7 ms·

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 fi

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.

tylerhou 6y ago
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.
- uyt 6y ago
  Expected value (a straightforward sum of total money in the system) is the wrong way to look at it. His point is that the expected utility of these gambles is still positive for people who have nothing.
  - tylerhou 6y ago
    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.
    - salty_biscuits 6y ago
      The obvious discontinuity is "never have to work". People talk about this all the time when they talk about this stuff.
      - tylerhou 6y ago
        > 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.
        salty_biscuits 6y ago
        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).
        tylerhou 6y ago
- deleted 6y ago
  [deleted]
- WalterBright 6y ago
  > Most of us are losing 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).
- bartvk 6y ago
  The stock market is not a zero sum market. The options market is.
  - deleted 6y ago
    [deleted]
stouset 6y ago
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.
__turbobrew__ 6y ago
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.
- PartiallyTyped 6y ago
  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.
darkerside 6y ago
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.
- rubicon33 6y ago
  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.
  - stouset 6y ago
    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.
  - confidantlake 6y ago
    As people ask in poker, "But how much did you lose?".
  - PartiallyTyped 6y ago
    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.
- PartiallyTyped 6y ago
  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.
credit_guy 6y ago
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.
Gatsky 6y ago
Are these returns after tax?
- PartiallyTyped 6y ago
  No.
koonsolo 6y ago
Remember that in these cases, your downside is to lose it all, and your upside might be unlimited. So always put only a part of your net worth into these risky "bets". If you put 10% in, you can only lose 10%, and you could still double your net worth.

tylerhou 6y ago

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.

uyt 6y ago
Expected value (a straightforward sum of total money in the system) is the wrong way to look at it. His point is that the expected utility of these gambles is still positive for people who have nothing.
- tylerhou 6y ago
  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.
  - salty_biscuits 6y ago
    The obvious discontinuity is "never have to work". People talk about this all the time when they talk about this stuff.
    - tylerhou 6y ago
      > 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.
      - salty_biscuits 6y ago
        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).
        tylerhou 6y ago
deleted 6y ago
[deleted]
WalterBright 6y ago
> Most of us are losing 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).
bartvk 6y ago
The stock market is not a zero sum market. The options market is.
- deleted 6y ago
  [deleted]

stouset 6y ago

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.

__turbobrew__ 6y ago

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.

PartiallyTyped 6y ago
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.

darkerside 6y ago

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.

rubicon33 6y ago
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.
- stouset 6y ago
  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.
- confidantlake 6y ago
  As people ask in poker, "But how much did you lose?".
- PartiallyTyped 6y ago
  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.
PartiallyTyped 6y ago
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.

credit_guy 6y ago

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.

Gatsky 6y ago

Are these returns after tax?

PartiallyTyped 6y ago
No.

koonsolo 6y ago

Remember that in these cases, your downside is to lose it all, and your upside might be unlimited. So always put only a part of your net worth into these risky "bets". If you put 10% in, you can only lose 10%, and you could still double your net worth.