How to increase your luck surface area (2010)
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When you have wealth of any kind, you naturally orient to getting exposure to opportunity for diversified parts of it, but when you have a scarcity view, your decisions are necessarily all/nothing, and it even becomes a class culture thing. It's circumstances, but also learned attitude.
Related, I'm sympathetic to what's happening with GME and WSB, if a young persons net worth is four digits, it seems insane not to gamble it on options, as the housing bubble has cut off the last way for working people to get leverage. GME may mark the inflection point in the markets where young people realize it's their best or even only opportunity for leverage, and meme stocks are going to be the new normal because the economy doesn't provide anything better to invest in for under $50k. (that is, unless remote work makes distant property viable to live in)
I believe it’s filling a gap beyond being a better gold-like asset. Better gold = digitally portable, 24 hr liquidity, digital literate friendly, fixed cap, transactions (even with its limits), decentralized control, etc.
But the solidly fixed cap is more profound than I think most people recognize. Potentially, once Bitcoin finds its “true” price, it will continue to grow in value in proportion to all wealth in the economy - over the long run. So it won’t just be a hedge against downturns, but eventually a semi-stable way of sharing in overall increasing wealth in the economy.
I don’t know of another instrument that anyone can easily buy that might track (over the long run) with global wealth as apposed to particular entities or particular aspects of the economy.
So in that sense, anyone can participate in overall wealth growth. A very useful new tool!
OF COURSE, this is SPECULATION on my part. But I think the idea of a total global wealth correlated asset is new and useful.
This makes it more like a collectable (say, baseball cards) than a currency. The number is capped and some will be lost. It has value as long as people are interested in it--scarcity does not imply value.
It also has a short track record and could run into issues if miners collude, there's a DDoS attack, or someone with a lot of resources reverses transactions, hurting confidence in it.
Baseball cards are not divisible.
I know of no situation in which collectibles are viable for transaction, but Bitcoin is. (Despite limitations in transaction numbers, speed of confirmation and transaction fees.)
So I don’t think that’s a good comparison.
When it comes to increase luck surface I think Clubhouse maybe will become one of the most important platforms.
GME case seems to exploit the possibility for “short attack” by flipping the table into a infinite price increase, because the hedge funds accidentally created more fake shares that there is shares in existence and now have to by back.
Short attack = Using the possibility brokers have to artificial creating fake shares to drive down the price, in combination with shorting stocks for earning money.
More detailed explanation: https://seekingalpha.com/instablog/11442671-gerald-klein/309...
The combination of Clubhouse and Reddit will probably be one of the most important “inventions” this decade. Where GME could wake up everyone?
https://www.marketwatch.com/story/wall-street-looks-for-ways...
https://www.ft.com/content/04477ee8-0af2-4f0f-a331-298744489...
Also, whats 'Infinite resources?'
I've recently started using twitter again (after initially using it in 2010/2011) and I feel that there's so much self promotion all the time disguised at knowledge sharing. It also seems like everyone (most people) have a podcast, a newsletter, a youtube channel, etc. I understand that on a surface level people are doing this to increase their 'surface area' but there's just too much and while I'm sure it does a some/a lot of good for the people putting it out there, most of it just seems like noise to me. So that's my reasoning to think that clubhouse won't really become as meaningful as you - it just adds more noise. Sure I can hangout in this room or listen to some folks talk about x/y/z topic, etc. but honestly I feel that after some time people will realize that their time could be better spent.
Used to love reading essays all the time but now all the titles tend towards click bait and every essay seems to begin or end with them pitching their newsletter/podcast/etc. and that ends up coloring my whole impression of what I just read.
You don't need >100% short interest for a shorted stock to go to infinity. A single share can do that. If I own all the shares, and you borrowed a single share and sold it back to me... well, good luck. Also these sort of attacks aren't really new. Short squeeze has happened before and various other similar ideas (attacking someone with leveraged positions or otherwise risky positions, including currencies). The interesting bit here is IMO the way these people, at least temporarily, acted together. Also the way the hedge funds couldn't grok that like they surely would if they were under attack from a more standard player.
Would you explain a little more about what you mean by “diversified parts of it” in “you naturally orient to getting exposure to opportunity for diversified parts of it, but when you have a scarcity view, your decisions are necessarily all/nothing”?
The bigger problem is that this is rarely just a one-time decision to gamble. And repeatedly doing this is statistically pretty certain to lose you significant amounts of money—particularly when compared to just investing in the market as a whole—over the long run. It’s just another way that the poor are trapped in poverty, even though you can of course always find individual cases where someone got lucky and made millions.
This is one of the reasons I think Robinhood is a fundamentally an evil company. It’s been pretty conclusively demonstrated that the more trades you make as a retail investor, the worse your returns. To wit: Fidelity did some internal research on their customers to see which cohort had the highest returns. The winning cohort? The dead. Dead people don’t make trades, and so perform better than the living who do. I’d be willing to bet a large sum of money that Robinhood’s internal metrics conclusively prove that the net effect of their existence is a wealth transfer from the poor to the rich.
The real Robin Hood-esque company in this whole thing is Vanguard, who have almost certainly done more than most any other company in this space to return profits from the market to customers of all wealth ranges.
I made >40% of my net worth in the first 2 weeks of January alone, and with GME I have multiplied my net worth by (>tenfold). Yes I understand that these are 'extraordinary times', but accounting for everything. I have literally nothing to lose. I can fast for a week if I need to, I can walk instead of taking the metro. Whatever. I am not going to lose a lifestyle that I never had and I never had a safety net to begin with because being a 4 digit net worth student doesn't give you any safety net.
Keeping track of my bets even before getting into this, I was right more often than not, and I am aware of survivorship bias and confirmation bias. In the limit, it makes more sense to spend 4-5 hours per day learning about market analysis, observing trends close to me and making decisions about sectors/fields that I know about.
His point is that the expected utility of these gambles is still positive for people who have nothing.
Another explanation that is consistent with gambling behavior is that people have inaccurate risk functions; that they overestimate positive upside and underestimate downside.
I am not familiar with the economic literature. But I believe that there is more evidence to support the second hypothesis. Behavioral economics has showed that humans are notoriously unable to estimate risk accurately. I have not seen as much evidence that humans have discontinuous utility functions.
Behavioral economics also tells us that humans are also terrible at estimating their actual utility functions. So I also don’t trust the original poster who claims that they have a discontinuous utility function. The only way to test that is to observe actual human behavior.
First, wanting to achieve "financial independence" does not imply a discontinuous utility function.
Suppose it takes $X to reach financial independence. Let's say that when I achieve $X, I have utility Y. It is possible that as I approach $X from the left, my utility continuously approaches Y.
In fact, I argue that's what happens for most people who have a FIRE goal — they get happier and happier until they reach their goal. (It's true that once they reach their goal and experience retired life, they decide that retirement's not all that it's cracked up to be, but I argue that's because their utility has dropped because of another variable has changed: they have stopped working.)
In other words, "wanting to not have to work again" and "having a continuous utility function" do not contradict each other. And the people who are dedicated to saving enough money to not have to work (FIRE) almost always have utility functions that are continuous wrt. money!
> when they talk about this stuff.
Again, people might say that they have a discontinuous utility function, but talk is cheap. Real economists (TM) measure utilities through examining a consumer's revealed preferences because what people say doesn't always reflect what people do.
Well, in the real world, every sandwich likely has a little bit of polonium in it; maybe an atom or two. If that increased to three or four, you would be slightly unhappier, but not sharply so. Every little increase in polonium slightly decreases your utility until you reach a point where you do not derive any utility from your polonium-laced sandwich, and so you would not eat it. Therefore, I argue that your utility function is still continuous wrt. polonium in your sandwich.
(In economics this isn't really how you'd model utility because the assumption is that you always have the option to throw away the sandwich; therefore, having the polonium sandwich gives you more utility than not having it.)
Same with money. Imagine you had a "life changing amount of money," whatever number that means to you. Call that number $X. Now imagine that you instead had $X - $1. And then $X - $2. Even $X - $1000. How much less happy do you feel in those imagined scenarios? A lot less happy? I bet you feel marginally less happy and not sharply. Which implies a "smooth" utility function.
I believe that non-continuous utility functions can exist -- suppose someone says that they will kill you unless you give them $50,000 -- but for most people that's not a real scenario.
> I don't think this is an experiment that a real economist (TM) has ever performed on an individual to discover what the true utility function is (happy to be wrong though).
I don't think ever with polonium, but here's a short video about revealed preference theory. https://www.youtube.com/watch?v=kPXov3D1tfA. In practice, applications of revealed preference theory happen all the time.
But your example did make me think more about "continuity" and "sharpness" and I now think that continuity is not strong enough to support my original claim. Continuous does not mean "smooth" [1]. To define "smooth," I would instead say that most people have utility functions that have positive first derivatives and negative second derivatives; that is, their marginal increase in utility for a good is positive but diminishing.
Talking only about myself and not claiming anything about humanity at large:
There is a particular number of USD that, if I have in my account, I feel calmer and non-chalant about losing a job. Let's call it $20000. If I have $19900, it's the same. But if I have $15000 then I'd start feeling uneasy and would revert to trying hard to refill that minimum leisure savings amount.
So IMO it's not a gradual linear function. It's more like, for values between X1-X2, Y remains relatively constant. Then for values X2 to X3, Y is a higher value compared to the previous bracket of X values but also stays relatively constant for the current range of X.
Again, just what I observed about myself.
You do spend time and energy chasing an income, no?
This is just one utility vs wealth model that would argue wealth transfers improve net utility in some contexts.
If you buy and hold, hold, hold, the transaction fees become inconsequential. I've owned some stocks for 40 years. I've ridden some down to zero (Enron, cough cough).
But while you personally have seen some success so far, it's important to recognize that overall this is a transfer of wealth from people in your financial situation to the wealthy. The fact that this one situation is so incredibly newsworthy should be strong evidence of how unlikely such successes are in practice.
Further, a lot of the people holding on to $GME right now will be caught holding the bag once the selloff begins. Once the reversion happens, there won't be buyers willing to take this rapidly-pluging asset at every price point along the way. Certainly some people will get out at sky-high prices, but the overwhelming majority will be left holding a $10 asset they purchased at $400+.
> I made >40% of my network in the first 2 weeks of January alone...
Only if you've sold. And if you haven't, I do genuinely hope that you're one of those who manages to get out in time. But even if you are, it's important to realize that the eventual winners of this scenario aren't going to be the Redditors holding on to $GME shares, but the wealthy short-sellers who manage to either predict the pop or simply have enough assets to hold on long enough for it to happen.
> I have literally nothing to lose.
No, you had 4 digits of net worth to lose. And while that might not seem like "much", it's quite literally not nothing. And while you've been fortunate to win on this play, the statistics are pretty clear that plays like this keep more poor people poor than make the poor rich.
> Keeping track of my bets even before getting into this, I was right more often than not, and I am aware of survivorship bias and confirmation bias. In the limit, it makes more sense to spend 4-5 hours per day learning about market analysis, observing trends close to me and making decisions about sectors/fields that I know about.
First off, compare your plays to overall market returns, not to net-zero. Your benchmark over the past five years should be something around +90% (about 14% YoY returns). Actually, you need to be a little better due to trading expenses and (in the U.S. at least) short-term capital gains tax raets vs. long-term gains.
Second, it's astonishingly easy to be profitable when the overall market is having record returns. The trick is not losing your shirt when the market goes upside down, and everyone thinks that part is going to be much easier than it really is in practice.
In sum, I genuinely wish you luck, but I'm sadly all too aware that the statistical reality is that spending 4-5 hours per day learning about market analysis and making trades based on your findings is overwhelmingly more likely to leave you poorer than richer.
You can find people who've become rich betting it all on black at the casino, but that money didn't come from the house. It's just redistributing funds from all of the other suckers at the table, while the casino takes home the real winnings.
What the hell are you talking about? The short sellers are literally losing tens of billions of dollars, and I believe they are going to lose several times more within the next week.
The short sellers are overleveraged right now, and unless they find some bullshit way to fuck everybody (people are switching away from RobinHood in droves) then they are going to not just lose more money, but go insolvent.
I don't know what's going to happen, and rumors are Melvin is about to get a giant capital infusion, but it really seems like the short sellers are the ones that are fucked and believing otherwise is ignoring data and simply assuming nothing ever changes. The fact that they're doubling down is a sign of desperation, not strength. It's like saying Lehman Brothers can never lose money in 2008.
Yes, Melvin is losing their shirts.
But if you accept that the price is going to go down, and sharply at that, then somebody is going to make an absolute killing here from a short position when the price inevitably craters. And that amount will utterly dwarf the gains from WSB redditors, mostly coming at their expense.
There’s orders of magnitude more money to be made today shorting $GME at $400 than there was shorting it at $20.
There's also orders of magnitude more money to be lost, because there's just more money on the table. At the end of the day it's a bet based on assumptions. A month ago everybody that was investing in GME was told the same thing by people that wanted to short it.
The market can remain irrational longer than you can remain solvent.
And my point is that the losing side of this is inevitably going to be the majority of people long $GME.
> The market can remain irrational longer than you can remain solvent.
Billionaires can remain solvent longer than you can remain irrational.
Again, Melvin is almost certain to lose their shirts on this. But there’s many, many more hedge funds that are sharks circling the waters. And Melvin and WSB are both going to be their prey.
Melvin Capital has a very real chance of going insolvent. Also have you heard of Lehman Brothers? Hell, just watching Cramer get upset is enough for me to realize the rich aren't happy with what's happening. It seems pretty obvious they're worried. Why else would they pay for ads claiming to have closed a position for which they supposedly no longer have an investment stake?
> And my point is that the losing side of this is inevitably going to be the majority of people long $GME.
I said the same thing about TSLA way back when. So did David Einhorn. I still believe TSLA is more than 10x overvalued, and people continue to get rich despite my "rational" obstinance.
Also you're completely missing the point. Do you not even understand most of these people aren't trying to make money? If you don't understand that, then you don't even have a basis to start the conversation.
I just don’t know how many more times I’m going to have to say that Melvin is going to lose everything.
Melvin and WSB are not the only two players in the market.
> Also you're completely missing the point. Do you not even understand most of these people aren't trying to make money? If you don't understand that, then you don't even have a basis to start the conversation.
That’s the meme. We’ll see how the people with tens of thousands YOLO’d feel when things turn south.
And if that’s the point, that makes this whole thing all the more depressing. They’re sticking it to the hedge funds by… blowing a bunch of money taking out one while dozens of others profit off of them?
Good luck with that.
Well, it just contradicts your previous point:
> Billionaires can remain solvent longer than you can remain irrational.
Anyway, we're obvious not agreeing. That's fine. I wish you luck as well!
> Billionaires can remain solvent longer than you can remain irrational.
It just sounds really disingenuous when we're talking about Melvin Capital and you agree they're going to lose all their money.
Nobody is claiming all billionaires are going away because of this trade. The point is some billionaires will lose money on this trade.
The point I'm making is that Melvin is going under, a few Redditors will make money if they get out in time, but the eventual impact of this will be a different set of billionaires gets richer while most Redditors are going to be stuck holding the bag.
Which isn't exactly the "Reddit gets rich off of evil billionaires" narrative that's being sold. And it makes the diamond hands strategy all the more foolish when literally the only way Redditors will actually stick it to the billionaires is if they all manage to get out in time. Diamond hands as a strategy just makes WSB the eventual suckers donating their money to the funds who shorted at $400.
And many (most?) people are aware that billionaires will still get rich on this trade.
You keep explaining this to me as if it's something I don't already know. The part you are failing to understand is we hold fundamentally different values.
Diamond. Fucking. Hands.
The "rich" are a large group. Much larger than the few names that have been on the news recently. There have been plenty of believable reports about funds that already made crapton of money on this attempted squeeze. Now, that everyone's eyes are on $GME, many more will make fortunes riding the stock down. Believe me, they are very happy about it. That kind of predictability on the market happens rarely, and is a gift for the funds.
If the rich get richer playing the same game as everyone else - good for them! The point is we're playing the same game.
There's been wall-to-wall coverage of DeepF*Value and the other lucky people who are getting out early. Half the stories on here, on Reddit, in newspapers and on TV. You sound frankly delusional claiming nobody talked about them.
(Highlighting the past winners is essential for every pyramid scheme, for recruiting greater fools.)
I'm sure someone is very happy for you to think that.
Melvin is down $5,000m.
Who do you suppose accounts for most of the remaining $4,950m in Melvin’s losses?
Hilarious because true!
I have been running scenarios of this in my head over the previous days. This play would be to short while the squeeze is near closure and force the remaining shorts to purchase your stock. The problem with this play is that eventually you need to cover, albeit at much lower price, unless, of course, the bag holders i.e. remaining retail isn't willing to sell to you at a lower price, so you can never close. If anyone else attempts to short at the rebounded prices, you can close your position, but this becomes a perpetual game of hot potato. For this play to you work, you need to assume the retail will paper hand, but if WSB is any indication, WSB can, as they put it, stay retarded longer than you can stay solvent and if they don't paper hand at those prices, they won't give it to you that easy.
The alternative play, is to make a deal with other firms where you rotate who owes the shares and you share the profits from shorting the top, but I suppose that constitutes market manipulation. If we were to assume that the market moves up and the profits can be reinvested and profit more than the interest, this play makes the most sense.
These two plays assume that all the floating shares are held by WSB, and if that is true; the bag holders will be people willing to let the prices literally moon. Then the only solution would be to wait for GME to issue more shares. The most plausible case is that WSB will be the ones holding the shares when it eventually squeezes and the shorts need to cover since all others in retail would have already sold.
This isn't a particularly good position for anyone to be in because no institution will be selling and nobody will be buying, so you will end up with a staring contest between you and WSB, and if the past few days are any indication, your only bet is your profits outweigh the interest.
If you can imagine the actual play executing in a scenario where WSB doesn't hold you by the ..., please share, I am interested.
[1] https://www.bloomberg.com/opinion/articles/2021-01-29/reddit...
Somehow, despite funding this hobby with their outsized tech worker salaries, none of them seems to have made their millions yet.
I understand that this sounds like a rationalising gambling behaviour, and in part it is, but on the other hand, making money it is a multi-objective problem.
Maximize net worth subject to minimizing risk and time.
There are many ways to play this; you can throw a considerable amount of money in stuff like AAPL/MSFT and so on, and that is a good position to be in, infact MSFT went up 350% IIRC in the last 5 years, that's nearly +35% YOY.
Alternatively, you can gamble small amounts and capitalize on the FOMO by identifying bubbles, riding them, and getting out fast enough by not getting too greedy. This isn't the best strategy long term because you can miss good opportunities, like AMD, but this falls into acquiring more domain knowledge. Plus it sounds like trying to time the market, as many do, but I disagree. Many who try riding the bubble try to time the peak. I disagree with that approach. The goal is to get out fast enough to outpace the market.
You can disagree all you want, but this is attempting to time the market. It’s literally the exact thing that’s repeatedly warned about. Trying to be the next-to-last out in a Ponzi scheme is a dangerous game, and one that many “smart” people have lost.
That’s not to say that some people won’t succeed at trying to time the market. It’s just essentially roulette: you can do well for yourself or you can lose money, but on the whole it’s a losing proposition and winning isn’t particularly correlated with skill. And—perhaps more like poker—even repeated bad plays can be rewarding in the short or even medium run.
Also like poker, taking big gambles can be profitable in the short term, but any time you put your bankroll on the table you’re risking going bust. Even a 10% chance is going to send you back to square one eventually.
Other than exceedingly rare cases, people who perform well in the markets don’t seem to be the same year-over-year, except at the rate you’d expect from random chance. Smart plays can turn catastrophic, bad plays can be profitable, and it takes a lot of honest introspection to assess whether or not a play was smart or simply bad but lucky.
I bought into AAPL early in my investing career. It was right around when Rails was taking off. I saw a UNIX system with great interface design and better stability than popular Linux distros, and developers flocking to the platform for tools like TextMate. I knew AAPL would take off in the end if they were grabbing such developer mindset.
I was right, but for all the wrong reasons. AAPL took off, but it was pretty much just because of the iPhone. It had nothing to do with what I thought it was, and in the end I was just lucky. That’s a lesson that stuck with me.
So always put only a part of your net worth into these risky "bets".
If you put 10% in, you can only lose 10%, and you could still double your net worth.
This.
I do worry a bit that there's something I'm missing because Vanguard is a Boomer thing that's no longer relevant, but I suspect all the research is solid and Vanguard being shareholder-owned aligns interests. Robinhood is probably just clever marketing and gamification of stock and options trading.
That's not to say there aren't better investment options in the world but they aren't accessible to ordinary people (even quite rich ones).
I'm curious about this. Hedge fund guys make enough to be accredited investors, but they mostly don't invest in them? Are the minimums too high? Are the yields not that great? I know the 2010's weren't great years for hedge funds. I also halfway wonder if the real product hedge funds sell is complex strategies to pension fund manages who think it's hard to explain their job if they're just buying index funds.
To answer your last point, there's some of that for sure - in many parts of finance complexity is good for margins. And yes it's tough to demonstrate much value if your investing process amounts to placing buy orders for index funds. It's not all bad incentives though, hedge funds can offer uncorrelated (to the wider market) returns which are very valuable in a portfolio.
Medallion...
One difference here is the solidarity aspect of meme stocks vs lottery.
You're so close to uncovering something here...! Why do you think so many people play the lottery?
I think the alternative destination for a lot of that Robinhood money isn’t “Vanguard VTSAX” but rather slightly positive lifestyle inflation/expenses.
To the extent that’s the case, all the gamification and reinforcement is creating a behavior that’s better than the likely alternative. (Returns are not good if your total lifetime investment trades are zero.)
If Robinhood is getting people who otherwise wouldn't save to invest, even if they're getting worse returns than they would at somewhere like Vanguard, then I could definitely reconsider my perspective that they're a net-evil. I'm not entirely sure I buy that story, but it's absolutely a reasonable perspective and one I'll keep in mind in the future when evaluating new information about Robinhood.
It's not—the lottery is by design guaranteed to have negative expected returns. The stock market isn't.
It's not easy figuring out in the beginning which bucket you fall into, but if you accurately track your poker / trades over time, then with a large enough sample size (assuming proper risk management of course) you should be able to figure it out.
There are some successful traders but I strongly suspect those trading options with four figured are in lottery world. A few win big, most lose all, aggregate expected returns negative.
But when you "invest" in the lottery, you don't get to help blow up a hedge fund. I think many of the retail participants in the GME phenomenon find some entertainment value in what they're doing.
That said, I do think Robinhood makes it too easy for people to put on positions that they simply don't understand. The fiasco with "1R0NYMAN" comes to mind.
This is true but unfortunately it's one of those situations where you need money to make money and even then it's a slow multi-decade long process.
Culturally young people find themselves in something of a vice grip. We are a consumerism culture hell bent on producing and acquiring the next best thing. Patience and presence of mind over financials are diminishing skills, yet you need both of these if you intend on retiring through owning stocks.
4% inflation-adjusted returns aren’t going to turn a single contribution of $1,000 into $1,000,000 in anyone’s lifetime. We have a massive economic problem where the young and the economically disadvantaged face massive challenges achieving financial security. And without the spare funds to contribute non-trivial amounts regularly (and the financial education to buy-and-hold through thick and thin), even somewhere like Vanguard isn’t going to wildly change people’s fortunes.
I don’t know what the answer is (although I have some educated guesses) but what I know doesn’t really help is glorifying a gambling regime where one in millions gets filthy rich, one in tens of thousands gets kind of rich, one in hundreds does maybe a little better than the market, and everyone else is effectively donating what little they do have to the Wall Street elite.
I find this somewhat dubious. If you buy-and-hold for a lifetime, you'll face at least a once-in-a-lifetime level of shock at some point.
The possibility that this shock will happen just when you need the funds occurs fairly regularly to generations of retirees: but always seems to be forgotten by gold-standard financial advice.
Suppose a shock happened right before I planned to shift into a safer portfolio. What do I do then?
The only really correct answer is: "well, I didn't need that money anyway."
If you are 45 you might be at 50/50 (safe/risky growth) by 55 25/75 by 60 90% is safe.
If something happens at 60 where you lose 50% of the 10% in growth stocks stats show that a 5 year recovery to base levels is likely.
Again, Target Retirement funds handle this completely transparently for you and require literally zero hands-on involvement.
This is quite simply nowhere near as hard as you're making it out to be.
I'm going to quote a (sarcastic) reply to another of your comments:
"This is easy. Just find a job that pays you $350,000 a year."
If you have plenty of wealth and income, then it's easy.
But then, if you have plenty of wealth and income, it doesn't really matter what you do.
That said, I'm honestly deeply confused as to what you think the alternative is It's impossible to reliably predict crashes or their extent so by selling you're generally just locking in your losses. I personally know multiple people who liquidated during the Great Recession, and... well, not only did they sell at rock bottom prices during the fire sale, but they also failed to get back in to the market during the incredible rally of the last decade.
I know multiple people who got out during the Trump administration, expecting total financial meltdown. Those people are materially worse off than if they'd simply held. I know several who panic sold when the markets took a hit at the beginning of the pandemic. Yet again, they've locked in their losses and missed out on the positive returns that have occurred since then.
So, barring access to a crystal ball, what exactly do you think is the alternative?
Now generally timing the market is not recommended; however, if the market has been going up for 5% a year for the previous 10 years versus going up for 20% a year (assuming same levels of inflation), it paints a very different picture, so at least in broad strokes you should be able to estimate where we are in a market cycle (telling the difference between 1998 and 2000 might be hard, but telling the difference between 1998 and 1994 should be fairly straightforward)
http://people.stern.nyu.edu/adamodar/pdfiles/invphiloh/valua...
- Never sell. Ever. (Until retirement). [1] The natural extension of this is... always buy. Buy now. Buy.
- Keep a pool of cash on the side (whatever you can afford) to be ready to capitalize on any "fire sale" of stocks. This should be about 10% of your portfolio as a very liquid non-volatile asset (cash).
[1] Obviously life hits you hard sometimes and you HAVE to sell to cover unexpected bills. I am obviously not suggesting in those situations that you hold your stock to the detriment of your healthy, of a family members health, etc.
Positive expected value is positive expected value. This works great, as long as you have plenty of bankroll and can ride out any losses.
As you say, this advice doesn't apply to people who might need the money.
If you might need the money, it needs to be somewhere safe like a savings account or a CD. Once you have an emergency fund, you can start saving in higer-risk/higher-reward +EV investments like index funds.
Buy the S&P500 through an index fund or SPY ETF. Then hold it for decades.
There you go. A two sentence financial education, and you'll do at least as well as the market, which has an upward bias over time.
But the educational part comes with teaching people why this approach tends to have better outcomes than others and also to help instill the understanding of how panic-selling during a downturn is a losing strategy of "buy high, sell low".
I didn't have significant assets during the 2008 crash, but I certainly did last March. And even though I've advised others to buy and hold for years, it took a lot of self-discipline and self-reassurance to not throw that all away and exit the market when it became clear what the extent of the pandemic was likely to be.
Even today I don't think I fully understand why the market has done as well as it has. But I do know I'm glad that in the end I was able to stick with the game plan I've been preaching all this time.
Of course it isn't and no one suggested that. A more realistic scenario is investing 1,000/month for 35 years at 5% adjusted returns IS $1,000,000, and isn't even capping the maximum 401k limits.
I agree with you that this isn't possible when you're not employed or otherwise disadvantaged though.
Kind of like I got over my wild days behind the wheel and drive pretty conservatively today.
Even with negative expected value, playing a lottery could be a rational decision given the right motivations and circumstances. Suppose for some reason you expect to be living paycheck to paycheck your entire life, barely having any surplus, and that there's nothing meaningful you can do to alter that trajectory. Investing scraps every month at 10% average returns (especially if you don't start till you're 30+) might allow you to retire a month or two sooner, buy slightly newer clothes, or maybe eat out a few more times each year, but even if you just lit that cash on fire you wouldn't have a substantially different life. However a few chances at $250k+ could fundamentally alter your possibilities, giving you a freedom that you otherwise couldn't dream of.
The simple truth is Game Stop was a good trade, and I think comparing stocks to lottery tickets is very inaccurate. Stocks give you all kinds of numbers and information about the company which is just a little more transparent than staring into a random number generator. They have been called risky. But there are far more volatile positions to be holding.
We have assumed that, and it's turned out to be generally a terrible assumption, with most US earners not being able to manage a $500 expense and being indebted to credit card companies
What's wrong with index funds? Real estate isn't everything.
I've heard friends express this - if you don't have $1 million +, you're just varying degrees of poor - so there's no point at gradual growth from 20k to 50k and etc when you're just as miserable. Might as well risk it all to try to get to the big time, since they don't see a reasonable path to growing gradually to anywhere worth living.
I don't have "fuck you money", and probably never will, but even this much peace of mind has helped my mental health significantly.
I’ve lived pay cheque to pay cheque, it wasn’t fun. Even though I was young and could theoretically move back with my parents if shit really hit the fan I was constantly worried about money. Soon as I paid off my student loans and had a bit of emergency fund, things were a lot better.
Only because I happen to just starting reading this 4 books [0-3] motohagiography (word-depipction-of-saints?), and until 2-3 weeks ago I am ashamed to say I didn't even know who that was:
Nassim Nicholas Taleb.
[0-3]: Antifragile, The Black Swan, Fooled By Randomness, The Bed of Procrustes
A hagiography is a story that exalts the life of a saint. An "autohagiography," is what some writers call a shamelessly self-aggrandizing memoir. Motohagiography was a play on writing about motorcycles in a self-aggrandizing way, but could be extended to other technology. But thank you for giving it some thought!
Buy low, sell high?
You just can't have both, because with a burning passion, comes a sense of imperfection and constant struggle to get better but never enough, or worse, fear of decay and irrelevance, an inevitable outcome as one ages.
There are plenty of passionate artists, athletes and engineers who don't care about going pro, getting famous or changing the world.
For example, I'm passionate about software development, but I make simple things that don't matter. I'm passionate about cooking, but only for myself and the occasional guest. I'm also passionate about the website I live from, but I don't worry much about its growth.
I like to build stuff, but I don't want an audience or its recognition. I don't want users nor money. I just do it because it's nice.
I believe what you mean by passion is interest, and what OP means by passion is drive. I think you're discussing slightly different things.
I don't believe it is possible to be driven and satisfied at the same time. But I believe it is possible to be interested and content simultaneously.
I'm just not driven by the desire to be successful. I'm content with home-cooked meals and their software equivalent.
__Burnout and Passions__
Here's a comparison: I once build a computer graphics engine in 2 weeks and a few years prior I played WoW for 2 weeks.
In both cases I spent between 16 to 20 hours per day on it. I got ill, had an angry girlfriend (in the computer graphics timeline), and I did everything I wanted to do (it was done).
__Passions and Interests__
I have a genuine interest in security. Once every year I become super passionate about hacking/red teaming for 2 months. I'm like a cat in heat or something, but then with security. I play hackthebox, I follow security courses and clock 12 to 16 hours per day on it, 7 days per week. Converted to working days, that is around 5 months of working days.
Yet, people mistake this as me having a passion for it. I can assure you, if the article is technical and I'm in the other 10 months, I'd need to apply quite some self-control and discipline to be able to read it.
__It's not always the subject__
I have this weird trait. Whatever my friends are interested in, can become a passion of mine. One requirement: I need to do it with them. If I do and I'm having a positive interaction with my friend, then I'm passionate about it. However, I know it's not the subject, it's simply being with that friend. I figured it out by first noticing this in video games. It turns out I don't care about video games, I simply care playing them with friends. It turns out, it's true for all activities I have an interest in.
__Passions and linking to other topics__
I love imagining music. It's a compulsion I had since I was 4. Because of this, I quite like making music as well. However, I also like not being poor. I've seen quite a few poor musicians, so I've never focused too much on my music creation and I think that's quite a sad fact about my life.
But! It turns out, that (web) app development for things that I find cool or useful scratches exactly the same itch. So that means that passions are wider than your interest alone. It turns out that passions might be able to transfer to other passions if they have the same properties.
Unfortunately, I don't feel passionate about (web) app development for corporations. This is mostly because a lot of the creative freedom isn't there, but when you make your own stuff it is there.
---
My 2 cents.
On the other hand, we have so little time here. Who's to say whether narrow and deep is always more rewarding than broad and shallow?
You know, be mindful of doing the wrong thing well instead of the right thing poorly.
So learn to forgive ourselves for pursuing things that fizzle out or lose our interest. Leave space to preserve passion to the benefit of our health and happiness. More interests might also mean more opportunities to align shared passions with others.
---
As Bezos said, you can't choose your passion, your passion chooses you.
Plenty of people are passionate about work which appears arcane. Few of them started with that.
Liking is also a great signal for passion. If we like something, we are more likely to do it for years and then have the passion. I don't think we can choose what we like.
There are of couses cases when children are forced to do something early and later fall in love with it.
Even outside of work, don't you find it satisfying to do something you're really good at? A dumb example: I love skiing, and the better I get at it, the more fun I have doing it. It's not because I enjoy showing up the people around me -- using my skills just becomes more enjoyable the better I get.
And for what? Doing more of the same I don't really like, so that my employers profit even more of my work? I can't convince myself to spend time that way and don't believe I could do it for more than a couple of weeks before burning out. So, maybe you start liking what you do if you become really good at it. But there is an assumption, that anyone can become really good at what they are doing. Or if I remember that book correctly, that case was covered by noticing that everyone else is going to drop out of the profession. In any case, not everyone drops out of the profession who isn't good at it and not everyone who stays inside the profession will become good eventually. But sure, whose who are really good will properly enjoy it.
It seems like maybe your goals in life don't line up with becoming "so good they can't ignore you?" I don't intend that as an insult in any way -- everyone has different priorities in life, and I don't know you, so it's also possible that you _are_ "so good they can't ignore you," and the book is incorrect.
I will keep the article in case one day I want to persuade my child to love math.
There’s a book that attempts to debunk this myth by making the case that generalists are typically more successful: https://www.gatesnotes.com/Books/Range
Passion is a direct result of three things:
1. Awareness of a major problem that affects a lot of people
2. Becoming convinced of a certain solution that is currently not being implemented
3. Having your needs met for a long time, also known as financial freedom
To the extent you find people with 1 and 3, you can recruit them with 2.
There is no shortage of evidence to the contrary.
Passion talk is out there because it works in fooling people who don't have what it takes to be 0.001%, into believing they might, long enough to buy self improvement seminars/tapes/programs/etc.
Here is an easy way to get success - define success to mean something realistic and that would work for you. For most people, that's working a stable job, finding a husband/wife, having a couple of children and living in a safe neighbourhood. That's completely attainable for most people and it doesn't require any passion - a little planning and perseverance will do just fine.
Which is actually a generalization of the author's (relatively narrow) thesis where 'opportunity' depends primarily on the people that you meet and the 'preparation' is being passionate about something.
Opportunities in life are moving targets, there is no way to be "prepared" at any point in time. I think a better way to say this would be "Luck is what happens when momentum meets opportunity".
So you are engaged with something (like running a SaaS company), something happens (like one of your large competitors goes out of business) and your activities up to that point put you in a spot that makes it possible to benefit from that event.
I actually went much further and did a literature review on the philosophy of luck: https://www.swyx.io/create_luck/
In short, the next step after the LSA concept is the idea of four kinds of luck, summarized by pmarca as others have noted. https://pmarchive.com/luck_and_the_entrepreneur.html
But I think all of these are missing the angle of strategic intent - i.e. actively trying to go towards where luck is more likely. Luck is not evenly distributed. That is where I hope to add to the existing literature.
I don't disagree with the overall spirit, but these Paul Graham aphorisms always turn me off.
> To satisfy my mathematically oriented brain I've gone one step further and formalized the concept into the equation L = D * T, where L is luck, D is doing and T is telling.
See? There's no passion here. It really isn't relevant to what is being discussed.
Sure, passion is great. The more the better, the world is incredible when you're surrounded by it. Developers are fond of writing beautiful code, I am one of those too. But god damn, hold the inner coach and remember y'all are not psychologists. There is no reason to reduce the multitude of complex motivations to a single amorphous concept such as passion.
But I guess I forgot about the Trump Presidency. So maybe D * T is the right model.
If you've got 12 units to split between D and T, total return is:-
1D 11
2D 20
3D 27
4D 32
5D 35
6D 36
Still that's more or less assuming that the costs and returns of D and T are roughly similar. But talk is cheap, and it is not clear that the returns earned are the same.
if we are intent on maximizing u(d, t) = u(d) * u(t)
we still need u(d) and u(t) to know what quantities of d and t will do the job (assuming that there is a maximum, or not more than one...)
The other thing which seems to elevate outcomes in this context is not just "telling" people as measured by quantity but also by quality. Just sharing with large numbers of people may work but trying to share with those who also "do" things will reach those most likely to care about what you're doing, the way you're doing it or even just that you're "doing" things with genuine personal investment. When I see that, it usually stands out and I'm much more likely to want to engage with that person.
Chance I is completely impersonal; you can't influence it.
Chance II favors those who have a persistent curiosity about many things coupled with an energetic willingness to experiment and explore.
Chance III favors those who have a sufficient background of sound knowledge plus special abilities in observing, remembering, recalling, and quickly forming significant new associations.
Chance IV favors those with distinctive, if not eccentric hobbies, personal lifestyles, and motor behaviors.
Chance I is truly deus-ex-machina stuff you can't foresee nor plan for.
Chance II encourages randomness and serendipity, but those who lack the ability of discernment and proper focus risk being ADHD never focusing enough on anything to capture any opportunity, should it even emerge.
Chance III rewards those who have deepened their knowledge and have stubborn persistence to weather the inevitable rough patches. Because if it's not rough, then it's too obvious, and if it's too obvious, there's no real upside opportunity. You can plan for Chance III and prepare yourself for this.
Chance IV is black swan. It is the rarest of conditions where an eccentric hobby results in significant upside. You can't plan for this, and if you do pursue an eccentric hobby you should do it out of pure personal interest rather than planning for a black swan upside opportunity.
I have a feeling Marc Andreesen would consider himself to be Chance II or Chance III. And I question if his "luck" can truly be attributable to Chance II but rather his ability to "will" his fortune into being by virtue of being in Chance III.
1. Accidental Luck (General, Passive luck) - you have the luck of a plant - just lucky enough to be in the right place at the right time
2. Active Luck (General, Active luck) - you have luck from randomly moving around more
3. Prepared Luck (Individual, Passive luck) - you have luck because you've trained yourself to notice when luck happens to you
4. Magnetic Luck (Individual, Active luck) - you have luck because you work on interesting things and people seek you out
(i drew it out here: https://www.swyx.io/create_luck/#four-kinds-of-luck)
I also like the way Naval put it:
1. Hope luck finds you.
2. Hustle until you stumble into it.
3. Prepare the mind and be sensitive to chances others miss.
4. Become the best at what you do. Refine what you do until this is true. Opportunity will seek you out. Luck becomes your destiny.
On the other hand, if you tell your idea some stranger on the Internet... chances are much lower that you will find the right people.
This should be done concurrently with (if not as a result of) increasing quality and amount of your output. By the time you meet the 'right' person, are in the 'right circle', you'll have something to show. Otherwise, it's wasted opportunity, and hence wasted luck.
Luck = Doing * Telling
I keep hearing a lot of “put effort into what you are passionate about”. One thing I found is passion is also generated. It happened to be many times, I force myself to work and n something for some time and I automatically see the beauty/challenge in it and develop the motivation without the need to push. I want to hear other’s opinions on it.
I had hoped this article was something unique, but one paragraph in and it’s more growth hacking nonsense.
Some people have the misfortune to know people whose usual reaction is throwing sand in other people's gears. People who crap on other people's plans.
Just as good luck can compound, so can bad luck.
It's possible to change who surrounds you. By socializing in new bubbles, making new friends, or just plain moving to a new location.
If someone has had the bad luck of growing up surrounded by unsupportive people, the recognition and knowledge don't occur naturally.
The problem of long term socialization with assholes is that a person tends to be socialized to being an asshole. That facilitates new friendships with new assholes more than it facilitates new friendships with non-assholes. It facilitates socializing in asshole rich bubbles...etc.
I really like this mental model, one thing I've noticed about my failed startup attempts is that I did a lot of "doing" but not "telling".
Incidentally, when folks at my current employer started talking about hiring someone for my role, they kept running into people who knew me and had a high opinion of me.
Networking works in many directions. But it only works if you don't go into it looking for it to work. I think the big key was that I wasn't out to gladhand with folks. I was just out to make friends over a shared passion. It gives an authenticity to your speech that people can see.
[0] Which now has a big web and database component, all in service to the VR app that I'm building.
I am accidentally practising it.
I make games. I tried and failed to get investement and partners.
So I am making games alone. Last week I started streaming my daily work. I stream my the other screen display, such that I can decide what to show and what to hide.
I told myself, streaming cost me no money and I might attract attention of partners and investors. Nothing unfold yet. But I would continue.
I would recommend doubling up exposure by recording your streams, then cutting up the best clips and releasing them as Youtube videos. Also posting these Youtube videos to Reddit when possible (obviously following their self-promotion rules)
Here is an example channel: https://www.youtube.com/watch?v=YEhOhNgoZHI
I'm the kind of engineer that will get anything done regardless of the tech (or people/process) complexity, and I always end up watching someone else in the team going to conferences to present my work.
Random reasons random, but mostly because my inner klout is way bigger than my outer persona.
THE ART OF MONEY GETTING or GOLDEN RULES FOR MAKING MONEY By P.T. Barnum
I try to avoid 'perpendicular' approaches, instead opting for shots with big angles, even if they are technically more difficult.
This literally translates into a larger area where I have the chance to touch the 3rd ball.
The variable is "amount of potential interactions with the environment". People are a part of ones environment.
Compared to someone who sits at home all day, the odds of "having luck" increase dramatically simply by going outside and walking around.
This includes "meeting new or old people", talking to them, sharing what you do etc.
What the author completely ignores is that it also increases the odds of getting unlucky.
I feel like the author has a rather romantic perspective on this.
I have several passions and many ventures based on them.
I believe "A farmer has as much luck as he has seeds in the ground" regardless of how many people are involved. I my case "seeds" are ventures that I start based on my passions, many will wither but some will do well and a few do great.
The great ones seem to draw others to get involved even when I try to keep them low key.
Ha ha. I know, that's not what the blog post is talking about. Well, sort of. Obviously, more exposure also means more risk. Like, I never used to get publication scam spam until I got published.
Somewhere else, I read the definition of "intelligence" as that which maximizes its future options.
I think both things hit at the same idea of "surface area of luck". We think of luck as "a good opportunity you can take advantage of" - if you become someone who can take advantage of more opportunities, you become luckier.
Some of the strategies that helped me (none of them are intentional):
- Never passing up an opportunity to learn - whether new skill or new degree or new industry or a new personal challenge. As Steve Jobs said, sometimes you don't learn until later how the dots connect to what you eventually do.
- Diversifying my experience. EG: 13~ years ago I was a "senior software developer." Since then, I had been a "development manager", a "product manager" and also for a time a "senior software developer" again. When I lost my job a few months ago, I was able to look at opportunities along all 3 of these job tracks, whereas if I had stayed in the single track, I'd have 1/3 the options.
- Ditto to industries. Until now, everything I did was in finance, so I intentionally found a role outside of finance, because I could always go back to it if I need to, but now I am proving to myself (and to my resume) that I can cross industries and work anywhere. That again increases. your surface area.
- Have a diverse network, for example find a way to connect with young talented people where you are (first job, university) because they will disperse throughout the world and may do cool things and you may want to do those things with them, or they can just help you. It has been amazing how much people that I had barely connected with when we worked together were willing to help when I needed a referral/advice/whatever.
- I'll call this one out separately: help people. Make time to mentor people, help them get jobs, put in a good word, whatever. Not everyone will "pay you back" but it doesn't matter, the reputation of "xyzelement's a good guy, he's generally helpful" means the world, especially as you become more senior.
- Be the dumbest guy in the room. You grow more when being surrounded by those who can challenge you uncomfortably. Pick the right room. Comfort = death.
- Troubleshoot your mind. Most of us are held back by stupid hangups. For example, most developers I know could be overall way more successful if they got over shyness/fear of public speaking. Figure out why you fear whatever you fear, and work to get over it. Imagine you didn't go for your dream job because it has some minute attribute that you pointlessly fear.
- Check your language. If you find that "they" are responsible for what's happening to you, you have given away all your power. Figure out how "you" are responsible for where you and and what opportunities "you" have, and then own it and act.