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Stonks Are What You Can Get Away With: NFTs and Financial Nihilism

172 points by headalgorithm 5y ago

iV7B53CmgHjB 5y ago
This is a great post. > Many retail investors don’t really care about whether GME’s price is justified by their corporate earnings - they simply buy at any cost. This financial nihilism - where intrinsic value is unknowable and all that matters is what other people think - is a worldview often encountered in Gen Z retail traders The article makes it sound like as if this is a recent phenomenon. I don't believe that's true. I believe that stock prices, or prices of anything, be it tulips or paintings, have always been driven by narratives. For example, both "fundamental analysis" and "technical analysis" are just different narratives that people have bought into. They then became self-fulfilling prophecies with feedback loops due to their adoption. Some may argue "but earning reports are scientific! It's numbers!" - not it's not. There are so many ways you re-arrange, manipulate, or re-interpret these things. It's just another narrative that has been accepted by a large enough number of people. Predicting the market has and will never be about "facts" - it will always be about predicting other people's behavior.
- WanderPanda 5y ago
  In the short term I agree, but in the long term the market is still a weighting machine (not a narrative driven voting machine).
  - paulgb 5y ago
    Indeed, I think that's why stonk investing is associated with Gen-Z: they didn't invent mimetic desire, they just happen to be young enough to not have seen the "weighing machine" part of the cycle with their own money.
    - ibn-python 5y ago
      Can you elaborate more? I understand that they didn’t invent memetic desire (no one did it’s a innate human behavior from girard pov) but don’t understand the second portion of your comment
      - deleted 5y ago
        [deleted]
      - onlyrealcuzzo 5y ago
        Until you lose most of your money in a bubble, you don't really get bubbles - they seem like something that only happens to other dumb people, not to you. The most obvious, recent, and one of the biggest being the subprime housing bubble in the US. Everyone who wasn't buying a house looked like a moron for 3 years as prices were going up >10% per year (on 33:1 leverage, if not near infinite leverage - a lot of these were no money down). The average family was making more money in appreciation on their house than working their jobs. Isaac Newton was not exactly a moron, and he lost all his money TWICE in the South Sea Bubble: https://royalsocietypublishing.org/doi/10.1098/rsnr.2018.0018 https://royalsocietypublishing.org/doi/10.1098/rsnr.2018.001... > This paper shows that Newton did not just taste of the Bubble's madness, but drank deeply of it. His losses, even by conservative accounting, almost surely exceeded £10 000, and plausible methods easily produce values that exceed the £20 000 figure that family lore claimed, and which is frequently cited today. By comparison with typical earnings, and making allowances for a very different society and economy, £20 000 in 1720 might be comparable to £20 million, $20 million, or euro 20 million today.9 However, before the Bubble, in the 1710s, Newton's investments appear to have been those of a careful and shrewd person, and to have been very successful. Newton died rich, with an estate valued at about £30 000, but that is primarily because he was already rich on the eve of the Bubble.
      - WJW 5y ago
        Not GP, but I think what they mean is that most of gen Z has not yet seen a serious downturn with their own eyes and with their own money in the market. On one hand they have older generations telling them to watch out and that bubbles never last, but on the other hand all their own experience has ever told them is that stocks pretty much only go up and that meme stocks go up way more than "boring" companies with allegedly better fundamentals. It is a very human instinct for these gen-Z investors to trust their own observations much more than the advice they get from other people. The argument is that eventually a crisis will come again (as it has done repeatedly every 10-20 years for centuries) and then the boring companies with big buffers and lack of risky behavior will be much better positioned to weather the storm, while many of loss-making companies in declining industries (yet with very high share prices due to meme stock status) will suffer more and possibly go bankrupt. That is the "weighing" part of the stock market boom/bust cycle as opposed to the "voting" part of the stock market that is currently exemplified by the stonks investing community.
  - markus_zhang 5y ago
    But in the long term we are all dead.
    - jkhdigital 5y ago
      Thanks for nothing J M Keynes ;-) Only someone who never had children would say something so nihilistic
      - ProjectArcturis 5y ago
        Read the full quote, it's not nihilist at all.
    - WJW 5y ago
      Pretty often (but not always), the time periods in which the market becomes a weighing machine is only a couple of decades. The long term in which we're all dead is significantly further away.
      - sgerenser 5y ago
        Most of the time only a single decade is sufficient to flush out high-flying hype and revert back to fundamentals. How close we are to that point now is anyone’s guess.
  - bradleyjg 5y ago
    I agree but the short term can impact the long term. AOL bought Time Warner. AMC is raising ridiculous amounts of new capital that gives them a lot of breathing room to figure out a future for the company.
    - slavik81 5y ago
      I remember reading newspapers as a kid which were so excited by how Time Warner was modernizing by acquiring AOL. Meanwhile, I was twelve years old and sitting there thinking, "AOL is a dinosaur, too." I wouldn't have bought AOL shares, but the folks who did and sold them around the merger would have done well for themselves, even if I was right about AOL being a company whose time had passed.
      - deleted 5y ago
        [deleted]
- karpierz 5y ago
  This feels similar to when people describe poker as a game of luck. It's easy to dismiss skill if you haven't played enough hands.
  - ZephyrBlu 5y ago
    It doesn't sound to me like the GP is dismissing skill, just pointing out that people rather than facts drive the market.
    - karpierz 5y ago
      That's fair, skill is the wrong word. My point was that there are underlying fundamentals (as a stock is partial legal ownership), but they can often be obscured by the noise in the short run.
  - blacktriangle 5y ago
    The difference is that on a long enough time horizon the best poker players clearly beat the averages. On a long enough time horizon, individual stock pickers very very rarely beat the market as a whole to the point where its hard to argue what they've done is skill and not blind luck.
    - WJW 5y ago
      The usual counterpoint to this is the essay "The Superinvestors of Graham-and-Doddsville": https://www8.gsb.columbia.edu/articles/columbia-business/superinvestors https://www8.gsb.columbia.edu/articles/columbia-business/sup... TLDR: If it was really blind luck, you would expect the people who beat the market to come from a wide variety of stock picking philosophies. Ie, some technical analysts, some fundamental value investors, some momentum traders, some "throw a dart at the newspaper" people, some sector investors, etc etc etc. However, if you look at the investors who have consistently beat the market over many years it turns out that the majority of them came from a single school. The statistical chances of that happening as a result of pure chance are so small that the alternative hypothesis (ie those investors actually do have an edge, like good poker players) becomes very likely indeed.
- fennecfoxen 5y ago
  Disagree. The whole premise of fundamental analysis is to justify the stock price by its corporate earnings, which is at least expressing an interest in corporate earnings. Forecasts of such earnings may sometimes be wildly wrong, sure, but this is still qualitatively different than "GME to the moon" which never pretended to bother about the earnings to begin with.
  - ZephyrBlu 5y ago
    > The whole premise of fundamental analysis is to justify the stock price by its corporate earnings Isn't this an example of the GP's point? There's no intrinsic reason for earnings to be directly related to stock price. Like you said, it's a justification not reasoning.
    - e1g 5y ago
      Say I’m offering a contract to pay you $100 every month for as long as I'm alive. Would you buy that for $1? What about $1M? Something price in-between? Does the price change if it’s Bill Gates offering? What if it's the US government? Does it change based on your life expectancy, the tax treatment of that $100, expected inflation rates, if a bunch of investors want to buy this contract, or if the payment is “maybe $100, but sometimes more or sometimes less, within a reasonable range”? There is a calculable and narrow band for the fundamental price of this contract, and it’s intrinsically based on two things: how much I promise to pay back (~return) and how believable it is (~risk). "Corporate earnings" are equivalent to this monthly payment, just the payments take the shape of dividends, or share buy-backs, or reinvestment which promise even greater corporate earnings.
      - sushibuffet 5y ago
        Many stocks don't pay dividends and re-investment is extremely fuzzy and hard to value because it depends on insider knowledge.
        e1g 5y ago
- tartoran 5y ago
  The price of GME and AMC are not justified by fundamentals at this point but thats irrelevant, it’s the desire to squeeze out the hedgegfunds who never covered their shorts that’s at stake here. Thats what is attractive about it and that is what has people buy these stocks and hold. Shortsellers meanwhile had large losses and continue to lose on a regular basis. They may be up to something..
- throwaway9980 5y ago
  It’s not all Gen Z. I have heard from several friends who are older Gen X guys that they’ve done cash out refinancing to dump money into the stock market. The reasoning is that they’d be idiots not to borrow at 2.5% and put it into stocks. Hard to argue with when the US stock market has a 100 year track record of producing 7% on average. A couple weeks after hearing about this from one guy, his wife tells me that he made $80k on AMC today. It’s gone up another 3-4x from that day. No idea if he’s still in or not, but this kind of thing feels like the end of days of bubbles. It won’t end well.
  - deleted 5y ago
    [deleted]
  - an_opabinia 5y ago
    Most of the money a retail trader is making comes from another retail trader. Is a poker table a bubble? Another way to interpret the price is, “the most recent payout at the poker table.”
  - PragmaticPulp 5y ago
    > A couple weeks after hearing about this from one guy, his wife tells me that he made $80k on AMC today. Speculative traders like to talk about their biggest wins, but they're generally quiet about losses. Sure, it's possible that one guy YOLOed everything into a single stock at just the right time, cashed out, and walked away. It's more common for these traders to make a lot of bad bets, then get excited when one of them pays off. The problem gets worse when these payoffs come in the form of black swan market events that the trader just happened to be on the right side of. Or maybe I'm wrong and the meme stonk trend will continue forever, making the gamblers wealthy while the rest of us lose out.
    - Animats 5y ago
      Speculative traders like to talk about their biggest wins, but they're generally quiet about losses. Um, yes. This is zero-sum. There have to be a lot of losers out there.
- only_as_i_fall 5y ago
  I don't think you can claim its entirely narrative driven so long as stocks continue to represent equity stake in real companies with real revenue liabilities and assets. Sure, the market price is largely driven by human behavior, but so long as stock ownership represents a claim on real assets the base value of that stock (which can wildly differ from the price) can only be as narrative driven as the value of those assets. Unless you want to argue that commodities themselves are priced largely by narratives rather than real utility, but that's a stronger claim.
- jkhdigital 5y ago
  That’s a very postmodernist framing… the difference is that some narratives are better models of reality than others. I agree that earnings reports are so stage-managed as to be almost completely devoid of real information content, but what if you had unrestricted access to the company’s books? What if you could look into their sales database? Equities are a fairly standardized legal claim to quantifiable value, and this may not seem to factor into the market price much nowadays, but it is a qualitatively different kind of narrative than “sentiment”.
- throw0101a 5y ago
  > Predicting the market has and will never be about "facts" - it will always be about predicting other people's behavior. It will be a combination of both, as different people will react differently to the same facts about a company and the market/economy. And there's no way to predict ahead of time when these new facts / information will appear (e.g., lawsuit against a company), and so fluctuations will occur 'randomly' over time: * https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
- ibeckermayer 5y ago
  “Fundamental analysis” is not merely a narrative, though. For example for a mature company, there is an underlying economic reality about the time frame you can expect to earn back your initial investment in dividends, and the subsequent ROI.
  - meowkit 5y ago
    At the end of the day its a model and all models are fallible because they cannot perfectly capture reality. Fundamentals is a narrative that assumes a lot of things like the stability and idealization of a businesses operating environment. These are just baked into the narrative in such a way that they seem “objective” and a part of the “economic reality”. Yuval Harari’s Sapiens and Taleb’s Black Swan make really compelling narratives that everything is a narrative.
    - anotherlost1 5y ago
      What would a compelling narrative that everything isn't narrative look like?
      - sudosysgen 5y ago
        Financial post-post-modernism? Interesting, perhaps something like Micheal Hudson's take, but I don't how to apply it to valuation of stocks.
    - deleted 5y ago
      [deleted]
  - ivalm 5y ago
    Mature companies that do not pay back dividend or buy back shares also exist and are still valuable (eg amazon).
    - Animats 5y ago
      At some point, they stop growing, and will be expected to pay a dividend. Apple and Microsoft pay dividends. Failure to pay a dividend is seen only in companies where the founders have a stock scheme which keeps them from being out-voted.
- elliekelly 5y ago
  I think the difference is the people buying tulips did genuinely believe in their investment whereas Millennials & Gen Z seem have more of a FOMO/YOLO outlook. The tulip buyers (or even the sub-prime mortgage backed security buyers or whoever) bought in to the underlying economic system but a lot of Millennials/Gen Z (and even some Gen X) see the economy as “everything is made up and the points don’t matter” so they figure they might as well try to ride the meme stock wave. I worry historians will look back on this unusual market activity and wonder how we missed the generation backed into a financial corner by a system stacked against them who are clearly lashing out and in need of help. We’re mildly amused and sometimes annoyed but not taking them seriously. And I think the resulting financial frustration from these “meme stocks” will be even worse than the financial frustration that gave rise to them in the first place.
  - WalterBright 5y ago
    > a system stacked against them How is investing in stocks stacked against people?
    - _carbyau_ 5y ago
      Wrong system. System as parent comment alluding to is "the world". Many latest/last gen people feel as though it is highly unlikely they will ever buy a house, for example. It is simply not feasible for most of them given wages vs house price increases. I think the YOLO thought process is: " If you're fucked anyway, why not bet everything you can borrow? Worst outcome: you're slightly poorer. If that is possible. Best outcome: you're rich! " Not one I agree with, but I can see how people get there.
  - notriddle 5y ago
    I mostly agree with you, but I’m not sure where you get the idea that “we missed the generation.” Everyone seems to know that Gen Z is coming of age into a dead end. It’s just that we’re all more interested in using the situation as a political tool than in actually doing anything about it.
- astoor 5y ago
  > "The article makes it sound like as if this is a recent phenomenon. I don't believe that's true. I believe that stock prices, or prices of anything, be it tulips or paintings, have always been driven by narratives. " That might have an element of truth, but recent generations have had opportunities for "financial nihilism" well in excess of anything imaginable by earlier generations, in line with the availability of information, speed of communication, and access to services. Just looking back two or three generations, you got your stock prices in the daily newspaper, you didn't have computers to draw out all your fancy technical analysis charts (although if you were patient you could make charts with pencil and paper), almost no one had access to a stockbroker, and of course there wasn't an internet where you could read about meme stocks or the latest cryptocurrency scheme.
  - WalterBright 5y ago
    > almost no one had access to a stockbroker That isn't true. My dad invested in stocks starting in the 1940s, investing his Air Force pay (which wasn't much). I started investing around 1980 at Boeing, and lots of the other engineers did, too. Just phone up Schwab or Merrill Lynch or whatever, they'll send you the forms, and off you went.
- ClumsyPilot 5y ago
  This is even true with houses and land value - a house didn't get 10x more expensive to build in the last 50 years, but thsts what people are willing to offer for it.v
  - Traster 5y ago
    There's 3 circular things at work there - land value has gone up, interest rates dropped making total cost of ownership go down, and therefore the land value has gone up creating a good investment. If I borrow 500k at 1% interest I'll pay back 565k in total over 25 years. At 6% I'll pay back close to $1m. Or to put it another way, the collapse in interest rates have almost halved the total cost of a house. Now, house prices are twice as high because everyone has access to low rates, but as well as this houses look like a fantastic investment - it's doubled in value! It's going to the moon!
  - lmm 5y ago
    > a house didn't get 10x more expensive to build in the last 50 years It got 10x (or more) more expensive to get approval to build dense housing in decent locations.
- erichocean 5y ago
  > Many retail investors don’t really care about whether GME’s price is justified by their corporate earnings - they simply buy at any cost. This financial nihilism - where intrinsic value is unknowable and all that matters is what other people think - is a worldview often encountered in Gen Z retail traders Bitcoin? I joke, Bitcoin does (sort of) have an intrinsic value: the cost of the electricity to mine a new Bitcoin. If that's higher than the cost to buy an existing Bitcoin, you'd do the latter. So the cost of mining (in electricity-dollars) sets a floor on the price of Bitcoin. (The ceiling is due to the financial nihilism described above. Same with gold and silver.)
  - JumpCrisscross 5y ago
    > If that's higher than the cost to buy an existing Bitcoin, you'd do the latter. So the cost of mining (in electricity-dollars) sets a floor on the price of Bitcoin. You are describing production cost. Not intrinsic value. Once someone decides to buy a Bitcoin, the build or buy decision is as you describe. But that demand is what causes the value. Not the production cost.
jsemrau 5y ago
I believe there is a gap between regulation and technical progress which allows for a wild west in retail financial services. Feels like 1997 again.
- WanderPanda 5y ago
  I think this gap is sufficiently explained by the individuals irresponsibility. We can try to stop the painful learning process by adding regulation but I believe this only leads to „learned helplessness“
  - jsemrau 5y ago
    Well said. I believe the irresponsibility is driven by the desire to use your diamond hands to YOLO into a potentially a multi-million dollar gain. But not everyone can be Roaring Kitty.
  - mjburgess 5y ago
    Such as the "learned helplessness" of building fire safety? This is a rather bizarre view -- do you have any examples of this? We are limited thinkers -- we have to hand off the vast majority of our concerns to external systems to manage -- our individual frontal lobes are woefully inadequate for managing our lives. Is there any sense, other than some rousseauian pre-civilization mythology, in which we are actually worse off here?
paulgb 5y ago
> While NFTs are not sure proof of a physical Birkin bag's authenticity, they all but ruin the economic incentives of counterfeiting. One exception to this: if I want a Birkin bag, not to sell but for myself, and I want it to be authentic, I can buy a real bag and a fake bag, and sell the fake bag with the certificate of authenticity. I don't have to worry about diminishing the retail value, since the bag is for my own enjoyment.
- codetrotter 5y ago
  Likewise if you have a real bag and a certificate of authenticity but then the bag is ruined and you didn’t have insurance, or bad coverage on the insurance, you can buy a fake bag and resell the fake bag with the certificate of authenticity for less than the cost of a new authentic bag while still lowering the amount of money that you lose out on had you discarded the certificate when the authentic bag was ruined.
  - mlac 5y ago
    Both these posts make sense, but I’d be curious if this will slow the market for fake bags, making it more difficult to source a quality bag. Probably not - in reality, are people going to say “nice bag - let me see your NFT”. I’d think it equivalent to asking for a receipt from the birken store…
    - bradleyjg 5y ago
      I could definitely see certain people going home from a party and looking up whether so-and-so’s bag was real. I don’t think it’s going to take off but that part seems plausible.
      - bruce343434 5y ago
        It seems insane.
        bradleyjg 5y ago
ziml77 5y ago
Who would want their ownership tracked on a public ledger? And what happens when people forget about or don't care about tracking the transfer on the ledger? Also there's still plenty of people to sell fakes to since not everyone is going to verify the authenticity.
- iV7B53CmgHjB 5y ago
  Having ownership tracked on a public ledger does not imply it needs to be associated with a real name, just a key.
  - beforeolives 5y ago
    Aren't you sharing that key with anyone that you transact with?
    - noahatwi 5y ago
      Yes much like cryptocurrency, the ownership of NFTs can be de-anonymized.
    - JamisonM 5y ago
      Yes you are, but that wouldn't necessarily require you to reveal your identity either.
      - deleted 5y ago
        [deleted]
- 11thEarlOfMar 5y ago
  This could be useful in the semiconductor industry, for example. We are currently battling with marginally performing chips that were sold out the back door to brokers. A traceable ledger inform us whether a lot we purchased from a broker had a chain of ownership back to the front door. This evidence would do a lot to ease our customer's concerns, and having the data public would be a plus.
JackFr 5y ago
The author excludes a third possibility - that many NFT transactions are simply money laundering.
- bronzeage 5y ago
  Like real art and politicians "book deals" of boring books, and hundreds of thousands for a single "lecture".
okareaman 5y ago
If I were a wealthy individual I might pay 17M for an easily copyable arrangement of pixels in order to create market excitement for such things, with the hope that I could bring in the rubes to support sales of my art NFTs in the future. So in other words, pump and dump.
- illwrks 5y ago
  To create an NFT you need to pay a 'gas' fee. To me the large figures paid for some pixels is an incentive to get people to create NFTs and therefore pay 'gas' fees to whoever mines those numbers. If I owned a mining farm I'd be interested in promoting low barrier to entry artwork that creates money for me.
hermannj314 5y ago
>> Many retail investors don’t really care about whether GME’s price is justified by their corporate earnings - they simply buy at any cost. In all fairness, most people that invest portions of every paycheck into 401k index funds are the same way. There is a significant amount of money flowing into the market everyday that is ignorant of valuation.
curation 5y ago
The purpose of NFT's is money laundering. When minted off chain (see Beeple's headline sale/ad). Moreover, Financial Nihlism is a rich philosophical subject reduced and fixed here in a way that kills understanding. What response should a population or group do when the written rules say you are free but the unwritten rules, that say you are to accept the caste position you were born in with zero wage growth or chance at middle class because you are to blame as an individual? If you break the unwritten rules you are dismissed as nihilist. Perhaps nihilism is the only way to break the religious thinking of our economic system where we dare not speak the devils name aka any kind of economic system that is not capitalism. I am very serious here, what should we do? Just accept what appears to me to be closer to feudalism in practice but we desperately keep trying to reclaim it. Capitalism stopped in 2007, didn't it?
dgellow 5y ago
The author doesn’t understand why people buy GME. It’s not to push the price up in a coordinated way or something else like that. It’s because it is understood that Citadel never covered it’s short position from January, after doing massive naked shorting to drive the price of GME down to zero. There is a belief that they are kicking the can further down the alley by creating more and more synthetic shorts, hidden in deep ITM long or other mechanisms, because they cannot actually cover their current position. And that eventually something will force them to cover, resulting in a massive short squeeze. It’s not nihilistic at all, people who participate in this because they actually believe their analysis is correct and a short squeeze is imminent. That’s why in this framework buying at a cost below the floor (currently discussed at $20mio per share, seriously) is considered cheap. The research people discuss on this topic on r/superstonk is interesting to read just to get an idea of what they are doing. Not that I’m saying a short squeeze will happen or not, I personally have no idea, but it’s a fascinating niche to become familiar with.
- mmiliauskas 5y ago
  Not sure why this being downvoted. Don't really have skin in the game when it comes to GME, but the naked shorting and creating short squeeze thesis has some legs, beyond the "stonks only go up" narrative. Burry was one of the first people to go long before all the craze.
- jw1224 5y ago
  I’ve tried to explain this on HN twice before and been immediately downvoted, despite my best attempt at explaining the nuances. Your comment sums things up well, thanks for sharing. For anyone else who’s curious to learn more, as mentioned, Superstonk[1] is the place to go. Don’t be put off by the name — Superstonk is dedicated exclusively to monitoring the GME situation specifically. It’s actually the third subreddit used for this since January — r/WallStreetBets has clearly been taken over by pump-and-dump schemes on a mass scale, and the older r/GME subreddit saw a mass exodus of users to the newly-formed Superstonk, after mods lost control of it to speculated “shill” posters. Plenty of evidence has arisen showing anonymous recruiters offering to pay Redditors to spread GME misinformation. I’d suggest filtering Superstonk posts to just the “DD” flair to hide the humour/camaraderie, which can understandably be a bit off-putting to outsiders, unfamiliar with the myriad of crazy events that have happened so far[2]. Having followed the GME saga very closely since January, one of the most enlightening revelations for me has been the blatant media manipulation surrounding GME. There’s just far too many examples to ignore — so perhaps it’s unsurprising that many people still think it’s simply a “Reddit meme stock” that’s run it’s course. If the DD is to be believed, this thing is far from over. Regardless, I’m thoroughly enjoying watching how it unfurls. [1] https://www.reddit.com/r/Superstonk/ https://www.reddit.com/r/Superstonk/ [2] https://gmetimeline.com/ https://gmetimeline.com/
CharlieMunger 5y ago
Warren Buffett explains long-term stock prices, in 5 minutes: https://old.reddit.com/r/brkb/comments/l9hpo5/buffett_explains_the_concept_of_intrinsic_value/ https://old.reddit.com/r/brkb/comments/l9hpo5/buffett_explai... I blame the education system. Basic investing theory should be taught in high school. We have to think of a share price as a number that is a sum of all future earnings, divided by powers of an interest rate according to how far in the future those earnings will be produced. That allows us to evaluate whether a share price is reasonable or unreasonable. This concept is complex and most people can't understand it without formal education. That education doesn't occur, so we have a huge mass of investors who have no idea what share prices mean. How can they possibly make good decisions?
- tofukid 5y ago
  Nobody knows how much money a company will make in its lifetime. And even for companies with rather stable revenues, dividends and number of shares are not fixed, so it seems rather useless making calculations using those ratios.
  - onlyrealcuzzo 5y ago
    It wasn't useless for Warren Buffett... It's hard to predict future revenues of a startup. But it's not that difficult to get pretty close - looking a few years into the future - for big, established companies like Coke and Pepsi and GM. The Fed gives investors a 2 year outlook on interest rates. In the last 20 years, they have only ever lowered rates by surprise - and that pushes share prices up. You're highly unlikely to lose a lot of money getting surprised by interest rate moves. Sure - anything can happen, but historically, over a 3-5 year period, Coke's revenue and profit hasn't been very volatile. But the share price IS much more volatile. This is what you arbitrage on. The people who are investing in the moment, when you're investing for a longer horizon. Basically, this strategy is that the short term is much harder to predict than the medium term. I think everyone is in agreement that the very long term (for stocks) is pretty hard to predict.
    - tofukid 5y ago
pipingdog 5y ago
> Financial nihilism Financialism is economic nihilism.
fullshark 5y ago
> In a similar fashion, using present-day frameworks for thinking about business and value do not account for the disruptive force of technology. Well that seems like a major flaw. You can have an elegant model accounting for future cash flows at an infinite horizon but if a paradigm shift is coming in 2-10 years it's meaningless. As a retail investor I'm not sure it makes sense to think in this way anyway. Seems like the rational plan is X% of your portfolio in index funds, 1-X% in risky speculative assets in the hope of getting rich. The 1-X% is what's driving these finance people nuts, but if the retail investors are cool with it going to 0 it seems totally rational to make those bets.
paulpauper 5y ago
>their stock, a discounted cash flow model for AMC or GME starts to not become very predictive of share price. By reflexivity, that will have impacts on future cash flows! In a similar fashion, using present-day frameworks for thinkin This was not the case in the early 2000s.
ilaksh 5y ago
Its interesting that people are truly testing "what you can get away with". There is someone on r/algonftmarketplace selling pictures of rocks. Not selling the actual rock, just photos of it. Which I would be on board with if it was an interesting rock or he at least polished the rocks first. But there is nothing interesting at all about this rock. And what he is doing is putting them in the tumbler for a very short while, and then every time he takes them out, he "mint"s a new NFT and tries to sell it. I really like shiny rocks. But it seems like he needs to tumble for like twice as long to get there because he is not even cleaning all of the grit off of these before taking the photos and they are really dull looking rocks so far.
crazygringo 5y ago
> While NFTs are not sure proof of a physical Birkin bag's authenticity, they all but ruin the economic incentives of counterfeiting. I disagree. It means you get to have your cake and eat it too -- you use and wear out the authentic Birkin bag for years, a bag you got almost for free because you bought a cheap counterfeit and resold it together with the NFT while keeping the original. If anything, it seems like this could increase counterfeiting because this would seem like such an... obvious scam to pull. Indeed, I can even imagine the NFT being resold 10 times, each and every time the person thinking they got an authentic bag, buying a counterfeit and reselling it as authentic... when the only person who kept the actual authentic bag was the one who bought it from Birkin. This is the fundamental problem with NFT's as I see it -- there is fundamentally no way to tie it to a physical object. Every owner can always sell a counterfeit and keep the original. So the idea that this "ruins the economic incentives of counterfeiting" doesn't seem to hold water at all.
- reidjs 5y ago
  I agree with your premise and doubt that adding NFTs into the mix will do anything to prevent counterfeits. I don’t buy fancy handbags, but I have read that counterfeits are often made of higher quality material than luxury brands. So, the fool pays $$$ for a quality knockoff and an NFT. Maybe they realize it 5 years from now when they try to sell the bag. Hopefully at that point they will learn that there’s no tangible way to link physical objects to a blockchain. One optimistic consequence of this may be a distancing between materialism and value. After all, The knockoff is just as good or better than the authentic. Let’s tie value to experience rather than objects. If you really must use NFTs and blockchains, then use them for concert/event tickets, governance systems, game collectibles , decentralized gambling’s/prediction markets, p2p and cross border value exchange, etc.
  - JadeNB 5y ago
    > After all, The knockoff is just as good or better than the authentic. I think this may be over optimistic—the fact that counterfeits can be same quality doesn't mean they always, or even often, are. There are product categories where the difference is not apparent even to trained casual inspection, but there are real quality or even safety sacrifices.
cs702 5y ago
Great post. I agree: stocks, NFTs, Pokemon cards, etc. selling at prices that make no sense to casual and experienced observers area form of art, and indeed "art is what you can get away with!" I mean, once prices are disconnected from mundane considerations -- such as how profitable a company might be in the future -- there's truly no known limit to how high prices can go, nor is there a known limit to how long prices will continue rising. Just when you might think some kind of "limit to irrationality" has been reached, collective human imagination and wishful thinking can push prices even higher! It's so much fun, and so entertaining, for so many people whose wealth has been spiraling up and up and up. ...Alas, prices cannot rise forever. Our physical reality is finite. Energy cannot be created or destroyed -- the First Law of Thermodynamics is pretty darn strict about that. Our economic reality is finite too. Prices cannot rise to infinity. Stein's Law comes to mind: "IF SOMETHING CANNOT GO ON FOREVER, IT WILL STOP."[a] That's about the only thing we can predict with confidence about ''financial markets as collective performance art." -- [a] https://en.wikipedia.org/wiki/Herbert_Stein#Stein's_Law https://en.wikipedia.org/wiki/Herbert_Stein#Stein's_Law
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Animats 5y ago
The $67 million Beeple sale turns out to have been a cooperative venture between the artist and the buyer. The buyer then went on to create a derivative NFT so as to dump the cost on other smaller buyers.[1] That seems to have been a pump and dump intended to inflate NFT prices. [1] https://www.washingtonpost.com/technology/2021/03/17/nft-beeple-metakovan-christies/ https://www.washingtonpost.com/technology/2021/03/17/nft-bee...
paulpauper 5y ago
The media keeps getting this wrong by underestimating the skill and prescience of some of these meme-stock investors. In Jan-Feb the consensus by the financial media was that GME and AMC would crash and not recover, yet half a year later GME is above 200 and AMC is considerably higher than it was in January. The narrative was (and still is) that "GME and AMC are dying businesses" and maybe this is true, but there is also more than meets the eye and going on behind the scenes, such as restructuring, business pivots, and raising capital. Moreover, I have observed that mainstream pundits such as on TV and in print give worse advice compared to advice on Reddit, blogs,and other non-mainstream sources. r/wallstreetbets has been recommending GME and AMC for months, and had anyone heeded their advice with even a little bit of money would have done well. Same for Tesla and AMD. Same for Tesla, which they honed in on in 2019 , before its 10x rally. Or Palantir, which surged from $9 after the IPO November 2020 to $25 now.Much better than Seeking Crap/Alpha with publishes nothing but filler articles about stocks that do the opposite of what the authors expect and lose readers' money. Much better than James Cramer, whose only usefulness is he draws huge ratings, has been costing his viewers millions over the past 15 years with terrible stock picks.
- birdyrooster 5y ago
  It's cherry picking season
- dtech 5y ago
  > The media keeps getting this wrong by underestimating the skill and prescience of some of these meme-stock investors. That is because it's a self-fulfilling profecy. AMC and GME were "undervalued" because a large enough group of people thought they were undervalued, and kept buying them at higher and higher prices until the undervalue was true in retrospect. In some ways the stock market in general works similarly, but at least there are some sound financial groundings for that, with stocks being the value of expected future dividends. Enough people memeing on a stock and playing a game of hot potato will make the value rise, but doesn't really make those analysts wrong in their initial analysis. GME is a bit of an exception of this because some people saw the short pressure and decided to mobilize WSB to take advantage of that, but for the rest which stock would be memed on - and thus would rise in price - had almost zero relation to the actual performance of the underlying company.
EGreg 5y ago
As someone who has been in decentralized social networking with Qbix, and decentralized cryptocurrencies with Intercoin, I feel like an old grandpa who doesn’t “get” why people find half of the NFTs to be useful. NFTs for reading/viewing are useless. If you have software interpreting the NFT by showing you something, then that can be easily copied. Growing up I have seen enough in the WaReZ scene that even kids traded cracked versions of Windows and Photoshop, so those licenses were useless. So much more so for OPEN source software that can be easily forked. Real scarce value comes from being able to control/edit/modify/own something, including things like domains (namespace entries), Earth2 land plots, cashflows etc. And that is only valuable insofar as it has a large network effect. Think “milliondollarhomepage.com” and Alex Tew going on a media tour. That made the pixels valuable to edit. The original NFT lol. ERC721 NFTs are first generation idea. Each NFT can be generalized to fractional ownership and automated market makers should be able to assist in price discovery. In short ... sell rights to edit something, and maybe let people mix and match to level-up more than the sum of its parts, like the game Battleship or MacDonalds Monopoly game. And make a new ERC for fractional ownership of ERC721 stuff. Oh, and while you’re at it, get off blockchains! They are overkill for NFTs, too public and don’t need a global consensus. An NFT can just be a private chain per token, they arent divisible after all, no history UTXOs needed. This whole NFT space is over hyped and has the wrong fundamentals.
mebebil 5y ago
It's amazing to see every argument for NFTs and cryptocurrencies in general ends up whatabouting on scarcity of other real valuables.
ALittleLight 5y ago
One problem here: I'm not sure Hermes or Birkin wants to solve the counterfeit problem. Right now, the people who want a genuine bag have to buy a new one from the store. If Hermes invents a method to authenticate bags they will empower the resale market which will be like inventing their own competitor. I'd bet they prefer the status quo.
bluquark 5y ago
> When people bid up the price of TSLA or GME to stratospheric valuations, the index fund must re-adjust their market-weighted holdings to reflect those prices, creating further money inflows to the asset and thus a self-fulfilling prophecy. This claim doesn't apply to the majority of index funds. It's specific to S&P500 funds, which because of their artificial limit of 500 stocks, have stocks enter and exit based on valuation. More modern index fund designs (like Vanguard Total Market) hold a fixed percentage of every public company no matter how small. So they rode TSLA, GME and AMC up and down without lifting a finger. These modern funds only transact due to inflows and outflows, or when stock is newly issued or bought back. Even specific to S&P500, another quirk of that index's legacy design is that it "must" do nothing in particular. It has an index inclusion committee taking into account factors such as profits, and with the discretion to delay inclusion even after its formal criteria are met. The investing nihilists love to make arguments that ordinary investors will be "forced" to reward them by some reflexivity. But the reflexive effects they point to are all quite weak. So far, the vast majority of the rewards to nihilists have come by persuading other investors to turn nihilist, not by somehow exploiting mainstream investing strategies.
fnord77 5y ago
so capitulation of sanity and attempting to rationalize irrational behavior. I suspect we're close to the top of the bubble.
jollybean 5y ago
"As a buyer, you can be quite confident that the bag is authentic if the seller also owns the NFT, and you can verify that the NFT was indeed originally created by Hermès by looking up its public transaction history. " ??? No, you have to verify that 'the bag' you get actually matches the NFT 'certificate'. Which is 'the hard part' making NFT's pointless at least in that scneario. But this: "We are starting to see this valuation framework being applied to the equities market today, where price movements are dominated by narratives about where the price is going and what other people are willing to pay for it, " is a huge underlying problem. Investors actually do a job - they put money in things that work and remove them from things that don't. If 'what works' is entirely just 'convincing others' than real productive output will fall. In the mean time, regular investors are going to get crowded out by the hustlers, making for a very interesting time.
gweinberg 5y ago
This metaphor is extended to the point that it does more to confuse than to illuminate. An an art NFT is like buying a Birkin bag with a certificate of authenticity... except there is no Birkin bag. So what's the point of the metaphor?
stubish 5y ago
This is what happens when you redefine 'art' to become almost completely meaningless. Just about everything can be considered art when you squint hard enough, so you can sell just about everything as art to people who play along with the illusion. At least I know what I like, even if it is art.
h0nd 5y ago
I have been following the market of NFT closely lately and I even asked several people involved. Nobody could yet answer me questions such as: -As the owner of an NFT that represents a digital object, lets say an image. How can I be sure there is no other NFT representing the exact same image? How can I be sure there is no other NFT representing the image in another format? Can I claim anything (ownership, royalty fees, ...) of the digital object that the NFT in my possession represents? Would that claim hold up in any court in this world? For physical objects the same questions can be asked.

172 points by headalgorithm 5y ago

This is a great post. > Many retail investors don’t really care about whether GME’s price is justified by their corporate earnings - they simply buy at any cost. This financial nihilism - where intrinsic value is unknowable and all that matters is what other people think - is a worldview often encountered in Gen Z retail traders The article makes it sound like as if this is a recent phenomenon. I don't believe that's true. I believe that stock prices, or prices of anything, be it tulips or paintings, have always been driven by narratives. For example, both "fundamental analysis" and "technical analysis" are just different narratives that people have bought into. They then became self-fulfilling prophecies with feedback loops due to their adoption. Some may argue "but earning reports are scientific! It's numbers!" - not it's not. There are so many ways you re-arrange, manipulate, or re-interpret these things. It's just another narrative that has been accepted by a large enough number of people. Predicting the market has and will never be about "facts" - it will always be about predicting other people's behavior.

WanderPanda 5y ago
In the short term I agree, but in the long term the market is still a weighting machine (not a narrative driven voting machine).
- paulgb 5y ago
  Indeed, I think that's why stonk investing is associated with Gen-Z: they didn't invent mimetic desire, they just happen to be young enough to not have seen the "weighing machine" part of the cycle with their own money.
  - ibn-python 5y ago
    Can you elaborate more? I understand that they didn’t invent memetic desire (no one did it’s a innate human behavior from girard pov) but don’t understand the second portion of your comment
    - deleted 5y ago
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    - onlyrealcuzzo 5y ago
      Until you lose most of your money in a bubble, you don't really get bubbles - they seem like something that only happens to other dumb people, not to you. The most obvious, recent, and one of the biggest being the subprime housing bubble in the US. Everyone who wasn't buying a house looked like a moron for 3 years as prices were going up >10% per year (on 33:1 leverage, if not near infinite leverage - a lot of these were no money down). The average family was making more money in appreciation on their house than working their jobs. Isaac Newton was not exactly a moron, and he lost all his money TWICE in the South Sea Bubble: https://royalsocietypublishing.org/doi/10.1098/rsnr.2018.0018 https://royalsocietypublishing.org/doi/10.1098/rsnr.2018.001... > This paper shows that Newton did not just taste of the Bubble's madness, but drank deeply of it. His losses, even by conservative accounting, almost surely exceeded £10 000, and plausible methods easily produce values that exceed the £20 000 figure that family lore claimed, and which is frequently cited today. By comparison with typical earnings, and making allowances for a very different society and economy, £20 000 in 1720 might be comparable to £20 million, $20 million, or euro 20 million today.9 However, before the Bubble, in the 1710s, Newton's investments appear to have been those of a careful and shrewd person, and to have been very successful. Newton died rich, with an estate valued at about £30 000, but that is primarily because he was already rich on the eve of the Bubble.
    - WJW 5y ago
      Not GP, but I think what they mean is that most of gen Z has not yet seen a serious downturn with their own eyes and with their own money in the market. On one hand they have older generations telling them to watch out and that bubbles never last, but on the other hand all their own experience has ever told them is that stocks pretty much only go up and that meme stocks go up way more than "boring" companies with allegedly better fundamentals. It is a very human instinct for these gen-Z investors to trust their own observations much more than the advice they get from other people. The argument is that eventually a crisis will come again (as it has done repeatedly every 10-20 years for centuries) and then the boring companies with big buffers and lack of risky behavior will be much better positioned to weather the storm, while many of loss-making companies in declining industries (yet with very high share prices due to meme stock status) will suffer more and possibly go bankrupt. That is the "weighing" part of the stock market boom/bust cycle as opposed to the "voting" part of the stock market that is currently exemplified by the stonks investing community.
- markus_zhang 5y ago
  But in the long term we are all dead.
  - jkhdigital 5y ago
    Thanks for nothing J M Keynes ;-) Only someone who never had children would say something so nihilistic
    - ProjectArcturis 5y ago
      Read the full quote, it's not nihilist at all.
  - WJW 5y ago
    Pretty often (but not always), the time periods in which the market becomes a weighing machine is only a couple of decades. The long term in which we're all dead is significantly further away.
    - sgerenser 5y ago
      Most of the time only a single decade is sufficient to flush out high-flying hype and revert back to fundamentals. How close we are to that point now is anyone’s guess.
- bradleyjg 5y ago
  I agree but the short term can impact the long term. AOL bought Time Warner. AMC is raising ridiculous amounts of new capital that gives them a lot of breathing room to figure out a future for the company.
  - slavik81 5y ago
    I remember reading newspapers as a kid which were so excited by how Time Warner was modernizing by acquiring AOL. Meanwhile, I was twelve years old and sitting there thinking, "AOL is a dinosaur, too." I wouldn't have bought AOL shares, but the folks who did and sold them around the merger would have done well for themselves, even if I was right about AOL being a company whose time had passed.
    - deleted 5y ago
      [deleted]
karpierz 5y ago
This feels similar to when people describe poker as a game of luck. It's easy to dismiss skill if you haven't played enough hands.
- ZephyrBlu 5y ago
  It doesn't sound to me like the GP is dismissing skill, just pointing out that people rather than facts drive the market.
  - karpierz 5y ago
    That's fair, skill is the wrong word. My point was that there are underlying fundamentals (as a stock is partial legal ownership), but they can often be obscured by the noise in the short run.
- blacktriangle 5y ago
  The difference is that on a long enough time horizon the best poker players clearly beat the averages. On a long enough time horizon, individual stock pickers very very rarely beat the market as a whole to the point where its hard to argue what they've done is skill and not blind luck.
  - WJW 5y ago
    The usual counterpoint to this is the essay "The Superinvestors of Graham-and-Doddsville": https://www8.gsb.columbia.edu/articles/columbia-business/superinvestors https://www8.gsb.columbia.edu/articles/columbia-business/sup... TLDR: If it was really blind luck, you would expect the people who beat the market to come from a wide variety of stock picking philosophies. Ie, some technical analysts, some fundamental value investors, some momentum traders, some "throw a dart at the newspaper" people, some sector investors, etc etc etc. However, if you look at the investors who have consistently beat the market over many years it turns out that the majority of them came from a single school. The statistical chances of that happening as a result of pure chance are so small that the alternative hypothesis (ie those investors actually do have an edge, like good poker players) becomes very likely indeed.
fennecfoxen 5y ago
Disagree. The whole premise of fundamental analysis is to justify the stock price by its corporate earnings, which is at least expressing an interest in corporate earnings. Forecasts of such earnings may sometimes be wildly wrong, sure, but this is still qualitatively different than "GME to the moon" which never pretended to bother about the earnings to begin with.
- ZephyrBlu 5y ago
  > The whole premise of fundamental analysis is to justify the stock price by its corporate earnings Isn't this an example of the GP's point? There's no intrinsic reason for earnings to be directly related to stock price. Like you said, it's a justification not reasoning.
  - e1g 5y ago
    Say I’m offering a contract to pay you $100 every month for as long as I'm alive. Would you buy that for $1? What about $1M? Something price in-between? Does the price change if it’s Bill Gates offering? What if it's the US government? Does it change based on your life expectancy, the tax treatment of that $100, expected inflation rates, if a bunch of investors want to buy this contract, or if the payment is “maybe $100, but sometimes more or sometimes less, within a reasonable range”? There is a calculable and narrow band for the fundamental price of this contract, and it’s intrinsically based on two things: how much I promise to pay back (~return) and how believable it is (~risk). "Corporate earnings" are equivalent to this monthly payment, just the payments take the shape of dividends, or share buy-backs, or reinvestment which promise even greater corporate earnings.
    - sushibuffet 5y ago
      Many stocks don't pay dividends and re-investment is extremely fuzzy and hard to value because it depends on insider knowledge.
      - e1g 5y ago
tartoran 5y ago
The price of GME and AMC are not justified by fundamentals at this point but thats irrelevant, it’s the desire to squeeze out the hedgegfunds who never covered their shorts that’s at stake here. Thats what is attractive about it and that is what has people buy these stocks and hold. Shortsellers meanwhile had large losses and continue to lose on a regular basis. They may be up to something..
throwaway9980 5y ago
It’s not all Gen Z. I have heard from several friends who are older Gen X guys that they’ve done cash out refinancing to dump money into the stock market. The reasoning is that they’d be idiots not to borrow at 2.5% and put it into stocks. Hard to argue with when the US stock market has a 100 year track record of producing 7% on average. A couple weeks after hearing about this from one guy, his wife tells me that he made $80k on AMC today. It’s gone up another 3-4x from that day. No idea if he’s still in or not, but this kind of thing feels like the end of days of bubbles. It won’t end well.
- deleted 5y ago
  [deleted]
- an_opabinia 5y ago
  Most of the money a retail trader is making comes from another retail trader. Is a poker table a bubble? Another way to interpret the price is, “the most recent payout at the poker table.”
- PragmaticPulp 5y ago
  > A couple weeks after hearing about this from one guy, his wife tells me that he made $80k on AMC today. Speculative traders like to talk about their biggest wins, but they're generally quiet about losses. Sure, it's possible that one guy YOLOed everything into a single stock at just the right time, cashed out, and walked away. It's more common for these traders to make a lot of bad bets, then get excited when one of them pays off. The problem gets worse when these payoffs come in the form of black swan market events that the trader just happened to be on the right side of. Or maybe I'm wrong and the meme stonk trend will continue forever, making the gamblers wealthy while the rest of us lose out.
  - Animats 5y ago
    Speculative traders like to talk about their biggest wins, but they're generally quiet about losses. Um, yes. This is zero-sum. There have to be a lot of losers out there.
only_as_i_fall 5y ago
I don't think you can claim its entirely narrative driven so long as stocks continue to represent equity stake in real companies with real revenue liabilities and assets. Sure, the market price is largely driven by human behavior, but so long as stock ownership represents a claim on real assets the base value of that stock (which can wildly differ from the price) can only be as narrative driven as the value of those assets. Unless you want to argue that commodities themselves are priced largely by narratives rather than real utility, but that's a stronger claim.
jkhdigital 5y ago
That’s a very postmodernist framing… the difference is that some narratives are better models of reality than others. I agree that earnings reports are so stage-managed as to be almost completely devoid of real information content, but what if you had unrestricted access to the company’s books? What if you could look into their sales database? Equities are a fairly standardized legal claim to quantifiable value, and this may not seem to factor into the market price much nowadays, but it is a qualitatively different kind of narrative than “sentiment”.
throw0101a 5y ago
> Predicting the market has and will never be about "facts" - it will always be about predicting other people's behavior. It will be a combination of both, as different people will react differently to the same facts about a company and the market/economy. And there's no way to predict ahead of time when these new facts / information will appear (e.g., lawsuit against a company), and so fluctuations will occur 'randomly' over time: * https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
ibeckermayer 5y ago
“Fundamental analysis” is not merely a narrative, though. For example for a mature company, there is an underlying economic reality about the time frame you can expect to earn back your initial investment in dividends, and the subsequent ROI.
- meowkit 5y ago
  At the end of the day its a model and all models are fallible because they cannot perfectly capture reality. Fundamentals is a narrative that assumes a lot of things like the stability and idealization of a businesses operating environment. These are just baked into the narrative in such a way that they seem “objective” and a part of the “economic reality”. Yuval Harari’s Sapiens and Taleb’s Black Swan make really compelling narratives that everything is a narrative.
  - anotherlost1 5y ago
    What would a compelling narrative that everything isn't narrative look like?
    - sudosysgen 5y ago
      Financial post-post-modernism? Interesting, perhaps something like Micheal Hudson's take, but I don't how to apply it to valuation of stocks.
  - deleted 5y ago
    [deleted]
- ivalm 5y ago
  Mature companies that do not pay back dividend or buy back shares also exist and are still valuable (eg amazon).
  - Animats 5y ago
    At some point, they stop growing, and will be expected to pay a dividend. Apple and Microsoft pay dividends. Failure to pay a dividend is seen only in companies where the founders have a stock scheme which keeps them from being out-voted.
elliekelly 5y ago
I think the difference is the people buying tulips did genuinely believe in their investment whereas Millennials & Gen Z seem have more of a FOMO/YOLO outlook. The tulip buyers (or even the sub-prime mortgage backed security buyers or whoever) bought in to the underlying economic system but a lot of Millennials/Gen Z (and even some Gen X) see the economy as “everything is made up and the points don’t matter” so they figure they might as well try to ride the meme stock wave. I worry historians will look back on this unusual market activity and wonder how we missed the generation backed into a financial corner by a system stacked against them who are clearly lashing out and in need of help. We’re mildly amused and sometimes annoyed but not taking them seriously. And I think the resulting financial frustration from these “meme stocks” will be even worse than the financial frustration that gave rise to them in the first place.
- WalterBright 5y ago
  > a system stacked against them How is investing in stocks stacked against people?
  - _carbyau_ 5y ago
    Wrong system. System as parent comment alluding to is "the world". Many latest/last gen people feel as though it is highly unlikely they will ever buy a house, for example. It is simply not feasible for most of them given wages vs house price increases. I think the YOLO thought process is: " If you're fucked anyway, why not bet everything you can borrow? Worst outcome: you're slightly poorer. If that is possible. Best outcome: you're rich! " Not one I agree with, but I can see how people get there.
- notriddle 5y ago
  I mostly agree with you, but I’m not sure where you get the idea that “we missed the generation.” Everyone seems to know that Gen Z is coming of age into a dead end. It’s just that we’re all more interested in using the situation as a political tool than in actually doing anything about it.
astoor 5y ago
> "The article makes it sound like as if this is a recent phenomenon. I don't believe that's true. I believe that stock prices, or prices of anything, be it tulips or paintings, have always been driven by narratives. " That might have an element of truth, but recent generations have had opportunities for "financial nihilism" well in excess of anything imaginable by earlier generations, in line with the availability of information, speed of communication, and access to services. Just looking back two or three generations, you got your stock prices in the daily newspaper, you didn't have computers to draw out all your fancy technical analysis charts (although if you were patient you could make charts with pencil and paper), almost no one had access to a stockbroker, and of course there wasn't an internet where you could read about meme stocks or the latest cryptocurrency scheme.
- WalterBright 5y ago
  > almost no one had access to a stockbroker That isn't true. My dad invested in stocks starting in the 1940s, investing his Air Force pay (which wasn't much). I started investing around 1980 at Boeing, and lots of the other engineers did, too. Just phone up Schwab or Merrill Lynch or whatever, they'll send you the forms, and off you went.
ClumsyPilot 5y ago
This is even true with houses and land value - a house didn't get 10x more expensive to build in the last 50 years, but thsts what people are willing to offer for it.v
- Traster 5y ago
  There's 3 circular things at work there - land value has gone up, interest rates dropped making total cost of ownership go down, and therefore the land value has gone up creating a good investment. If I borrow 500k at 1% interest I'll pay back 565k in total over 25 years. At 6% I'll pay back close to $1m. Or to put it another way, the collapse in interest rates have almost halved the total cost of a house. Now, house prices are twice as high because everyone has access to low rates, but as well as this houses look like a fantastic investment - it's doubled in value! It's going to the moon!
- lmm 5y ago
  > a house didn't get 10x more expensive to build in the last 50 years It got 10x (or more) more expensive to get approval to build dense housing in decent locations.
erichocean 5y ago
> Many retail investors don’t really care about whether GME’s price is justified by their corporate earnings - they simply buy at any cost. This financial nihilism - where intrinsic value is unknowable and all that matters is what other people think - is a worldview often encountered in Gen Z retail traders Bitcoin? I joke, Bitcoin does (sort of) have an intrinsic value: the cost of the electricity to mine a new Bitcoin. If that's higher than the cost to buy an existing Bitcoin, you'd do the latter. So the cost of mining (in electricity-dollars) sets a floor on the price of Bitcoin. (The ceiling is due to the financial nihilism described above. Same with gold and silver.)
- JumpCrisscross 5y ago
  > If that's higher than the cost to buy an existing Bitcoin, you'd do the latter. So the cost of mining (in electricity-dollars) sets a floor on the price of Bitcoin. You are describing production cost. Not intrinsic value. Once someone decides to buy a Bitcoin, the build or buy decision is as you describe. But that demand is what causes the value. Not the production cost.

jsemrau 5y ago

I believe there is a gap between regulation and technical progress which allows for a wild west in retail financial services. Feels like 1997 again.

WanderPanda 5y ago
I think this gap is sufficiently explained by the individuals irresponsibility. We can try to stop the painful learning process by adding regulation but I believe this only leads to „learned helplessness“
- jsemrau 5y ago
  Well said. I believe the irresponsibility is driven by the desire to use your diamond hands to YOLO into a potentially a multi-million dollar gain. But not everyone can be Roaring Kitty.
- mjburgess 5y ago
  Such as the "learned helplessness" of building fire safety? This is a rather bizarre view -- do you have any examples of this? We are limited thinkers -- we have to hand off the vast majority of our concerns to external systems to manage -- our individual frontal lobes are woefully inadequate for managing our lives. Is there any sense, other than some rousseauian pre-civilization mythology, in which we are actually worse off here?

paulgb 5y ago

> While NFTs are not sure proof of a physical Birkin bag's authenticity, they all but ruin the economic incentives of counterfeiting. One exception to this: if I want a Birkin bag, not to sell but for myself, and I want it to be authentic, I can buy a real bag and a fake bag, and sell the fake bag with the certificate of authenticity. I don't have to worry about diminishing the retail value, since the bag is for my own enjoyment.

codetrotter 5y ago
Likewise if you have a real bag and a certificate of authenticity but then the bag is ruined and you didn’t have insurance, or bad coverage on the insurance, you can buy a fake bag and resell the fake bag with the certificate of authenticity for less than the cost of a new authentic bag while still lowering the amount of money that you lose out on had you discarded the certificate when the authentic bag was ruined.
- mlac 5y ago
  Both these posts make sense, but I’d be curious if this will slow the market for fake bags, making it more difficult to source a quality bag. Probably not - in reality, are people going to say “nice bag - let me see your NFT”. I’d think it equivalent to asking for a receipt from the birken store…
  - bradleyjg 5y ago
    I could definitely see certain people going home from a party and looking up whether so-and-so’s bag was real. I don’t think it’s going to take off but that part seems plausible.
    - bruce343434 5y ago
      It seems insane.
      - bradleyjg 5y ago

ziml77 5y ago

Who would want their ownership tracked on a public ledger? And what happens when people forget about or don't care about tracking the transfer on the ledger? Also there's still plenty of people to sell fakes to since not everyone is going to verify the authenticity.

iV7B53CmgHjB 5y ago
Having ownership tracked on a public ledger does not imply it needs to be associated with a real name, just a key.
- beforeolives 5y ago
  Aren't you sharing that key with anyone that you transact with?
  - noahatwi 5y ago
    Yes much like cryptocurrency, the ownership of NFTs can be de-anonymized.
  - JamisonM 5y ago
    Yes you are, but that wouldn't necessarily require you to reveal your identity either.
    - deleted 5y ago
      [deleted]
11thEarlOfMar 5y ago
This could be useful in the semiconductor industry, for example. We are currently battling with marginally performing chips that were sold out the back door to brokers. A traceable ledger inform us whether a lot we purchased from a broker had a chain of ownership back to the front door. This evidence would do a lot to ease our customer's concerns, and having the data public would be a plus.

JackFr 5y ago

The author excludes a third possibility - that many NFT transactions are simply money laundering.

bronzeage 5y ago
Like real art and politicians "book deals" of boring books, and hundreds of thousands for a single "lecture".

okareaman 5y ago

If I were a wealthy individual I might pay 17M for an easily copyable arrangement of pixels in order to create market excitement for such things, with the hope that I could bring in the rubes to support sales of my art NFTs in the future. So in other words, pump and dump.

illwrks 5y ago
To create an NFT you need to pay a 'gas' fee. To me the large figures paid for some pixels is an incentive to get people to create NFTs and therefore pay 'gas' fees to whoever mines those numbers. If I owned a mining farm I'd be interested in promoting low barrier to entry artwork that creates money for me.

hermannj314 5y ago

>> Many retail investors don’t really care about whether GME’s price is justified by their corporate earnings - they simply buy at any cost. In all fairness, most people that invest portions of every paycheck into 401k index funds are the same way. There is a significant amount of money flowing into the market everyday that is ignorant of valuation.

curation 5y ago

The purpose of NFT's is money laundering. When minted off chain (see Beeple's headline sale/ad). Moreover, Financial Nihlism is a rich philosophical subject reduced and fixed here in a way that kills understanding. What response should a population or group do when the written rules say you are free but the unwritten rules, that say you are to accept the caste position you were born in with zero wage growth or chance at middle class because you are to blame as an individual? If you break the unwritten rules you are dismissed as nihilist. Perhaps nihilism is the only way to break the religious thinking of our economic system where we dare not speak the devils name aka any kind of economic system that is not capitalism. I am very serious here, what should we do? Just accept what appears to me to be closer to feudalism in practice but we desperately keep trying to reclaim it. Capitalism stopped in 2007, didn't it?

dgellow 5y ago

The author doesn’t understand why people buy GME. It’s not to push the price up in a coordinated way or something else like that. It’s because it is understood that Citadel never covered it’s short position from January, after doing massive naked shorting to drive the price of GME down to zero. There is a belief that they are kicking the can further down the alley by creating more and more synthetic shorts, hidden in deep ITM long or other mechanisms, because they cannot actually cover their current position. And that eventually something will force them to cover, resulting in a massive short squeeze. It’s not nihilistic at all, people who participate in this because they actually believe their analysis is correct and a short squeeze is imminent. That’s why in this framework buying at a cost below the floor (currently discussed at $20mio per share, seriously) is considered cheap. The research people discuss on this topic on r/superstonk is interesting to read just to get an idea of what they are doing. Not that I’m saying a short squeeze will happen or not, I personally have no idea, but it’s a fascinating niche to become familiar with.

mmiliauskas 5y ago
Not sure why this being downvoted. Don't really have skin in the game when it comes to GME, but the naked shorting and creating short squeeze thesis has some legs, beyond the "stonks only go up" narrative. Burry was one of the first people to go long before all the craze.
jw1224 5y ago
I’ve tried to explain this on HN twice before and been immediately downvoted, despite my best attempt at explaining the nuances. Your comment sums things up well, thanks for sharing. For anyone else who’s curious to learn more, as mentioned, Superstonk[1] is the place to go. Don’t be put off by the name — Superstonk is dedicated exclusively to monitoring the GME situation specifically. It’s actually the third subreddit used for this since January — r/WallStreetBets has clearly been taken over by pump-and-dump schemes on a mass scale, and the older r/GME subreddit saw a mass exodus of users to the newly-formed Superstonk, after mods lost control of it to speculated “shill” posters. Plenty of evidence has arisen showing anonymous recruiters offering to pay Redditors to spread GME misinformation. I’d suggest filtering Superstonk posts to just the “DD” flair to hide the humour/camaraderie, which can understandably be a bit off-putting to outsiders, unfamiliar with the myriad of crazy events that have happened so far[2]. Having followed the GME saga very closely since January, one of the most enlightening revelations for me has been the blatant media manipulation surrounding GME. There’s just far too many examples to ignore — so perhaps it’s unsurprising that many people still think it’s simply a “Reddit meme stock” that’s run it’s course. If the DD is to be believed, this thing is far from over. Regardless, I’m thoroughly enjoying watching how it unfurls. [1] https://www.reddit.com/r/Superstonk/ https://www.reddit.com/r/Superstonk/ [2] https://gmetimeline.com/ https://gmetimeline.com/

CharlieMunger 5y ago

Warren Buffett explains long-term stock prices, in 5 minutes: https://old.reddit.com/r/brkb/comments/l9hpo5/buffett_explains_the_concept_of_intrinsic_value/ https://old.reddit.com/r/brkb/comments/l9hpo5/buffett_explai... I blame the education system. Basic investing theory should be taught in high school. We have to think of a share price as a number that is a sum of all future earnings, divided by powers of an interest rate according to how far in the future those earnings will be produced. That allows us to evaluate whether a share price is reasonable or unreasonable. This concept is complex and most people can't understand it without formal education. That education doesn't occur, so we have a huge mass of investors who have no idea what share prices mean. How can they possibly make good decisions?

tofukid 5y ago
Nobody knows how much money a company will make in its lifetime. And even for companies with rather stable revenues, dividends and number of shares are not fixed, so it seems rather useless making calculations using those ratios.
- onlyrealcuzzo 5y ago
  It wasn't useless for Warren Buffett... It's hard to predict future revenues of a startup. But it's not that difficult to get pretty close - looking a few years into the future - for big, established companies like Coke and Pepsi and GM. The Fed gives investors a 2 year outlook on interest rates. In the last 20 years, they have only ever lowered rates by surprise - and that pushes share prices up. You're highly unlikely to lose a lot of money getting surprised by interest rate moves. Sure - anything can happen, but historically, over a 3-5 year period, Coke's revenue and profit hasn't been very volatile. But the share price IS much more volatile. This is what you arbitrage on. The people who are investing in the moment, when you're investing for a longer horizon. Basically, this strategy is that the short term is much harder to predict than the medium term. I think everyone is in agreement that the very long term (for stocks) is pretty hard to predict.
  - tofukid 5y ago

pipingdog 5y ago

> Financial nihilism Financialism is economic nihilism.

fullshark 5y ago

> In a similar fashion, using present-day frameworks for thinking about business and value do not account for the disruptive force of technology. Well that seems like a major flaw. You can have an elegant model accounting for future cash flows at an infinite horizon but if a paradigm shift is coming in 2-10 years it's meaningless. As a retail investor I'm not sure it makes sense to think in this way anyway. Seems like the rational plan is X% of your portfolio in index funds, 1-X% in risky speculative assets in the hope of getting rich. The 1-X% is what's driving these finance people nuts, but if the retail investors are cool with it going to 0 it seems totally rational to make those bets.

paulpauper 5y ago

>their stock, a discounted cash flow model for AMC or GME starts to not become very predictive of share price. By reflexivity, that will have impacts on future cash flows! In a similar fashion, using present-day frameworks for thinkin This was not the case in the early 2000s.

ilaksh 5y ago

Its interesting that people are truly testing "what you can get away with". There is someone on r/algonftmarketplace selling pictures of rocks. Not selling the actual rock, just photos of it. Which I would be on board with if it was an interesting rock or he at least polished the rocks first. But there is nothing interesting at all about this rock. And what he is doing is putting them in the tumbler for a very short while, and then every time he takes them out, he "mint"s a new NFT and tries to sell it. I really like shiny rocks. But it seems like he needs to tumble for like twice as long to get there because he is not even cleaning all of the grit off of these before taking the photos and they are really dull looking rocks so far.

crazygringo 5y ago

> While NFTs are not sure proof of a physical Birkin bag's authenticity, they all but ruin the economic incentives of counterfeiting. I disagree. It means you get to have your cake and eat it too -- you use and wear out the authentic Birkin bag for years, a bag you got almost for free because you bought a cheap counterfeit and resold it together with the NFT while keeping the original. If anything, it seems like this could increase counterfeiting because this would seem like such an... obvious scam to pull. Indeed, I can even imagine the NFT being resold 10 times, each and every time the person thinking they got an authentic bag, buying a counterfeit and reselling it as authentic... when the only person who kept the actual authentic bag was the one who bought it from Birkin. This is the fundamental problem with NFT's as I see it -- there is fundamentally no way to tie it to a physical object. Every owner can always sell a counterfeit and keep the original. So the idea that this "ruins the economic incentives of counterfeiting" doesn't seem to hold water at all.

reidjs 5y ago
I agree with your premise and doubt that adding NFTs into the mix will do anything to prevent counterfeits. I don’t buy fancy handbags, but I have read that counterfeits are often made of higher quality material than luxury brands. So, the fool pays $$$ for a quality knockoff and an NFT. Maybe they realize it 5 years from now when they try to sell the bag. Hopefully at that point they will learn that there’s no tangible way to link physical objects to a blockchain. One optimistic consequence of this may be a distancing between materialism and value. After all, The knockoff is just as good or better than the authentic. Let’s tie value to experience rather than objects. If you really must use NFTs and blockchains, then use them for concert/event tickets, governance systems, game collectibles , decentralized gambling’s/prediction markets, p2p and cross border value exchange, etc.
- JadeNB 5y ago
  > After all, The knockoff is just as good or better than the authentic. I think this may be over optimistic—the fact that counterfeits can be same quality doesn't mean they always, or even often, are. There are product categories where the difference is not apparent even to trained casual inspection, but there are real quality or even safety sacrifices.

cs702 5y ago

Great post. I agree: stocks, NFTs, Pokemon cards, etc. selling at prices that make no sense to casual and experienced observers area form of art, and indeed "art is what you can get away with!" I mean, once prices are disconnected from mundane considerations -- such as how profitable a company might be in the future -- there's truly no known limit to how high prices can go, nor is there a known limit to how long prices will continue rising. Just when you might think some kind of "limit to irrationality" has been reached, collective human imagination and wishful thinking can push prices even higher! It's so much fun, and so entertaining, for so many people whose wealth has been spiraling up and up and up. ...Alas, prices cannot rise forever. Our physical reality is finite. Energy cannot be created or destroyed -- the First Law of Thermodynamics is pretty darn strict about that. Our economic reality is finite too. Prices cannot rise to infinity. Stein's Law comes to mind: "IF SOMETHING CANNOT GO ON FOREVER, IT WILL STOP."[a] That's about the only thing we can predict with confidence about ''financial markets as collective performance art." -- [a] https://en.wikipedia.org/wiki/Herbert_Stein#Stein's_Law https://en.wikipedia.org/wiki/Herbert_Stein#Stein's_Law

deleted 5y ago

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Animats 5y ago

The $67 million Beeple sale turns out to have been a cooperative venture between the artist and the buyer. The buyer then went on to create a derivative NFT so as to dump the cost on other smaller buyers.[1] That seems to have been a pump and dump intended to inflate NFT prices. [1] https://www.washingtonpost.com/technology/2021/03/17/nft-beeple-metakovan-christies/ https://www.washingtonpost.com/technology/2021/03/17/nft-bee...

paulpauper 5y ago

The media keeps getting this wrong by underestimating the skill and prescience of some of these meme-stock investors. In Jan-Feb the consensus by the financial media was that GME and AMC would crash and not recover, yet half a year later GME is above 200 and AMC is considerably higher than it was in January. The narrative was (and still is) that "GME and AMC are dying businesses" and maybe this is true, but there is also more than meets the eye and going on behind the scenes, such as restructuring, business pivots, and raising capital. Moreover, I have observed that mainstream pundits such as on TV and in print give worse advice compared to advice on Reddit, blogs,and other non-mainstream sources. r/wallstreetbets has been recommending GME and AMC for months, and had anyone heeded their advice with even a little bit of money would have done well. Same for Tesla and AMD. Same for Tesla, which they honed in on in 2019 , before its 10x rally. Or Palantir, which surged from $9 after the IPO November 2020 to $25 now.Much better than Seeking Crap/Alpha with publishes nothing but filler articles about stocks that do the opposite of what the authors expect and lose readers' money. Much better than James Cramer, whose only usefulness is he draws huge ratings, has been costing his viewers millions over the past 15 years with terrible stock picks.

birdyrooster 5y ago
It's cherry picking season
dtech 5y ago
> The media keeps getting this wrong by underestimating the skill and prescience of some of these meme-stock investors. That is because it's a self-fulfilling profecy. AMC and GME were "undervalued" because a large enough group of people thought they were undervalued, and kept buying them at higher and higher prices until the undervalue was true in retrospect. In some ways the stock market in general works similarly, but at least there are some sound financial groundings for that, with stocks being the value of expected future dividends. Enough people memeing on a stock and playing a game of hot potato will make the value rise, but doesn't really make those analysts wrong in their initial analysis. GME is a bit of an exception of this because some people saw the short pressure and decided to mobilize WSB to take advantage of that, but for the rest which stock would be memed on - and thus would rise in price - had almost zero relation to the actual performance of the underlying company.

EGreg 5y ago

As someone who has been in decentralized social networking with Qbix, and decentralized cryptocurrencies with Intercoin, I feel like an old grandpa who doesn’t “get” why people find half of the NFTs to be useful. NFTs for reading/viewing are useless. If you have software interpreting the NFT by showing you something, then that can be easily copied. Growing up I have seen enough in the WaReZ scene that even kids traded cracked versions of Windows and Photoshop, so those licenses were useless. So much more so for OPEN source software that can be easily forked. Real scarce value comes from being able to control/edit/modify/own something, including things like domains (namespace entries), Earth2 land plots, cashflows etc. And that is only valuable insofar as it has a large network effect. Think “milliondollarhomepage.com” and Alex Tew going on a media tour. That made the pixels valuable to edit. The original NFT lol. ERC721 NFTs are first generation idea. Each NFT can be generalized to fractional ownership and automated market makers should be able to assist in price discovery. In short ... sell rights to edit something, and maybe let people mix and match to level-up more than the sum of its parts, like the game Battleship or MacDonalds Monopoly game. And make a new ERC for fractional ownership of ERC721 stuff. Oh, and while you’re at it, get off blockchains! They are overkill for NFTs, too public and don’t need a global consensus. An NFT can just be a private chain per token, they arent divisible after all, no history UTXOs needed. This whole NFT space is over hyped and has the wrong fundamentals.

mebebil 5y ago

It's amazing to see every argument for NFTs and cryptocurrencies in general ends up whatabouting on scarcity of other real valuables.

ALittleLight 5y ago

One problem here: I'm not sure Hermes or Birkin wants to solve the counterfeit problem. Right now, the people who want a genuine bag have to buy a new one from the store. If Hermes invents a method to authenticate bags they will empower the resale market which will be like inventing their own competitor. I'd bet they prefer the status quo.

bluquark 5y ago

> When people bid up the price of TSLA or GME to stratospheric valuations, the index fund must re-adjust their market-weighted holdings to reflect those prices, creating further money inflows to the asset and thus a self-fulfilling prophecy. This claim doesn't apply to the majority of index funds. It's specific to S&P500 funds, which because of their artificial limit of 500 stocks, have stocks enter and exit based on valuation. More modern index fund designs (like Vanguard Total Market) hold a fixed percentage of every public company no matter how small. So they rode TSLA, GME and AMC up and down without lifting a finger. These modern funds only transact due to inflows and outflows, or when stock is newly issued or bought back. Even specific to S&P500, another quirk of that index's legacy design is that it "must" do nothing in particular. It has an index inclusion committee taking into account factors such as profits, and with the discretion to delay inclusion even after its formal criteria are met. The investing nihilists love to make arguments that ordinary investors will be "forced" to reward them by some reflexivity. But the reflexive effects they point to are all quite weak. So far, the vast majority of the rewards to nihilists have come by persuading other investors to turn nihilist, not by somehow exploiting mainstream investing strategies.

fnord77 5y ago

so capitulation of sanity and attempting to rationalize irrational behavior. I suspect we're close to the top of the bubble.

jollybean 5y ago

"As a buyer, you can be quite confident that the bag is authentic if the seller also owns the NFT, and you can verify that the NFT was indeed originally created by Hermès by looking up its public transaction history. " ??? No, you have to verify that 'the bag' you get actually matches the NFT 'certificate'. Which is 'the hard part' making NFT's pointless at least in that scneario. But this: "We are starting to see this valuation framework being applied to the equities market today, where price movements are dominated by narratives about where the price is going and what other people are willing to pay for it, " is a huge underlying problem. Investors actually do a job - they put money in things that work and remove them from things that don't. If 'what works' is entirely just 'convincing others' than real productive output will fall. In the mean time, regular investors are going to get crowded out by the hustlers, making for a very interesting time.

gweinberg 5y ago

This metaphor is extended to the point that it does more to confuse than to illuminate. An an art NFT is like buying a Birkin bag with a certificate of authenticity... except there is no Birkin bag. So what's the point of the metaphor?

stubish 5y ago

This is what happens when you redefine 'art' to become almost completely meaningless. Just about everything can be considered art when you squint hard enough, so you can sell just about everything as art to people who play along with the illusion. At least I know what I like, even if it is art.

h0nd 5y ago

I have been following the market of NFT closely lately and I even asked several people involved. Nobody could yet answer me questions such as: -As the owner of an NFT that represents a digital object, lets say an image. How can I be sure there is no other NFT representing the exact same image? How can I be sure there is no other NFT representing the image in another format? Can I claim anything (ownership, royalty fees, ...) of the digital object that the NFT in my possession represents? Would that claim hold up in any court in this world? For physical objects the same questions can be asked.