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When Everyone’s a Genius: A Few Thoughts on Speculation

• applepple 6y ago
  If a bubble can last "years and years", what's to stop it lasting 50 years or 100 years? If it lasts over 50 years then is it even worthwhile to make the distinction? The speculation surely will outlive you. It could become an intergenerational scheme like fiat currencies... There is a point where the economy is no longer serving regular people, it's all focused on rich people. When that happens, speculation becomes the main purpose of the economy. Everyone is forced to participate in what is essentially a game for rich people... Kind of like Westworld. And there is a point when the speculation is more than that. It's a scheme, it's a hack... Participants find ways to constantly bring new money into this scheme. Recruit new generations. Like a cult. With a constant stream of new money entering the economy via bank loans and government spending, the economy we have today is already a centrally planned speculative scheme (having many of the bureaucratic characteristics of communism). People are either not smart enough to understand it or they have too much skin in the game to acknowledge it and it seems that the next generation won't be any different.
  • n4r9 6y ago
    You're not making a cohesive argument, you're just drawing tenuous allusions: "Kind of like Westworld" "Like a cult" "having many of the bureaucratic characteristics of communism"
    • applepple 6y ago
      I'm surprised that people don't get it. I guess it's easy to think that the system is fair if you're on the receiving end of VC funding. My experience of approaching VCs for funding is that they always say no. No matter how hard you persist, no matter how good the tech is, how good the team is or how much traction the product has or how big the opportunity is. It doesn't matter if you've accomplished the impossible. It's been easier for me to convince really talented engineers to work on my project for free for over 1 year than to convince a VC to invest even $10K in my project... That's how bad it is. They will not only not fund me, they will fund my competitors (who will fail of course and be acqui-hired). The only things that matter at all are social connections; who you are, who your family is, where you are born. Success is a lottery and skill has nothing to do with it. It's just like if you're born in communism, you need to be friends with prominent communist party members if you want any chance of success. Nothing else matters at all. Skill is meaningless in a communist society.
      • deleted 6y ago
        [deleted]
      • n4r9 6y ago
        I'm sorry that you've had bad experiences with VC's, but that's all I'm really able to take from your post.
• AstralStorm 6y ago
  > Not enough speculation is as bad as too much speculation. When every author of a blog is a genius, and spews such amazing pearls of non-wisdom. While some degree of risk is required, undershooting gains is never as bad as losing everything, because you can continue to bet. Author is plain mathematically wrong about how martingales work. Optimism is never the "right" mindset. Better find some other way to be happy instead of believing untrue things. Game theoretical and mathematically optimal strategies may exist, as well as ones robust to missing information. FOMO is a major downfall of many an investor.
  • pinky1417 6y ago
    I interpreted the author’s discussion of the “right” long-term mindset to mean that, in the absence of evidence to the contrary, it makes more sense to be optimistic than pessimistic about the future. Personally, based on the past performance of humanity, I expect the long-term future of the globe to be better than the past. It’s based on informed speculation: Hans Rosling’s Factfulness is relevant here. Sure, we might obliterate ourselves with nukes or destroy the world with greenhouse gas emissions, but I’m not going to operate under the assumption that we won’t figure things out and that WILL happen. As an investor, I share Buffett’s optimism about the future of America. Yes, we have many many fundamental challenges. Yes, it’s possible that, if you put all your money in a broad US market index today, your returns might be negative until a decade or two later. But I’ll continue to bet on America’s continued existence and success (albeit by picking assets I think are undervalued rather than the current price of the stock market). In other words, I think it’s rational to optimistically speculate that (1) America will continue to be an economic powerhouse and (2) price will eventually converge to value for most assets.
  • teslaberry 6y ago
    Issac Newtown, quite the rationalist and genius died peniless due to RE-INVESTING all his proceeds into the south sea bubble. you can be as smart as you want, but emotional IQ and wisdom will win every cycle. cleverness and luck can only last so long before bad behavior wipes you out. then again, the cycle is what determines wipe outs in time. war and social disintigration cycles are so long and complex, they are often that much more impossible to predict , which is why so many politicians and generals are horrible at those games. there is almost no feedback loop to judge them by other than what we read as 'history' which is itself very often corrupted and false. at least in markets, there is a simple set of numbers by which to judge people.
• nathias 6y ago
  all price is inherently speculative, and all value eventually returns to zero
  • WJW 6y ago
    Perhaps, but what happens when the sun burns out is not really my problem. I'm more concerned about the next ~100 years.
    • dmichulke 6y ago
      I think GP means all things die. You, me, companies, whatever else you enjoy, including but not limited to the sun.
      • dmos62 6y ago
        The other guy's point is that even though it's true that everything is transitory it's not an argument against enjoying it, i.e. attaching value to it.
      • hypertele-Xii 6y ago
        Yet if more things birth than those that die, the world keeps growing.
• jdmoreira 6y ago
  Of course the market can remain like this for years to come. Improbable but totally possible. But imagine you are a rational individual and you look at an US centric index that tracks the total market and see that you have been in a 11 year bull market where it rose 300%. Now you look at the ratio between the total market cap and the GDP (also know as the buffet indicator) and see that it's at historical highs and last time it was at this value was just before the last recession. Sure... the craziness could go on fuelled by irrational optimism, negative interest rates and the feds printing money like crazy. It could and probably will for a while but is it irrational to be prepared for the potential crash?
  • jdmoreira 6y ago
    PS: Warren has 140 billion sitting in cash right now. He just bought his own stocks because there weren't many opportunities left. The man has been around for 90 years and investing for 80 years. I know we live in a time where youth is glorified and "old people don't understand the world" but I'm pretty sure he learned a thing or two. “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”
    • AstralStorm 6y ago
      He's also a believer in long term investing and can afford moves other investors would shirk from. How he got his initial money is not a particularly nice story of success...
      • jdmoreira 6y ago
        I think he actually has less opportunities than smaller investors. He complains about that a lot. He is managing a lot of money so he can only buy large cap companies. He frequently claims it's much easier to get a higher returns when you can buy all kinds of companies (big, med and small cap). > How he got his initial money is not a particularly nice story of success... Could you expand on this? I'm genuinely curious
        • 6y ago
• quickthrower2 6y ago
  Did someone say Bitcoin?
  • mrwd021 6y ago
    :p
• timdaub 6y ago
  I like the article. It describes my observations from previous BTC bubbles. A point the author makes is that within a bubble, markets can turn irrational. And additionally that they can sustain this irrationality for some time.
  • js8 6y ago
    > And additionally that they can sustain this irrationality for some time. The market can remain irrational longer than you can remain solvent.
    • marvin 6y ago
      I don't like this saying. People also say this about things they end up being wrong about, such as Tesla in 2013. Hell, given that economists predict 15 out of the last 3 recessions, people who say this are probably flat-out wrong more often than not. So unless the saying comes with the interpretation "the market can remain seemingly irrational long enough to be right", it just reduces to "I disagree with what the market is doing right now, maybe it's a bubble, who knows".
      • caddemon 6y ago
        I don't think the saying is really tied to any particular prediction. Surely there are times when you felt the market was behaving irrationally? The saying is a warning about taking action in such times. Because even if you are ultimately right, you may still end up a big loser. I.e. the whole point of the saying is that it's not just about whether there's actually a bubble or not. You're also taking risk with how high it will go/how long it will last before popping. So a consumer investor may just buy stocks they think will eventually go up, and won't encounter major problems with that, but shorting just because they think something will eventually go down is a whole different beast.
        • marvin 6y ago
          That's fair enough. Prefacing it, as "even if you're right, the market can remain irrational longer than you can remain solvent" gets that point across better; that there's a dual risk in betting on the downside scenario. When I hear people saying this, the subtext is usually that there is obviously an actual bubble that will pop someday. Rather than a warning, the statement is more of a joke about how stupid the market is.
• Havoc 6y ago
  Definitely feels like it. Both on stocks and crypto. The recent move of mainstream companies into bitcoin suggests to me that it might last a while though
• not_knuth 6y ago
  Can someone explain to me how the title is related to the content? At first I thought it was an allusion to the mythical rational markets, but the content is so staccato, cryptic and Buddhist Koan-like that I was not able to make the connection... I think my attempt at understanding it is tainted by what I expected it to be. I would be greatful for clarification.
  • dannyw 6y ago
    It is a popular quote that during a bull market, everyone is a genius.
• m-i-l 6y ago
  > "The willingness to believe crazy things increases when it feels like the world is dangerous and falling apart." People often overlook the socio-economic context of Tulip Mania, for example - Europe was being devastated by the Thirty Years War (60% of some populations killed), there was another outbreak of bubonic plague (people stopped showing up to the bulb auctions in Haarlem), etc. With death so close to so many, there was a sense of there being little to lose by fatalistic risk-taking. The disruptions we're facing now, while they pale into insignificance, are still arguably the biggest since the Second World War. But what is particularly concerning now, is the growing group of people who would rather put their trust in shady cartels and oligarchs than their governments, and the increasing numbers of people who think they have a have a vested (financial) interest in seeing their governments fail.
  • Olreich 6y ago
    Desperate times call for desperate measures. Most of that growing group of people see their lives getting materially worse over time. It makes sense that they’d be desperate and incurious enough to hitch their wagon to a strongman figure who says the things they desperately want to hear. The governments of the western world have done a pretty bad job on the whole with making the lives of the people better. Reversing that trend would do a lot to help solve the problem (few people want to overthrow governments when they are safe and content).
    • the-dude 6y ago
      Oh please. I watched some Dutch historical TV footage over the last week. The years after WWII were atrocious, there was shortage of housing, clothing, etc. The 70s and 80s were not without problems either ( I vividly remember the 80s ). Existential threat, bad economy, high unemployment.
      • showerst 6y ago
        A great many of the people involved were not alive as adults in the 70s and 80s.
• fallingfrog 6y ago
  I put all my 401k into treasury bonds about a year and a half ago, for one simple reason: the market was no longer offering me rational prices for stocks. The market is trying to sell me a Ford Fiesta for 100k, and I’m not buying it. You can stand there and say, the value of a Ford Fiesta has gone up 10% a year for ten years, or whatever, and I’m glad that makes you happy but I don’t care. I’m still not buying a Ford Fiesta for 100k because if I’m not pulling my money out for 30 years, it doesn’t matter much what the year to year fluctuations in value are. I’m not speculating on market movements. I just want to get fair value for my money, and if nobody’s going to give it to me then I’m happy to put my money on a pile and sit on it. Eventually the market will turn and someone will offer me a fair deal, I don’t care how long it takes. I’ll take a nap and wait. I know there’s a quote out there that says “the market can stay irrational longer than you can stay solvent” but that doesn’t apply in this case. I don’t need this money. It’s for later. I can stay solvent indefinitely. The market can go suck eggs. If it stays at this inflated level forever, I still haven’t really lost anything. If the cost of a Ford Fiesta goes to a million, well c’est la vie. But everyone knows that it isn’t actually worth that much so it seems like a dumb assumption to make that that will happen. Why would you just assume there’s always going to be a bigger idiot? You eventually run out of idiots and someone will come to me hat in hand and say, “...what about 15k?” and then I’ll get off my pile of money.
  • quickthrowman 6y ago
    If you didn’t buy the dip in March, you never will.
    • pinky1417 6y ago
      I don’t think that’s true. For one, that dip lasted a very short time, which is atypical. Second, it wasn’t clear that the market fell below its value. Maybe the value of the market was 40% below its earlier highs. “Buying the dip” is a bad strategy if it’s not paired with understanding value. Dips are sometimes temporary overreactions or part of a continued decline. Enron had a big “dip” soon after reaching its high. I suppose if you bought the dip then sold very quickly after, you’d make money, but you’d have to choose the right dip.
• solinent 6y ago
  Diversify your speculation, I think that's the best advice, and make sure you stay grounded, ie. have a base which won't really move much relative to potential hyper-inflation.
• segmondy 6y ago
  How can you differentiate the beginning stages of hyperinflation from an everything bubble?
  • jdmoreira 6y ago
    Because the price of milk and your rent is still the same.
• elcdodedocle 6y ago
  oh here comes the good ol' chewbacca defense! It's been a while... ^^