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Older I get, more I realize the market is just a game of human psychology. Stocks, housing, crypto, etc. History says speculative 'investing' ends poorly but t

Older I get, more I realize the market is just a game of human psychology. Stocks, housing, crypto, etc. History says speculative 'investing' ends poorly but this time, who knows? If you happen to have the answer, I'm all ears.

extrememacaroni 5y ago
It's a thing created by humans, used by humans, who assign value to tickers, where everyone tries to win and some have to lose for others to win. It can only be a game of cat psychology.
snarkypixel 5y ago
"The father of value investing, Benjamin Graham, explained this concept by saying that in the short run, the market is like a voting machine--tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine--assessing the substance of a company." Boring answer, but in the long-term, great businesses go up, whereas crappy businesses go bankrupt.
- f38zf5vdt 5y ago
  They used to. In the era of quantitative easing, governments just pump money into any failing major player. edit: I see I rustled some jimmies. Feel free to have a look yourself at "modern capitalism". https://money.cnn.com/news/specials/storysupplement/bankbailout/ https://money.cnn.com/news/specials/storysupplement/bankbail...
  - ethbr0 5y ago
    Pumping money into the market in general has the same effect. Especially if chosen inflation measures conveniently exclude capital areas money would accumulate (stocks & property).
    - f38zf5vdt 5y ago
      Yes, agreed.
- pinewurst 5y ago
  I think this was much more true in the long ago era of regulation, (mostly) autarky, and limited market info/trading barriers. I've looked at "Security Analysis" and it's very much a historical piece - railroads and (practically) buggy whips. Things change relatively faster these days. Yesterday, Kodak was the bluest of chips; today, pretty much a joke. Heck, look at Buffett in the last decade - I'll bet he fully Grahamitized IBM, which didn't make it any less hollow. That sort of analysis, or even certainty (a false premise by definition) just isn't worth the effort for the average ownership span.
  - ethbr0 5y ago
    In times of plenty, where money flows and pools drives stock prices. In times of poverty, fundamentals drive stock prices. We've been in a time of plenty for a historically abnormally long period.
    - Apocryphon 5y ago
      And the time of plenty is primarily driven by monetary policy, is it not?
      - JumpCrisscross 5y ago
        > plenty is primarily driven by monetary policy Short-term market cycles are always driven by credit, which is in turn driven by monetary policy.
  - kortilla 5y ago
    Kodak is a terrible example. That company had a long decline into irrelevance. Big companies have been doing that forever.
    - pinewurst 5y ago
      It's a good example because it shows the gulf between organizational/innovational rot and impeccable bookkeeping. Kodak's signs of decay were visible at least as long ago as the late 70s vis a vis the Polaroid patent infringement case (and the cheesiness of Kodak's own knockoffs).
- sirspacey 5y ago
  This is a wildly optimistic way of framing the long-term value of the market. It’s more likely that the crappy companies will live for the long term - if you measure “crappy” by anything resembling consumer/client benefit.
- 6gvONxR4sf7o 5y ago
  Are these the same markets? The stock market between investors and companies could be a voting machine while the “stuff” market between customers and companies could be a weighing machine. Then it would be a difference of which market rather than which timescale, potentially allowing the investor market to prop up companies failing in the stuff market for long periods due to nothing more than investor popularity.
- rchaud 5y ago
  I remember reading Graham for a finance class in the mid-2000s, and even then it was several decades old. It's a relevant read if you work in securities analysis. If you're an investor however, the takeaways of the book are more philosophical than actionable. Too much has changed in the market since Graham's time. The idea of an Uber-type company using VC billions to cover its losses would have been completely alien to him. As would companies doing an end run around the IPO process with SPACs.
gpt5 5y ago
It’s still all rational: https://en.wikipedia.org/wiki/Greater_fool_theory https://en.wikipedia.org/wiki/Greater_fool_theory
- xyzzy21 5y ago
  True. Because rational doesn't mean logical, ethical or moral. It merely means that given a certain set of axioms, heuristics and circumstances, it arrives at the same or nearly similar results. The law is rational in this sense but not always logical or moral. The one things with markets today is, thanks to QE, they are NO LONGER value/price seeking system at all. The proof of this is the cross correlation across all asset and instrument classes hovering around 80%-90%. That's NOT what should be happening.
shawnz 5y ago
> History says speculative 'investing' ends poorly Does it? If you look past the biggest scams and bubbles, I think most research shows that a moderate amount of speculation actually decreases volatility and makes market manipulation more difficult. Speculators after all are the ones who correct the prices of assets which are being wrongly valued.
- chasebank 5y ago
  Copy / paste from elsewhere but here's a recent list of speculative investing bubbles and their outcomes: The Japanese Nikkei is still down 40% from 1989. That was 31 years ago. The Shanghai Composite index is down 45% from 2007. That was 13 years ago. Hong Kong’s Hang Seng Index is down 10% from the peak in 2007. The German DAX is a “total return” index that includes dividends. So it cannot be compared to the other indices here, or to the S&P 500. The German index that is not a total return index and therefore can be compared to the S&P 500 is the DAXK. Despite its red-hot surge in recent months, it’s still down 8% from the peak in the year 2000. That was twenty years ago. The London stock exchange index FTSE is down 13% from 1999. 21 years ago. The Italian stock index, the FTSE MIB, is down about 60% from the year 2000. 20 years ago. The French stock index, the CAC40, is down 24% from its peak in the year 2000. 20 years ago. The Spanish stock index IBEX 35 is down 58% from its peak in 2007, which was the peak of the Spanish housing bubble that collapsed with devastating results 12 years ago.
  - shawnz 5y ago
    Yes, but what about all the speculation that happened that didn't lead to bubbles and actually led to improved market efficiency? My point is that you can't just look at the most obvious examples of past bubbles with full hindsight and say that all speculation is a net negative because of those.
    - chasebank 5y ago
      Yes, of course, some speculation can lead to improved market efficiency. I suppose we should define at what level of speculation deems a speculative market. "I think most research shows that a moderate amount of speculation actually decreases volatility and makes market manipulation more difficult." I'd be interested to read such research. To me, this current craze (Stocks, housing, crypto, etc) just doesn't pass the sniff test. It just seems off. Has for a long time. Something has to give. It doesn't make sense. I tell my friends, either things correct in a large way or we're going to be eating $50 cheeseburgers. Again, who knows!? If you did, you could make a killing.
hogFeast 5y ago
Just in my experience as an investor, I have never seen anything like this. And I am somewhat familiar with financial history, and I have never heard of anything like this happening either. It isn't just all the fraud SPACs, it is GME, it is AMC. You can have a business that is overvalued based on the fundamentals, but the future is always unknown. What is interesting about now is that you have companies with huge risks, that are already doing poorly today, and the market is just ignoring it (and btw, you have started to see papers appearing, both theory and practical, that explain how retail money is pushing these stocks...this is something that people in the market already understand but there is point blank ignorance from govt, media, economists, etc.). With dot-com, there was theoretical growth there. With housing, there was structural reasons why the market didn't function. There are often fundamental reasons why these things happen. With this, it is just a wave of money crashing into this small section of the market. The only exception that occurs to me is HTZ. There was a huge media furore about that, and it turned out that was totally wrong (people who bought at the bottom got more than 10x their money in six months).
- andybak 5y ago
  HTZ = Hertz?
  - hogFeast 5y ago
    Yes...I think it is HTZZ now they are out of bankruptcy.
- CPLX 5y ago
  One thing you’re ignoring is that investment doesn’t occur in the abstract. It’s literally an investment in the company, and it’s not just a bet on future results it actually can and does change the outcome. For example GME and AMC were able to wipe out their debt snd get a bunch of cash in the door to run their business with via all this retail investment. It’s quite possible having that money will change their story from failure to success. Betting on horses doesn’t make the horse go faster but betting on companies can.
  - 5y ago
clipradiowallet 5y ago
> History says speculative 'investing' ends poorly If it ends poorly for someone(s), then it ends fabulously for someone(s) else. The same could be said for gambling... the lure of easy money is difficult for people to resist.
- FredPret 5y ago
  It’s not zero sum though
  - mytherin 5y ago
    Buying and selling stocks (or crypto, or ...) on its own is zero-sum. If you sell your stock, someone else has to buy the stock for that same amount of money. You can only make money if someone else loses. The loser does not realize they have lost money immediately, and while the stock price is up it looks like there are only winners. The losers only realize they have lost money after the asset collapses in price while they own the asset. That is the beauty of these schemes. The losers are already there, they just don't know it yet. Of course they are also heavily motivated to keep the price up to prevent themselves from becoming losers (hence HODL, "apes together strong", etc). These schemes can go on for a while, and a lot of people can make a lot of money in the process (again, at the expense of the losers, no money is being created here). Stocks are only not zero sum once you account for e.g. dividends being paid out. That applies to companies with a solid foundation, but it is unlikely a company with no income stream that is rooted in fraud is going to be paying out sufficient dividends to their stock owners to account for the purchase price.
babesh 5y ago
It’s a game even without human psychology. The human psychology just adds elements to the game. Whether it ends badly depends on how and for whom you score the game.
rchaud 5y ago
Same here. Houses of cards can stay up as long as there are enough people who believe that it's not a house of cards. No wonder we have a misinformation crisis. It works for politicians, crypto markets, meme stocks, regular stocks, you name it.
nostrademons 5y ago
"History says speculative 'investing' ends poorly but this time, who knows?" It'll still end poorly, but if you choose & time trades correctly it'll end poorly for other people. Choosing and timing your trades is left as an exercise for the reader.

extrememacaroni 5y ago

It's a thing created by humans, used by humans, who assign value to tickers, where everyone tries to win and some have to lose for others to win. It can only be a game of cat psychology.

snarkypixel 5y ago

"The father of value investing, Benjamin Graham, explained this concept by saying that in the short run, the market is like a voting machine--tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine--assessing the substance of a company." Boring answer, but in the long-term, great businesses go up, whereas crappy businesses go bankrupt.

f38zf5vdt 5y ago
They used to. In the era of quantitative easing, governments just pump money into any failing major player. edit: I see I rustled some jimmies. Feel free to have a look yourself at "modern capitalism". https://money.cnn.com/news/specials/storysupplement/bankbailout/ https://money.cnn.com/news/specials/storysupplement/bankbail...
- ethbr0 5y ago
  Pumping money into the market in general has the same effect. Especially if chosen inflation measures conveniently exclude capital areas money would accumulate (stocks & property).
  - f38zf5vdt 5y ago
    Yes, agreed.
pinewurst 5y ago
I think this was much more true in the long ago era of regulation, (mostly) autarky, and limited market info/trading barriers. I've looked at "Security Analysis" and it's very much a historical piece - railroads and (practically) buggy whips. Things change relatively faster these days. Yesterday, Kodak was the bluest of chips; today, pretty much a joke. Heck, look at Buffett in the last decade - I'll bet he fully Grahamitized IBM, which didn't make it any less hollow. That sort of analysis, or even certainty (a false premise by definition) just isn't worth the effort for the average ownership span.
- ethbr0 5y ago
  In times of plenty, where money flows and pools drives stock prices. In times of poverty, fundamentals drive stock prices. We've been in a time of plenty for a historically abnormally long period.
  - Apocryphon 5y ago
    And the time of plenty is primarily driven by monetary policy, is it not?
    - JumpCrisscross 5y ago
      > plenty is primarily driven by monetary policy Short-term market cycles are always driven by credit, which is in turn driven by monetary policy.
- kortilla 5y ago
  Kodak is a terrible example. That company had a long decline into irrelevance. Big companies have been doing that forever.
  - pinewurst 5y ago
    It's a good example because it shows the gulf between organizational/innovational rot and impeccable bookkeeping. Kodak's signs of decay were visible at least as long ago as the late 70s vis a vis the Polaroid patent infringement case (and the cheesiness of Kodak's own knockoffs).
sirspacey 5y ago
This is a wildly optimistic way of framing the long-term value of the market. It’s more likely that the crappy companies will live for the long term - if you measure “crappy” by anything resembling consumer/client benefit.
6gvONxR4sf7o 5y ago
Are these the same markets? The stock market between investors and companies could be a voting machine while the “stuff” market between customers and companies could be a weighing machine. Then it would be a difference of which market rather than which timescale, potentially allowing the investor market to prop up companies failing in the stuff market for long periods due to nothing more than investor popularity.
rchaud 5y ago
I remember reading Graham for a finance class in the mid-2000s, and even then it was several decades old. It's a relevant read if you work in securities analysis. If you're an investor however, the takeaways of the book are more philosophical than actionable. Too much has changed in the market since Graham's time. The idea of an Uber-type company using VC billions to cover its losses would have been completely alien to him. As would companies doing an end run around the IPO process with SPACs.

gpt5 5y ago

It’s still all rational: https://en.wikipedia.org/wiki/Greater_fool_theory https://en.wikipedia.org/wiki/Greater_fool_theory

xyzzy21 5y ago
True. Because rational doesn't mean logical, ethical or moral. It merely means that given a certain set of axioms, heuristics and circumstances, it arrives at the same or nearly similar results. The law is rational in this sense but not always logical or moral. The one things with markets today is, thanks to QE, they are NO LONGER value/price seeking system at all. The proof of this is the cross correlation across all asset and instrument classes hovering around 80%-90%. That's NOT what should be happening.

shawnz 5y ago

> History says speculative 'investing' ends poorly Does it? If you look past the biggest scams and bubbles, I think most research shows that a moderate amount of speculation actually decreases volatility and makes market manipulation more difficult. Speculators after all are the ones who correct the prices of assets which are being wrongly valued.

chasebank 5y ago
Copy / paste from elsewhere but here's a recent list of speculative investing bubbles and their outcomes: The Japanese Nikkei is still down 40% from 1989. That was 31 years ago. The Shanghai Composite index is down 45% from 2007. That was 13 years ago. Hong Kong’s Hang Seng Index is down 10% from the peak in 2007. The German DAX is a “total return” index that includes dividends. So it cannot be compared to the other indices here, or to the S&P 500. The German index that is not a total return index and therefore can be compared to the S&P 500 is the DAXK. Despite its red-hot surge in recent months, it’s still down 8% from the peak in the year 2000. That was twenty years ago. The London stock exchange index FTSE is down 13% from 1999. 21 years ago. The Italian stock index, the FTSE MIB, is down about 60% from the year 2000. 20 years ago. The French stock index, the CAC40, is down 24% from its peak in the year 2000. 20 years ago. The Spanish stock index IBEX 35 is down 58% from its peak in 2007, which was the peak of the Spanish housing bubble that collapsed with devastating results 12 years ago.
- shawnz 5y ago
  Yes, but what about all the speculation that happened that didn't lead to bubbles and actually led to improved market efficiency? My point is that you can't just look at the most obvious examples of past bubbles with full hindsight and say that all speculation is a net negative because of those.
  - chasebank 5y ago
    Yes, of course, some speculation can lead to improved market efficiency. I suppose we should define at what level of speculation deems a speculative market. "I think most research shows that a moderate amount of speculation actually decreases volatility and makes market manipulation more difficult." I'd be interested to read such research. To me, this current craze (Stocks, housing, crypto, etc) just doesn't pass the sniff test. It just seems off. Has for a long time. Something has to give. It doesn't make sense. I tell my friends, either things correct in a large way or we're going to be eating $50 cheeseburgers. Again, who knows!? If you did, you could make a killing.

hogFeast 5y ago

Just in my experience as an investor, I have never seen anything like this. And I am somewhat familiar with financial history, and I have never heard of anything like this happening either. It isn't just all the fraud SPACs, it is GME, it is AMC. You can have a business that is overvalued based on the fundamentals, but the future is always unknown. What is interesting about now is that you have companies with huge risks, that are already doing poorly today, and the market is just ignoring it (and btw, you have started to see papers appearing, both theory and practical, that explain how retail money is pushing these stocks...this is something that people in the market already understand but there is point blank ignorance from govt, media, economists, etc.). With dot-com, there was theoretical growth there. With housing, there was structural reasons why the market didn't function. There are often fundamental reasons why these things happen. With this, it is just a wave of money crashing into this small section of the market. The only exception that occurs to me is HTZ. There was a huge media furore about that, and it turned out that was totally wrong (people who bought at the bottom got more than 10x their money in six months).

andybak 5y ago
HTZ = Hertz?
- hogFeast 5y ago
  Yes...I think it is HTZZ now they are out of bankruptcy.
CPLX 5y ago
One thing you’re ignoring is that investment doesn’t occur in the abstract. It’s literally an investment in the company, and it’s not just a bet on future results it actually can and does change the outcome. For example GME and AMC were able to wipe out their debt snd get a bunch of cash in the door to run their business with via all this retail investment. It’s quite possible having that money will change their story from failure to success. Betting on horses doesn’t make the horse go faster but betting on companies can.
- 5y ago

clipradiowallet 5y ago

> History says speculative 'investing' ends poorly If it ends poorly for someone(s), then it ends fabulously for someone(s) else. The same could be said for gambling... the lure of easy money is difficult for people to resist.

FredPret 5y ago
It’s not zero sum though
- mytherin 5y ago
  Buying and selling stocks (or crypto, or ...) on its own is zero-sum. If you sell your stock, someone else has to buy the stock for that same amount of money. You can only make money if someone else loses. The loser does not realize they have lost money immediately, and while the stock price is up it looks like there are only winners. The losers only realize they have lost money after the asset collapses in price while they own the asset. That is the beauty of these schemes. The losers are already there, they just don't know it yet. Of course they are also heavily motivated to keep the price up to prevent themselves from becoming losers (hence HODL, "apes together strong", etc). These schemes can go on for a while, and a lot of people can make a lot of money in the process (again, at the expense of the losers, no money is being created here). Stocks are only not zero sum once you account for e.g. dividends being paid out. That applies to companies with a solid foundation, but it is unlikely a company with no income stream that is rooted in fraud is going to be paying out sufficient dividends to their stock owners to account for the purchase price.

babesh 5y ago

It’s a game even without human psychology. The human psychology just adds elements to the game. Whether it ends badly depends on how and for whom you score the game.

rchaud 5y ago

Same here. Houses of cards can stay up as long as there are enough people who believe that it's not a house of cards. No wonder we have a misinformation crisis. It works for politicians, crypto markets, meme stocks, regular stocks, you name it.

nostrademons 5y ago

"History says speculative 'investing' ends poorly but this time, who knows?" It'll still end poorly, but if you choose & time trades correctly it'll end poorly for other people. Choosing and timing your trades is left as an exercise for the reader.