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After Losses, Retail Investors Flock to 3x Leverage as 2x Product Are Restricted
- ungreased0675 2mo agoIt’s just gambling, not investing.
- mapping365 2mo agoNot the first time, not the last either. https://www.pbs.org/wgbh/pages/frontline/creditcards/themes/korea.html https://www.pbs.org/wgbh/pages/frontline/creditcards/themes/... https://www.bis.org/publ/bppdf/bispap46k.pdf https://www.bis.org/publ/bppdf/bispap46k.pdf South Korean gamblers are the index species of any global credit bubble.
- appplication 2mo agoIt may be true but if you have nothing else going for you I can see why some folks would throw their leveraged hat in the ring.
- brcmthrowaway 2mo agoAre other countries like the West where 'markets' (equities, derivatives, prediction) have a wide ranging pervasive effect on culture?
- dcrazy 2mo agoAround the Evergrande collapse there were stories about Chinese retail investors who had pushed money into their domestic real estate industry’s stocks. Also you might painting too wide a brush with “the West”. I wouldn’t assume that Americans and, say, Austrians have similar exposure to public markets.
- adventured 2mo agoUS household assets are fairly well distributed between real-estate and equity markets. China for example previously had ~70% of its household wealth tied up in real-estate, which has suffered enormous declines over the past four or five years. That said, there's no question that US households have grown fat on the massive expansion of the tech giants. A one trillion $ market cap was shocking not long ago, now you've got Apple and Nvidia at $4-$5 trillion, each about as valuable as China's top 25-30 stocks combined. The US wealth base is highly exposed to a PE multiple compression event, which is likely whenever the bubbly valuations centered around the AI boom reduce. Also to put a reference figure on it, China's top 500 stocks are roughly worth $11.5 trillion. Nvidia + Apple are worth a combined ~$9.6 trillion.
- jiggawatts 2mo agoBoth NVIDIA and Apple derive much of their wealth from off-shored manufacturing to… drumroll… China! (PRC+ROC) If China decides to take over Taiwan and nationalises TMSC, redirecting their top tier silicon to 100% Chinese companies then what are the American firms worth?
- HWR_14 2mo agoIf China takes over Taiwan, TMSC's assets are being reduced to rubble before Taiwan's first shot back.
- sitkack 2mo agoWhich is why Taiwan is safe until china can produce domestically because their power comes from exports. China is not going to sabotage themselves like that.
- tyeaglet 2mo agoI thought Taiwan is safe until the US can produce domestically, no?
- jiggawatts 2mo ago
- hiddencost 2mo agoAuatralians are a great case study. Once you control for pensions and similar indirect exposure, Australians have very high stock market exposure.
- WorkerBee28474 2mo agoThe Indian derivatives market is huge. Lots of people gambling there.
- FabHK 2mo agoIndeed. It's so much bigger (in notional terms) than the underlying stock market that you can manipulate it by making large bets in the derivatives market, then move the underlying cash markets with much smaller bets, and collect profit. That is what Jane Street (IIRC) was accused of. Some of its traders then went to another hedge fund and did the same trick there, reducing Jane Street's profit, and ended up being sued by Jane Street. (BTW, Jane Street claims it was not manipulation, but basis trade arbitrage.) Of course, 9 out of 10 gambler end up in the red.
- cindyllm 2mo ago[dead]
- vkou 2mo agoKorea. A lot of people have been gambling on margin.
- xyzzy9563 2mo agoDo you consider South Korea the "West"?
- QGQBGdeZREunxLe 2mo agoDon't get caught up on the geography. > It is also used despite many developed countries or regions not being culturally Western (e.g. Japan, Singapore, South Korea, Taiwan, Hong Kong, and Macao)
- inigyou 2mo agoIt's a USA colony so yes
- raziel2701 2mo agoThe story we were telling young people that if they apply themselves, go to school and get a job they'll be able to afford family, house, vacations is moving further and further away for more and more people. The turn towards financial nihilism will continue.
- trvz 2mo agoYeah, but it’s also plain greed, and it’d be hard to tell the ratio.
- purpleflame1257 2mo agoThe threshold for greed is higher than the median net worth of an American. We tell people they need "generational" wealth to a make it in this country because housing, education, and healthcare are all so expensive
- itake 2mo agoNo need to tell. Just look at who can afford detached single family homes in tier1 cities: white-collar Dual-income and generational wealth families. Governments have only managed to slow, not stop or reverse this trend.
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- FabHK 2mo agoSeems to me that many people do not care about part 3 anymore.
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- bananamogul 2mo ago"Smart men go broke three ways: liquor, ladies, and leverage." -- Charlie Munger (Which is not to imply that these are smart men).
- earth-tattoo 2mo ago[flagged]
- philtar 2mo ago[dead]
- hiitsmyaccount 2mo agoIt's a quote, and somewhat of a figure of speech. Also Charlie was born in 1924; he was literally of a different era.
- scotty79 2mo agoSome time ago it occurred to me that you can't just spend extreme amounts of money. You can only lose it by gambling. In a casino, on investment or on business, it doesn't matter.
- verteu 2mo agoIndeed, pg has an essay about it: https://paulgraham.com/selfindulgence.html https://paulgraham.com/selfindulgence.html
- nirui 2mo agoInvestment or business do also have some gambling factors in it. And both usually cost extreme amounts of money to get started. However, I found that if the bar of doing business is high enough, "investing" in stock market maybe safer than start a proper business. Because if a business failed, you likely lost a huge amount wealth, including everything you put into the business and maybe more. Whereas if you buy stock responsibly (for example, DCA VOO/&QQQ), there's a high chance you'll eventually bounce back. Maybe that's one reason the young Koreans invested so much in their stock markets. Their country failed them by restricting them from opportunities, the only way they can save themselves is by gambling.
- djchung 2mo agoEspecially in Korea, I know there's a sense of despair in the young adult population on their future. How will they afford to get married, have kids, have a house? Leads to chasing financial outcomes that are uncertain - crypto boom in Korea years back is an example
- chanux 2mo agoFor a second, it appeared some found out. https://www.reutersconnect.com/item/south-korean-retail-investors-send-funeral-wreaths-urging-delisting-of-single-stock-leveraged-etfs/dGFnOnJldXRlcnMuY29tLDIwMjY6bmV3c21sX01UMU5VUlBITzAwMFIxQU9QUA https://www.reutersconnect.com/item/south-korean-retail-inve... But it seems there's still a lot in their FA phase in the FAFO cycle.
- teravor 2mo ago[dead]
- x313 2mo agoFor those who don't know what's going on in Korea, KOSPI is up 3x in the last year and a large amount of HBM employees have made huge amounts of bonus pay. This has led to an insane FOMO frenzy in a society that's already very competitive. Add to that, stock gains in Korea are often used to finance housing purchases (or real estate investment) so many retail investors are scared of being "locked out" of housing (which is a requisite status symbol for dating or marriage) if they're not making the same capital gains others are. Currently Korean social media is full of stories of leveraged day traders who've gotten rich the past year, HBM employees who've made bonuses worth decades of salary (e.g. memes of Samsung employees in luxury cars), etc. Lots of comments along the lines of "everyone is getting rich except me". It's all reminiscent of the crypto frenzy in the US a few years ago but way more intense and concentrated.
- vasco 2mo agoHousing usually is needed for living. Not a status symbol for dating. I see how it can help the same way as not starving to death will also help with dating, but the framing is odd.
- FabHK 2mo agoThe headline is brilliant.
- bwfan123 2mo agoIf you are in a hole, dig deeper.
- mkotlikov 2mo agoThe problem isn't leveraged funds, it's margin on leveraged funds. Leveraged funds are the safest way for the average investor to get access to leverage because unlike margin there is no risk of margin calls, and your money generally won't go to zero unlike options which are vastly more complicated and can expire. The reality is that using leveraged funds (or any leverage) is a completely rational move because the average person will never retire wealthy unless they're already making a tech salary or similar. Investing has always been gambling, even Warren Buffet made his biggest early wins on all-in bets.
- dannyw 2mo agoLeveraged funds can be an excellent tool for portfolio construction, for example, products like 100% stocks + 100% bonds (so -100% cash; internally borrowed in the ETF), e.g. RSSB. And just because it's available doesn't mean it should be your only ETF/ETP. Not a recommendation or advice, but something like 50% TQQQ, and 50% risk-off asset (gold, bonds, whatever); rebalanced regularly isn't crazy, and might even have alpha.
- Galanwe 2mo ago> Leveraged funds are the safest way for the average investor to get access to leverage I... do not agree that leveraged funds are somehow a safest way to access leverage. Every product including leverage has inherently a non-linear P&L. And from my experience, non sophisticated investors always struggle to grasp the implications of that. It makes returns (on capital) very path dependent, and very nasty during volatile regimes. It breaks the naive assumption of "well I could always hold and wait for the dust to settle". > unlike margin there is no risk of margin calls This is a bit of a weird statement. Leverage implies margin, you cannot make it disappear, the funding and associated risk has to come from somewhere, it's just that it is continuously applied, instead of fixed timings. I do agree that it simplifies planning and reserve management though. > even Warren Buffet made his biggest early wins on all-in bets. This is a bit disingenious, note that Buffet did not use leverage...
- mkotlikov 2mo agoBuffet funded his investments with insurance float
- jdw64 2mo agoAs a Korean, the reason people rush into stocks is simple: labor value has been completely destroyed. Realistically, it's nearly impossible for high income young people in their 20s and 30s to buy a house in Seoul. That forces them to move to the provinces, but then there's almost no infrastructure. No companies either. So many people turn to leverage in hopes of a life changing reversal. The recent rise in the KOSPI index happened because some of the loopholes that Korean conglomerates used to make inheritance easier were blocked by revisions to the Commercial Act. One of the uncertainties that had been called 'Korean risk' was removed, and the market went up. For a Korean man, the moment you leave Seoul, not just the outskirts, but out of Seoul entirely, there's no one to talk to about IT jobs. I live outside Seoul, and the infrastructure gap is about 10 to 20 years behind. On top of that, there are no IT companies, just mostly low income manual labor jobs. The median monthly income for Korean men is about 3 million KRW, while the average Seoul apartment price is 1.3 billion KRW and the median price is 997 million KRW. That means you'd need to work for about 25~30 years just to buy a home, but job tenure is getting shorter, so that's not realistic. So people gamble on leverage, hoping for a life changing win. Everyone around me knows it's gambling, but they figure they're already in a dead end situation anyway, so they have nothing to lose. I live and work in IT outside Seoul, but the IT business has already matured, and there are many well established companies. The Korean market itself is small, so early movers have already taken the lead. There's no room for latecomers like me. That's why I take on work from the West, China, and Japan regardless, but even that's hard without a reputation. The moment you leave Seoul, a Korean's chances of success drop to nearly zero. That's why people cling to the city so desperately. And honestly, I've hardly gambled on my life. But I'm drowning in debt, and sometimes I feel like a fool for working so hard.
- apparent 2mo agoCan people live cheaply in the outskirts and work remotely for a foreign company? Or would that still not get you on track to be able to buy in/near Seoul?
- jdw64 2mo agoEnglish(lang) is the problem. Korean and English have very different grammatical structures. I can read English in real time, but writing, listening, and speaking are difficult. (Maybe it'd be different if I were more proficient, but I've never lived abroad, so that's how it is.) Because of that, remote work usually requires speaking, so most interviews end in rejection. I can communicate through chat, but the vast majority of employers want interviews. And as the IT industry has grown and become more established, Korea has developed its own standards that diverge from global norms. This makes Korean IT hard to sell globally. I try to follow global standards, but in Korea, I'm told I'm using 'wrong technology' or doing 'over-engineering.' Either way, the technology you learn or implement is often quite different—because the market leaders set the technical standards. So independent developers in Korea have to learn both Korean IT standards and global standards—on top of English. (This is extremely painful.) So if I could do remote work for a foreign company, it would be really, really great. But in reality, English is usually where things fall apart. Koreans often praise Korean as a 'scientific' language, but for most Koreans, it actually acts as a shackle. On the other hand, it's also because of this language that the domestic market is able to maintain at least a minimum level of viability.
- oezi 2mo agoI would be really interested to learn what the default advice for retail investors is across countries. In Germany the consensus is MSCI World or FTSE All-World ETFs. I believe in the US most advice goes to VTSAX (US Total Market), VOO (S&P500) and maybe QQQ (NASDAQ100) which means only US stocks. What gets recommended in other countries?
- rafram 2mo agoDisagree on that being the advice in the US. Most basic investment advice (and target-date funds) will use a three-fund portfolio containing US, ex-US, and bonds.
- khuey 2mo agoGenerally the default fund in a decent 401(k) (employer managed but largely employee funded retirement plan) will be a "target date retirement fund" that contains a mix of equities and bonds according to the expected risk tolerance of someone at that age, and generally the equity component is also split between US and foreign equities. e.g. Fidelity's fund for people planning to retire around 2050 https://fundresearch.fidelity.com/mutual-funds/summary/315792416 https://fundresearch.fidelity.com/mutual-funds/summary/31579...
- itake 2mo agotarget date funds always confused me, b/c they don't account for the rest of my portfolio. My IRA/401(k) actually has close to 100% cash/bonds to minimize annual taxable impact and the rest of my portfolio is equities.