess 6y ago
      perhaps "the house" is the long-term investor ie., day trading is a rigged game: it is a transfer of wealth from those who won't wait to those who will
      - chii 6y ago
        There's no 'house' in trading - it's like playing poker. You're competing against other players. The "house", if anything, is the transaction brokers/market makers (who always make [a tiny amount of] money performing the transactions).
- ausbah 6y ago
  the parents in the article appeared somewhat smart, only tying a fraction of their life savings into their trading.
  - choeger 6y ago
kebman 6y ago
Didn't retail traders also increase a lot before the crash of 1929?
- xchaotic 6y ago
  The way the market is structured retail traders are indeed the tail. You have founders, seed rounds, angel investors, VCs, Private Equity and maybe eventually public stock market. So by the time retail traders get their hands on it, the value has been recycled and inflated many times over.
  - icedchai 6y ago
    You could also look at it this way: by the time an equity has made it to the public markets, it's been through a quality filter. Think of all the founders, seed rounds, angels, VCs that had companies that went to zero. That does happen with public companies, but it is much rarer.
codethief 6y ago
I have had similar discussions with friends who invested their money in single stocks by very few companies (instead of getting, say, ETF shares) and my POV has always been this: 1. You cannot beat the market (i.e. ETFs) for two reasons: A) The market consists mostly of institutional investors. Institutional investors spend an enormous amount of time and money on making sure that they come out on top. B) The fact that institutional investors spend so much time and money on evaluating stocks means that all possible information about a company, i.e. all future expectations about the company and all risks have already been priced in and the market is efficient (in the economic sense). In particular, the future stock price development is by definition unpredictable and mostly random because it will be based on future information that does not exist yet. 2. As a corollary of 1), you get profits not for knowing a company well and assessing their valuation accurately (all this has already been priced in at the time you buy the shares!), you reap profits for enduring risk. The higher the risk, the higher the potential profits (or the loss). 3. Sure, arbitrage exists. But again, who is going to be more likely to discover opportunities for arbitrage? An institutional investor or a stay-at-home mom?
- gridlockd 6y ago
  Efficient market hypothesis is nonsense. A lot of institutional investors are long-only. That is their mandate. All the information they may have does not change that fact. It is unlikely that you will beat the market in the long run and if you do, it may well be down to chance, but it is possible, because the market is not perfect. Furthermore, you can not "buy the market" in the first place. You can buy ETFs replicating stock indices, but that is not the same. If you bought the S&P you will have performed differently than if you had bought MSCI world. Ultimately, stock picking is just a less diversified version of buying an index.
  - codethief 6y ago
    > It is unlikely that you will beat the market in the long run and if you do, it may well be down to chance, but it is possible, because the market is not perfect. Sure, I should have phrased my claim more carefully: You cannot beat the market consistently every year. Beating it by chance is irrelevant when what you're looking for are sustainable, continuous profits. > A lot of institutional investors are long-only. That is their mandate. All the information they may have does not change that fact. There are also lots of institutional investors that are involved in day trading. My claim merely was that: 1) There are enough of them for new information to get priced in faster than average private individuals could take advantage of them on a consistent basis. 2) Private individuals are not likely to beat institutional day traders. > Efficient market hypothesis is nonsense. As with all real-world applications of science, the match between theory and practice is not perfect. IMO it is good enough, though. If it were possible to foresee stock prices on a consistent basis, then we'd see tons of successful investors. I have yet to hear of an investor or a fund manager, though, who consistently beats the market. All instances where an investor has been able to do that over, say, a 10-year period can be explained by statistical outliers. (In the sense that, yes, there will always be outliers but unfortunately, it's impossible to predict who it's going to be and how long their run is going to last. There are countless fund managers who were successful for a number of years, only to be very unsuccessful during the following years.) > Furthermore, you can not "buy the market" in the first place. You can buy ETFs replicating stock indices, but that is not the same. If you bought the S&P you will have performed differently than if you had bought MSCI world. That's true, I was being a bit sloppy here. I was referring to MSCI-like indices as, compared to smaller indices, they minimize risk due to additional diversification and still yield higher profits on average. (This is the usual paradox: diversification usually leads to lower risk and higher profits. It's the only free lunch you'll ever get.) > Ultimately, stock picking is just a less diversified version of buying an index. Sure, but in contrast to stock picking, there are 140 years of world market history backing the claim that long-term investments (over at least ~15-20 years) in "the" world market (i.e. MSCI-like indices) will, on average, yield profits in the order of 4-8% p.a., depending on what exactly your definition of "world market" is. There is no such data supporting investments in single stocks.
peteretep 6y ago
Sorry to hear about your inheritance going up in smoke, my man
- asaph 6y ago
  Don't assume the author is a man. The author of this article is Stephanie Yang.
  - teekert 6y ago
    As a non-native speaker, can one say: "My Woman"? Or what would you recommend?
    - ceejayoz 6y ago
      The sentence works fine if it’s left off entirely.
      - deleted 6y ago
        [deleted]
    - longhairedhippy 6y ago
      Being originally from the South in the US, I prefer "y'all", it's nicely gender neutral and while plural, I can overlook that and use it in the singular as well.
      - hguant 6y ago
        The problem is that if you use "y'all" in a Zoom meeting with a bunch of people from the Northeast, the conversation immediately becomes about how "oh you're from the SOUTH what's that like."
    - deleted 6y ago
      [deleted]
    - crispyporkbites 6y ago
McDyver 6y ago
> While it’s difficult to pin down their exact impact, a rush of inexperienced traders tends to cause alarm among institutional investors, who take increased retail trading as a sign of rising speculation and worry that a sudden turn in sentiment could send the market spiraling. I read this as "please don't mess-up our playground". It feels the powers of institutional investors is already balanced so that they can decide the way the money flows. Do these people add any value to the economy?
- ericmay 6y ago
  I agree, at least in sentiment. Adding noise to the market is strictly an advantage for retail investors who don't have access to high-frequency trading algorithms, pre-IPO pricing, detailed equity analysis, sophisticated pricing algorithms, or sophisticated financial instruments. There's certainly competition amongst Wall Street firms and they do create winners and losers... but they are winners and losers amongst themselves. The added noise and participation of retail investors at least somewhat disrupts their playground as you so succinctly put it, and creates arbitrage and investment opportunities. I guess one could argue that although it's still largely exclusionary, at least it's better than in the 1900s in terms of access, but that's not much comfort. I'm open to seeing other points of view, but at first glance this looks like it's a good thing, to my eyes.
  - curiousllama 6y ago
    The added noise is strictly to the benefit of institutional investors. Hedge funds pay absurd amounts to trade against dumb money. Quants were suffering for years when vol was low. Meanwhile, big guys (pensions, endowments, banks) literally couldn’t care less what noise is in the market. This is why you can trade for free: because your (very short term)-stupid decisions let someone else make money.
    - verinus 6y ago
      this. The small uninformed and most often unprofessional (being emotionally involved as private savings are invested) pay the big investors...
boomboomsubban 6y ago
Tesla's stock reminds me of Bitcoin, a legitimately valuable commodity that has suddenly skyrocketed in price due to a rush of buying from the general public. With it and similar "popular" stocks it'll be interesting to see what the eventual return to normalcy will do to the company.
- swiley 6y ago
  A lot of it was IMO the game softbank was playing, now that they've stopped people are just propping it up.
  - Avalaxy 6y ago
    How do you know they stopped?
    - pmiller2 6y ago
      Their options expired?
- smaddox 6y ago
  > [...] Bitcoin, a legitimately valuable commodity [...] Huh?
  - boomboomsubban 6y ago
    No matter how little you think of bitcoin, it certainly proved that it has some use or value.
  - RhodoYolo 6y ago
    China has an insane amount of bitcoin and is what led to the huge spike in 2017. They are currently developing the digital Yuan and it will allow China to track every single transaction, making taxes completely transparent, fraud much hard and a general huge power grab for any government. (No under the table work, no nontaxable work, complete financial history of all citizens). Albeit they'll have to ban paper currency but there's huge value in having power over your populace, and thus is where crypto derives it's value.
rjkennedy98 6y ago
To be fair, they aren't day traders. Day traders are people who trade on extremely short term basis (ie within the Day) often by doing chart analysis or breaking news. Her parents are buying good companies on hype during a bull market. It's definitely risky but its not the same as day trading or option trading for that matter. They are likely up quite a lot if they had the foresight to buy in when the market fell. They just need the foresight to get out before a correction happens. And its only 15-20% of their assets. Doesn't sound like the worst strategy to me.
PhantomGremlin 6y ago
There's no paywall on the article? Unusual for WSJ. So I read it! I have no problem with what her parents are doing. They're only playing around with 10% to 20% of their wealth. This is what Jim Cramer calls "Mad Money", which originally was the whole premise of his CNBC show of the same name. (That show has since morphed a bit in style). The idea of mad money is to be allowed to go crazy and speculate with a relatively small portion of your wealth. If you're having fun with that, maybe you'll also keep doing the research to keep up with the relatively boring rest of your portfolio (such as index funds and blue chip stocks). You need to keep reminding yourself all the time that you could lose most or all of the crazy speculative money. Because there's a reasonable chance that you will. I watched this same thing happen during the dot com boom of the late 1990s. When it was all over, many companies fell by 90%. Many others just simply disappeared. There's no harm in buying Zoom at the start of a pandemic. Sure you're somewhat dependent on the "greater fool" to take you out of your investment, but at the moment there seems to be no shortage of those.
- jeroenhd 6y ago
  I get what you're trying to say, but at the start of the pandemic and before it, Zoom was in some quite hot water over their security issues. They used their influence well but the company could've lost quite a lot of worth if the general public had taken an interest in the security of their software.
curiousllama 6y ago
> “That’s called ‘buying the dip,’” my mom informed me, though she admitted doing so isn’t as much fun as riding hot tech stocks that seem to surge every other day. For the love of God nobody show them WSB
- leetcrew 6y ago
  that excerpt makes it sound like it's already too late. the author's parents are gonna be telling her about "jpow and the fed" at thanksgiving.
oldandtired 6y ago
There are a few simple rules to be relatively successful at Day Trading: 1) Spend as much time as you can learning about the markets areas you are interested in trading. Practice paper trading until you understand what you are doing. 2) When you actually put in real currency, do NOT change what you were doing when you were paper trading. Any changes in the habits you built paper trading when you use real currency will ensure that you will fail. 3) If the market is volatile, take the day off and go do something else. 4) Don't be greedy - if you break this rule, you will fail. 5) Expect losses as they WILL happen. The corollary to this is : Don't get emotional. 6) Remember this is always a gamble and there is always risk involved. 7) Market makers are NOT your friend. They can/will disrupt any patterns that you are looking for as they are after their profits at your expense. The above is the consistent advice I received from many different people who were successful at day trading. I did paper trading for quite a while for the training purposes. I didn't get into full day trading as my own individual circumstances changed. Friends who did get into this and who failed tended to break one of these rules, especially 4.
- baq 6y ago
  re 7), my understanding is that they're there to collect the spread, they don't care about you or anyone else; they just need to hedge, which sometimes gets interesting. i'm interested in hearing some details if they can really be mean.
Balgair 6y ago
Anyone have the non-paywalled link?
neonate 6y ago
https://archive.is/nzQ9j https://archive.is/nzQ9j
kelvin0 6y ago
When I read stuff like this I always simultaneously have the intro song to 'Benny Hill' play in my head. https://youtu.be/zQf2TiwBFHo https://youtu.be/zQf2TiwBFHo
- samatman 6y ago
  Called "Yakety Sax", although describing it as the Benny Hill theme song is at least as common. I think that Yakety Sax is about the perfect name for a song, describes it so perfectly.
kelvin0 6y ago
Wondering how much of that article is correlated to this other one: https://www.psychologytoday.com/us/blog/minority-report/201407/asian-gambling-addiction https://www.psychologytoday.com/us/blog/minority-report/2014...
Animats 6y ago
And now they're broke, right?
- mixmastamyk 6y ago
  Not likely with all the stimulus.
  - RhodoYolo 6y ago
    don't know why this got downvoted - Maybe because you didn't explain yourself? Anyways - I think you're right. The US has proven that they don't give two cks about debt. They'll keep borrowing and borrowing and borrowing, with trillions of $$'s going straight back into the economy to prop up equity indefinitely.
deleted 6y ago
[deleted]

96 points by prostoalex 6y ago

https://youtu.be/jjs94JNEXaw https://youtu.be/jjs94JNEXaw

Why do stock markets bubble & collapse? ... > One afternoon my mom and I found an envelope in the mail with the Nielsen consumer confidence survey and two dollar bills enclosed. The cash was enough incentive for my mom to start filling it out, ticking a box that indicated the business environment in our Iowa town was as good as it was before the pandemic. > “Really?” I asked. “You think so?” > Her rationale was simple—more optimistic answers would help bolster the market. “I want stocks to go up,” she responded. --- NB. markets are not faith-based. They are evidence-based. The trader believes, eg., IF P(stock-increases | evidence) > risk THEN buy You create bubbles by believing, as all propagandists do, that reality doesn't exist. That belief is evidence. That works only until people re-evaluate their evidence. As soon as you look at, eg., actual productivity, the whole thing collapses.

deleted 6y ago
[deleted]
BatFastard 6y ago
>markets are not faith-based. They are evidence-based. Which is why we are seeing close to record highs in the middle of the worst pandemic in 100 years? Markets are irrational as far as I can see.
- mjburgess 6y ago
  The markets always track the future. At the moment, the market expects a boom. (It is probably incorrect; it might not be). That expectation, however, is being exaggerated by other people who likewise expect it. Sure. But we shouldn't characterise the market as irrationally faith-based, if it were, it would never go bust. It doesn't go bust because, for some random reason, people loose faith. Rather, their beliefs are revised with updated evidence, which propagates thru the market. This "correction towards reality" is always at work, but people attend to the evidence at different rates: when the whole market looks, then you go bust. There is a deeply tyrannical and propagandistic undercurrent to the view that human action is simply a matter of our "faith about the world", and not evidence. It encourages people to act as-if false things were true; and requires others to do so; to cause great catastrophes precisely because the false things arent true.
  - pjc50 6y ago
    Not a believer in Keynes "animal spirits", then? > encourages people to act as-if false things were true Your last paragraph, which I broadly agree with, is at odds with the rest of it, which is classic naive efficient-market-hypothesis stuff. It's complicated to discuss what "evidence" means for events in the future, because it rapidly heads into deep waters of philosophy, but like the 538 election prediction the best we can do about the future is have a probability distribution of outcomes. And as a result there are three big effects: one is low-probability events turning out to actually happen sometimes ("black swan"), another is events you wanted to be uncorrelated turn out to be correlated (which blew up mortgage "tranches"), and the third is that other people's action is market-driving information even if it's irrational; panic selling causes more panic selling, bank runs are real, etc.
    - darawk 6y ago
      > It's complicated to discuss what "evidence" means for events in the future, because it rapidly heads into deep waters of philosophy, but like the 538 election prediction the best we can do about the future is have a probability distribution of outcomes. And as a result there are three big effects: one is low-probability events turning out to actually happen sometimes ("black swan"), another is events you wanted to be uncorrelated turn out to be correlated (which blew up mortgage "tranches"), and the third is that other people's action is market-driving information even if it's irrational; panic selling causes more panic selling, bank runs are real, etc. Markets make point estimates. Derivatives markets make distributional estimates. The information is all there, and if you disagree with it, you can make bets to that effect. But most people won't do that, because they don't actually believe that the market is inefficient. There's very good justification for the present stock market rally, especially if you pay attention to the market's internal structure. The pandemic is driving consolidation, and changing habits. Changes that primarily benefit high scale businesses. The disconnect between the state of the economy and the state of the S&P 500 is driven primarily by this distinction. The market is correct to price in a boom. You are also correct to fear a recession. These things are only mutually exclusive if you mistake the stock market for the broader economy. It's also true that there are major tail risks present. The market is not ignoring them. The market is saying that the expected value, inclusive of those tail risks, is positive. You can see the market pricing those tail risks in if you look at the implied volatility surface of options right now. It's there. It's really important to understand that the fact that a price turns out to be wrong does not make markets inefficient, or even incorrect. Gamblers making statistically correct bets are wrong all the time. That's just the way uncertainty works in the world. There are people arbitraging uncertainty at all points of the distribution, from the tail on up. It's true that markets are less efficient around low probability events. But it's also true that they quickly learn from their mistakes
- dasudasu 6y ago
  Consider that trillions in new money were created out of thin air and that bond yields crashed. The discount rate for equities just got massively re-evaluated. Also, only select sectors that were already overweighted by indices are up significantly from pre-pandemic levels.
  - iaw 6y ago
    Any thoughts on whether this is actually going to represent a wave of inflation?
    - dasudasu 6y ago
      Asset inflation, probably, which is what many people agreed happened in the last decade.
athriren 6y ago
in a strict sense, all markets guaranteed by the government of a single state are faith-based, given the market-as-it-exists is dependent on the state for enforcement of laws and as a guarantor of some basic standards allowing for the market to function.
- pmiller2 6y ago
  Exactly. Currency markets are kind of the ultimate in this sort of “faith-based” market.
- mjburgess 6y ago
  well the institution of the market relies upon the institution of the gov, and is "based" in this sense not on "faith" -- but on the monopoly of violence of the state to enforce the laws which enable market activity the sense of "based" relevant to market behaviour, though, is whether buy/sell/etc. activity (ie., trader actions) is based on faith or not -- and it is largely, not each action is the result of an evidenced-belief, and as the quality of the evidence improves, and spreads, the market changes. It is (inefficiently) responsive to evidence, rather than based in faith.
  - athriren 6y ago
    the faith every agent in the market demonstrates in the market is that the market itself will not collapse as a result of the behavior (or sudden non-existence) of the state. faith and “evidence based belief” are perhaps more entangled in my head than yours, though. my only point is that at some point each actor comes to the conclusion that they have enough information, that this information is predictive, and that the future is comprehensible. it is impossible to know future outcomes, so on some level every best-judgment action people take in a market demonstrates this baseline “faith”.
nathias 6y ago
Based on evidence would mean that there is an established transparent peer-reviewed process of buying stocks, based on belief means that people decide what evidence to believe for themselves. Guess which one markets are.
jiofih 6y ago
> markets are not faith-based. They are evidence-based. That is only true on the surface. The “evidence” that guides the majority of trades is made up of signals created by all kinds of irrational behaviour. Something that is appraised by its future value, by definition won’t ever be purely evidence based.
rjkennedy98 6y ago
This sounds very rational but it is mostly wrong. Stock market like many other assets are driven mostly by credit cycles. Bubbles are created by natural credit cycles. The vast majority of money in the USA isn't hard cash, its credit. And low interest rates and other things can rapidly expand the amount of credit. We are in a period of extremely low interest rates and quantitative easing as well as deficit spending by the government. Hedge funds like Ray Dalio's track credit and do it to a precision that is widely regard as even better than the federal reserve. https://www.youtube.com/watch?v=PHe0bXAIuk0 https://www.youtube.com/watch?v=PHe0bXAIuk0
- darawk 6y ago
  Credit cycles are orthogonal to the issue of market efficiency. Credit cycles do not prove that the market is irrational, quite the contrary. The problem with credit cycles is that we are not yet good enough at forecasting exactly when they will end, which is why the market rewards people like Dalio who do the research to try to work that out, but even they are often wrong.
munificent 6y ago
I think a better mental model is to realize markets are a Keynesian beauty contest [1]. You don't make money in a market by correctly observing the ground truth, you do so by correctly predicting the behavior of other market participants. [1]: https://en.wikipedia.org/wiki/Keynesian_beauty_contest https://en.wikipedia.org/wiki/Keynesian_beauty_contest
okprod 6y ago
You can talk semantics all you want, but at the end of the day, look at your average Robin Hood trader on StockTwits and we can see exactly what the market is.
marketgod 6y ago
It's late Autumn and the Indians on a remote reservation in North Dakota have asked their new Chief if the coming winter is going to be cold or mild. Since he was a modern-day Chief he'd never actually been taught the old indian ways or their secrets, so when he looked at the sky, he just couldn't tell what the winter weather was going to be like. Nevertheless, in order not to disappoint the tribe and to be on the safe side, he told them that the winter was indeed going to be cold and that they should collect firewood and be prepared. However, being a practical leader, after several days, he got an idea. He went to the phone booth, called the National Weather Service and asked, “Is the coming winter going to be cold?” “It looks like this winter is going to be quite cold" they responded. So the Chief went back to his people and told them to collect even more firewood in order to be better prepared. A week later, he called the National Weather Service again, “Does it still look like it is going to be a very cold winter?” “Yes”, replied the man at National Weather Service this time, even more certain,“it's going to be a very, very cold winter.” So the Chief went back to his people once again and ordered them to collect every scrap of firewood they could lay their hands on. Two weeks later, worried about the mountains of wood and the hard work the tribe was putting in collecting it, the chief called the National Weather Service just to be absolutely sure."Are you definitely sure that the winter is going to be very cold?” “Absolutely”, the weatherman said, “It's looking more and more like it's going to be one of the coldest winters on record.” “But how can you be so certain?” the chief asked. "Well, for a start" the weatherman replied, “the Indians are collecting a shedload of firewood.”
- nicbou 6y ago
  This is the sort of comment I come here for

keyle 6y ago

Oh boy that reads like a horror story to me. Follow up article in 6-9 months, "How the pandemic ruined my parents".

viraptor 6y ago
The problem is, nobody wants to be the loser in public. Those stories will be less common and more boring than "retired mom made thousands in a few days".
- baq 6y ago
  this is why the r/wsb culture of posting loss memes and losses themselves is actually a success: there's no shame whatsoever in losing 99% of your account, multiple times. with the right mindset you can see that day trading is gambling with a hint of the house not caring about players cheating.
  - mjburgess 6y ago
    perhaps "the house" is the long-term investor ie., day trading is a rigged game: it is a transfer of wealth from those who won't wait to those who will
    - chii 6y ago
      There's no 'house' in trading - it's like playing poker. You're competing against other players. The "house", if anything, is the transaction brokers/market makers (who always make [a tiny amount of] money performing the transactions).
ausbah 6y ago
the parents in the article appeared somewhat smart, only tying a fraction of their life savings into their trading.
- choeger 6y ago

kebman 6y ago

Didn't retail traders also increase a lot before the crash of 1929?

xchaotic 6y ago
The way the market is structured retail traders are indeed the tail. You have founders, seed rounds, angel investors, VCs, Private Equity and maybe eventually public stock market. So by the time retail traders get their hands on it, the value has been recycled and inflated many times over.
- icedchai 6y ago
  You could also look at it this way: by the time an equity has made it to the public markets, it's been through a quality filter. Think of all the founders, seed rounds, angels, VCs that had companies that went to zero. That does happen with public companies, but it is much rarer.

codethief 6y ago

I have had similar discussions with friends who invested their money in single stocks by very few companies (instead of getting, say, ETF shares) and my POV has always been this: 1. You cannot beat the market (i.e. ETFs) for two reasons: A) The market consists mostly of institutional investors. Institutional investors spend an enormous amount of time and money on making sure that they come out on top. B) The fact that institutional investors spend so much time and money on evaluating stocks means that all possible information about a company, i.e. all future expectations about the company and all risks have already been priced in and the market is efficient (in the economic sense). In particular, the future stock price development is by definition unpredictable and mostly random because it will be based on future information that does not exist yet. 2. As a corollary of 1), you get profits not for knowing a company well and assessing their valuation accurately (all this has already been priced in at the time you buy the shares!), you reap profits for enduring risk. The higher the risk, the higher the potential profits (or the loss). 3. Sure, arbitrage exists. But again, who is going to be more likely to discover opportunities for arbitrage? An institutional investor or a stay-at-home mom?

gridlockd 6y ago
Efficient market hypothesis is nonsense. A lot of institutional investors are long-only. That is their mandate. All the information they may have does not change that fact. It is unlikely that you will beat the market in the long run and if you do, it may well be down to chance, but it is possible, because the market is not perfect. Furthermore, you can not "buy the market" in the first place. You can buy ETFs replicating stock indices, but that is not the same. If you bought the S&P you will have performed differently than if you had bought MSCI world. Ultimately, stock picking is just a less diversified version of buying an index.
- codethief 6y ago
  > It is unlikely that you will beat the market in the long run and if you do, it may well be down to chance, but it is possible, because the market is not perfect. Sure, I should have phrased my claim more carefully: You cannot beat the market consistently every year. Beating it by chance is irrelevant when what you're looking for are sustainable, continuous profits. > A lot of institutional investors are long-only. That is their mandate. All the information they may have does not change that fact. There are also lots of institutional investors that are involved in day trading. My claim merely was that: 1) There are enough of them for new information to get priced in faster than average private individuals could take advantage of them on a consistent basis. 2) Private individuals are not likely to beat institutional day traders. > Efficient market hypothesis is nonsense. As with all real-world applications of science, the match between theory and practice is not perfect. IMO it is good enough, though. If it were possible to foresee stock prices on a consistent basis, then we'd see tons of successful investors. I have yet to hear of an investor or a fund manager, though, who consistently beats the market. All instances where an investor has been able to do that over, say, a 10-year period can be explained by statistical outliers. (In the sense that, yes, there will always be outliers but unfortunately, it's impossible to predict who it's going to be and how long their run is going to last. There are countless fund managers who were successful for a number of years, only to be very unsuccessful during the following years.) > Furthermore, you can not "buy the market" in the first place. You can buy ETFs replicating stock indices, but that is not the same. If you bought the S&P you will have performed differently than if you had bought MSCI world. That's true, I was being a bit sloppy here. I was referring to MSCI-like indices as, compared to smaller indices, they minimize risk due to additional diversification and still yield higher profits on average. (This is the usual paradox: diversification usually leads to lower risk and higher profits. It's the only free lunch you'll ever get.) > Ultimately, stock picking is just a less diversified version of buying an index. Sure, but in contrast to stock picking, there are 140 years of world market history backing the claim that long-term investments (over at least ~15-20 years) in "the" world market (i.e. MSCI-like indices) will, on average, yield profits in the order of 4-8% p.a., depending on what exactly your definition of "world market" is. There is no such data supporting investments in single stocks.

peteretep 6y ago

Sorry to hear about your inheritance going up in smoke, my man

asaph 6y ago
Don't assume the author is a man. The author of this article is Stephanie Yang.
- teekert 6y ago
  As a non-native speaker, can one say: "My Woman"? Or what would you recommend?
  - ceejayoz 6y ago
    The sentence works fine if it’s left off entirely.
    - deleted 6y ago
      [deleted]
  - longhairedhippy 6y ago
    Being originally from the South in the US, I prefer "y'all", it's nicely gender neutral and while plural, I can overlook that and use it in the singular as well.
    - hguant 6y ago
      The problem is that if you use "y'all" in a Zoom meeting with a bunch of people from the Northeast, the conversation immediately becomes about how "oh you're from the SOUTH what's that like."
  - deleted 6y ago
    [deleted]
  - crispyporkbites 6y ago

McDyver 6y ago

> While it’s difficult to pin down their exact impact, a rush of inexperienced traders tends to cause alarm among institutional investors, who take increased retail trading as a sign of rising speculation and worry that a sudden turn in sentiment could send the market spiraling. I read this as "please don't mess-up our playground". It feels the powers of institutional investors is already balanced so that they can decide the way the money flows. Do these people add any value to the economy?

ericmay 6y ago
I agree, at least in sentiment. Adding noise to the market is strictly an advantage for retail investors who don't have access to high-frequency trading algorithms, pre-IPO pricing, detailed equity analysis, sophisticated pricing algorithms, or sophisticated financial instruments. There's certainly competition amongst Wall Street firms and they do create winners and losers... but they are winners and losers amongst themselves. The added noise and participation of retail investors at least somewhat disrupts their playground as you so succinctly put it, and creates arbitrage and investment opportunities. I guess one could argue that although it's still largely exclusionary, at least it's better than in the 1900s in terms of access, but that's not much comfort. I'm open to seeing other points of view, but at first glance this looks like it's a good thing, to my eyes.
- curiousllama 6y ago
  The added noise is strictly to the benefit of institutional investors. Hedge funds pay absurd amounts to trade against dumb money. Quants were suffering for years when vol was low. Meanwhile, big guys (pensions, endowments, banks) literally couldn’t care less what noise is in the market. This is why you can trade for free: because your (very short term)-stupid decisions let someone else make money.
  - verinus 6y ago
    this. The small uninformed and most often unprofessional (being emotionally involved as private savings are invested) pay the big investors...

boomboomsubban 6y ago

Tesla's stock reminds me of Bitcoin, a legitimately valuable commodity that has suddenly skyrocketed in price due to a rush of buying from the general public. With it and similar "popular" stocks it'll be interesting to see what the eventual return to normalcy will do to the company.

swiley 6y ago
A lot of it was IMO the game softbank was playing, now that they've stopped people are just propping it up.
- Avalaxy 6y ago
  How do you know they stopped?
  - pmiller2 6y ago
    Their options expired?
smaddox 6y ago
> [...] Bitcoin, a legitimately valuable commodity [...] Huh?
- boomboomsubban 6y ago
  No matter how little you think of bitcoin, it certainly proved that it has some use or value.
- RhodoYolo 6y ago
  China has an insane amount of bitcoin and is what led to the huge spike in 2017. They are currently developing the digital Yuan and it will allow China to track every single transaction, making taxes completely transparent, fraud much hard and a general huge power grab for any government. (No under the table work, no nontaxable work, complete financial history of all citizens). Albeit they'll have to ban paper currency but there's huge value in having power over your populace, and thus is where crypto derives it's value.

rjkennedy98 6y ago

To be fair, they aren't day traders. Day traders are people who trade on extremely short term basis (ie within the Day) often by doing chart analysis or breaking news. Her parents are buying good companies on hype during a bull market. It's definitely risky but its not the same as day trading or option trading for that matter. They are likely up quite a lot if they had the foresight to buy in when the market fell. They just need the foresight to get out before a correction happens. And its only 15-20% of their assets. Doesn't sound like the worst strategy to me.

PhantomGremlin 6y ago

There's no paywall on the article? Unusual for WSJ. So I read it! I have no problem with what her parents are doing. They're only playing around with 10% to 20% of their wealth. This is what Jim Cramer calls "Mad Money", which originally was the whole premise of his CNBC show of the same name. (That show has since morphed a bit in style). The idea of mad money is to be allowed to go crazy and speculate with a relatively small portion of your wealth. If you're having fun with that, maybe you'll also keep doing the research to keep up with the relatively boring rest of your portfolio (such as index funds and blue chip stocks). You need to keep reminding yourself all the time that you could lose most or all of the crazy speculative money. Because there's a reasonable chance that you will. I watched this same thing happen during the dot com boom of the late 1990s. When it was all over, many companies fell by 90%. Many others just simply disappeared. There's no harm in buying Zoom at the start of a pandemic. Sure you're somewhat dependent on the "greater fool" to take you out of your investment, but at the moment there seems to be no shortage of those.

jeroenhd 6y ago
I get what you're trying to say, but at the start of the pandemic and before it, Zoom was in some quite hot water over their security issues. They used their influence well but the company could've lost quite a lot of worth if the general public had taken an interest in the security of their software.

curiousllama 6y ago

> “That’s called ‘buying the dip,’” my mom informed me, though she admitted doing so isn’t as much fun as riding hot tech stocks that seem to surge every other day. For the love of God nobody show them WSB

leetcrew 6y ago
that excerpt makes it sound like it's already too late. the author's parents are gonna be telling her about "jpow and the fed" at thanksgiving.

oldandtired 6y ago

There are a few simple rules to be relatively successful at Day Trading: 1) Spend as much time as you can learning about the markets areas you are interested in trading. Practice paper trading until you understand what you are doing. 2) When you actually put in real currency, do NOT change what you were doing when you were paper trading. Any changes in the habits you built paper trading when you use real currency will ensure that you will fail. 3) If the market is volatile, take the day off and go do something else. 4) Don't be greedy - if you break this rule, you will fail. 5) Expect losses as they WILL happen. The corollary to this is : Don't get emotional. 6) Remember this is always a gamble and there is always risk involved. 7) Market makers are NOT your friend. They can/will disrupt any patterns that you are looking for as they are after their profits at your expense. The above is the consistent advice I received from many different people who were successful at day trading. I did paper trading for quite a while for the training purposes. I didn't get into full day trading as my own individual circumstances changed. Friends who did get into this and who failed tended to break one of these rules, especially 4.

baq 6y ago
re 7), my understanding is that they're there to collect the spread, they don't care about you or anyone else; they just need to hedge, which sometimes gets interesting. i'm interested in hearing some details if they can really be mean.

Balgair 6y ago

Anyone have the non-paywalled link?

neonate 6y ago

https://archive.is/nzQ9j https://archive.is/nzQ9j

kelvin0 6y ago

When I read stuff like this I always simultaneously have the intro song to 'Benny Hill' play in my head. https://youtu.be/zQf2TiwBFHo https://youtu.be/zQf2TiwBFHo

samatman 6y ago
Called "Yakety Sax", although describing it as the Benny Hill theme song is at least as common. I think that Yakety Sax is about the perfect name for a song, describes it so perfectly.

kelvin0 6y ago

Wondering how much of that article is correlated to this other one: https://www.psychologytoday.com/us/blog/minority-report/201407/asian-gambling-addiction https://www.psychologytoday.com/us/blog/minority-report/2014...

Animats 6y ago

And now they're broke, right?

mixmastamyk 6y ago
Not likely with all the stimulus.
- RhodoYolo 6y ago
  don't know why this got downvoted - Maybe because you didn't explain yourself? Anyways - I think you're right. The US has proven that they don't give two cks about debt. They'll keep borrowing and borrowing and borrowing, with trillions of $$'s going straight back into the economy to prop up equity indefinitely.

deleted 6y ago

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