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Comment by jayd16 | Hacker News Reader

>Financial elites have been gambling for decades. They seem to be really upset that the plebs now can also do it.

I really don't understand this sentiment, as if a professional gambler would not gladly gamble with novices...but putting that aside...

I think the emphasis is more about how there's no other game in town that can compete, not that gambling is new.

Interest rates are so low that there isn't a simple/safe investment entity to pull out a reliable 10%. We're all stuck gambling whether we want to or not.

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>I really don't understand this sentiment, as if a professional gambler would not gladly gamble with novices...

The existence of a financial elite hinges on the existence of a non-elite that actually does the work. If workers are putting 25% of their paychecks in an index fund and retire a few years earlier, instead of paying off their too-expensive car loan or something, it will be bad for the current financial elite.

In the end money is just an abstraction to determine who has to do back-breaking work all day, and who doesn't.

> If workers are putting 25% of their paychecks in an index fund and retire a few years earlier, instead of paying off their too-expensive car loan or something, it will be bad for the current financial elite.

Nobody is complaining about people placing their paychecks in index funds though. Index funds are a reasonably good proxy for the future health of the economy, so your gains from it will likely represent real growth. By contrast, gains made from cryptocurrency and speculative stock must be coming from someone's losses.

> Nobody is complaining about people placing their paychecks in index funds though

There was an article on the front page of Hacker News in the last couple days about how index funds were supposedly ruining the economy.

Index funds go up because more people want to buy them than sell them, cryptocurrencies go up because more people want to buy them than sell them.

Index funds happen to represent ownership of productive assets, but the assets don't really care who owns them, your investment in an index fund doesn't increase the number of productive assets in the world, likewise with cryptocurrency.

> our investment in an index fund doesn't increase the number of productive assets in the world

Not directly, but it creates an incentive landscape that encourages the formation of more capital, basically making the potential payoff of starting a company larger and more likely.

Index funds are positive sum because companies are positive sum. You buy shares in a productive enterprise, which then generates revenues, and profits. These profits are returned to shareholders via dividends or buybacks, or just through the accretion of value within the enterprise.

On the other hand cryptocurrencies are negative sum. The only way the early folks make money is when late folks put money into the system. At the same time, the house (miners) are constantly extracting massive amounts of actual liquidity. The "sum" of Bitcoin is negative 21,000,000,000 per year. This welfare is extracted by Chinese mining cartels bribing their local governments for access to coal-powered electricity. Enough to offset all of the solar panels installed in the entire world.

The total amount of wasted power per Bitcoin transaction is now 30 days of power for the average household, and generates 100 grams of non-recyclable e-waste.

> your investment in an index fund doesn't increase the number of productive assets in the world

Eventually, some rich people will notice that they aren't getting as much money from buybacks and dividends as they used to and will place their money elsewhere. It would be relatively more attractive to invest in developing countries or buy PR in the form of charity.

>> Index funds are a reasonably good proxy for the future health of the economy

Were.

Index funds were a reasonably good proxy.

They have been completely detached from reality for at least a year, and arguably for several years.

S&P has doubled over the past 5 years. Does that mean the economy has also gotten twice as healthy?

Amazingly, some people are complaining about index funds. It’s a pretty fringe position, but it comes up frequently enough that “should index funds be illegal?” is one of the recurring headings of Matt Levine’s newsletter.

https://www.theatlantic.com/ideas/archive/2021/04/the-autopi...

Index funds being illegal just means they're illegal for the poor and middle class. Any person with sufficient wealth could construct a personal index fund manually by buying the individual stocks. You would probably need millions to make this a worthwhile exercise.

Somewhat related, I really want to see someone offer some kind of customizable index fund. Let me start with a base index, and then exclude or include companies at will. e.g. start with the S&P 500, kick out companies like Exxon and Facebook and add in Tesla (pre inclusion), while the service auto weights investments appropriately.

> I really want to see someone offer some kind of customizable index fund

You and me both! https://news.ycombinator.com/item?id=25552346

(Also, to your point, as someone commented on that thread this does already exist if you have enough money)

Hmm. It looks like Wealthfront offers direct indexing for reasonably small account sizes. But it's not clear from this description if they actually allow customizing stock picks. Could be worth investigating. Their fees might also make it unattractive.

https://support.wealthfront.com/hc/en-us/articles/211005023-...

> In the end money is just an abstraction to determine who has to do back-breaking work all day, and who doesn't.

Maybe, but are you insinuating that no back breaking work would need to be done if money weren’t to exist?

Pretty sure the introduction of money reduces the total amount of backbreaking work to be done. Instead of hauling grain to trade for axe heads and carrying those back to your farm, you carry coins, paper, or in modern times, tap a few buttons on your smartphone.

The market would need to find ways to perform the back-breaking work, either by wages increasing or the development of automation. Supply and demand. The more people who can accumulate wealth and capital, and intelligently manage that wealth, the greater the reduction in the labor supply (as they will fund their expenses using investment returns versus engaging in labor activities to do so).

Money is an abstraction, but the status quo as a whole (monetary policy, capital markets, labor policy) is designed to ensure a supply of labor. Capital begets capital [1], so those who don't have will engage in riskier behavior to get off the wage slave treadmill.

[1] https://news.ycombinator.com/item?id=16592414 ("I think capitalism is much simpler: capital begets capital. Those who have capital will accumulate more capital, almost infinitely, until the capital/income ratio reaches an equilibrium who knows how high (in the absence of major corrections like wars and hyper inflation). Add inherited wealth and low taxes. Capitalism's winners are those who already have capital. Thomas Pickety's book "Capital in the 21st Century" cogently illustrates this using massive tax return based data sets.")

Very likely much less "work" would need to be done. There are a lot of bullshit jobs that are not productive and are just making people feel bad.

Barter economies have never existed. Myth starts with Smith.

The grain still needs to be hauled to somewhere else though.

If the grain only ever exists on your farm, it has no value to anyone else whether for coins or axe heads.

I do actually wonder if the FIRE movement will come under criticism in the coming years. Does the economy still work if too many people are checking out of their careers in their 30s and 40s?

But yeah, it's mostly the financial elite freaking out that their kids might actually have to be a wage slave for a living.

FIRE folk (and every retiree) are going to get killed by inflation over the next ~5 years. The thing about retirement is that you're on a fixed income, and if you're doing it right you move capital from risk assets like stocks into more deterministic investments like bonds as you get close to needing them. The value of bonds and cash is about to get crushed; it's very hard to plan how much you need to live on when living costs may go up 5-10x or more in the next 5 years.

I really doubt FIRE is popular enough for them to matter in practice. I suspect very few can stand pinching pennies for the 10-25 years it takes to save up the capital.

It probably matters more for highly paid professionals who can do it in 5-10 years.

Money being lost or won is not that. It's a signal that the public as a whole has benefited from the endeavour or not. Loses are a really important signal to stop wasting scarce resources .

Well of course there’s no “safe” 10% investment. That’s true across the board! Higher returns correlate with higher risk (otherwise a smart investor would pick the investment with the same returns and less risk).

That aside, you know what’s averaged returns of 10% that’s simple and hasn’t risked your money going to zero (assuming you have the good sense to buy and hold)?

The stock market. Bog-standard index funds, available to anyone and everyone. VTSAX has returned just about 10% since Jan 1, 2000. Ironically, it’s about double that for the past ten years (since the recession caused it to be roughly even over the first ten years of that span).

The average person doesn’t need to gamble on options to get ahead. They already do have access to products with outsize returns compatible with a level of risk tolerable for one’s retirement nest egg. What we need are jobs that allow the average wage-earner to actually save a meaningful amount of money in these instruments.

100% percent agree. Here in Toronto, it's very difficult for the average person invest a meaningful amount of money.

> isn't a simple/safe investment entity to pull out a reliable 10%.

Long run even the stock market only averages about 7%, and that isn't simple or safe - but it beats other asset classes on return. Asking for a risk-free 10% is pretty much a fantasy.

One weird thing about the amount of volatility in recent years is that people are simultaneously used to the idea that their "cash savings" earn approximately nothing, but turn their noses up at a 5%-7% return. Historically speaking this irrational.

Sorry, you're right. I was lazy in my rounding. That said, the exact number isn't too relevant to my point.

>I really don't understand this sentiment, as if a professional gambler would not gladly gamble with novices...

There are a few cases I can think of immediately where this applies - gambling with novices in Blackjack, for example, is not ideal. They'll screw up the flow of cards and can cause your math to go haywire. The same happens with Hold-em or Omaha Poker - you want people to have enough skill to play the game properly, but if you're looking to fleece them not enough skill to play the game well.

I've bought counted cards at casinos and played poker semi-professionally and this is just wrong.

In Blackjack the other players are not really relevant, the count stays the same and on average you will be about equally profitable with or without them. They might increase the variance a little but they reduce the attention the dealer pays on you and my team never minded others on the table.

In Hold'em and Omaha you WANT weaker players, they are in short supply, and you will expect to have an edge against someone that barely knows the rules, too.

That's not the case in poker. If someone thinks a novice player is messing them up somehow with poor play, it means they're not a good player either. A good poker player wants their opponents to play as poorly as possible.

I never liked having true novices, especially in tournaments or when I was running multiple tables at once - it was easier to make notes of play style and predict when people knew how to play at a basic level.

Sure, I'm more likely to beat the person that is going all in with a 2 5 off suit but bad beats are incredibly annoying. Over time, in a sit and go situation I'd beat that player, but online and in tournament play I found that was a hazard. I'll take a consistent bad player over a complete novice any day.

Sure, playing correctly against a maniac, novice, or otherwise unpredictable player can be more difficult and have higher variance, but it's also as lucrative as it gets if you know what you're doing. All the strong players I've known would be elated to play against people like that.

>Sure, playing correctly against a maniac, novice, or otherwise unpredictable player can be more difficult and have higher variance, it's also as lucrative as it gets if you know what you're doing. All the strong players I've known would be elated to play against people like that.

I don't know about you, but when I was grinding, I didn't really want to increase variance. I wanted a stable mental state with low focus on multiple tables to maximize the rate of return over that period. I found that alterations in that caused me to play more loosely, which ended up leading to avoidable mistakes, magnified because I'm playing multiple tables at once.

The same thing was true for a tournament. There's a far more limited return from players like this, in part because you meet them early. It's a fact of the online game that people just go all in a lot especially in the beginning, but it ends up being a gauntlet you just need to get through. I wouldn't call them my ideal opponents; it's not what I prefer, it just exists.

Maybe I'm not what you would consider a strong player but I did win consistently enough to feed myself with it for a couple of years, mostly online before it became illegal. It wasn't really my experience that high risk high reward play was the way to go. Most of the people I played with worked to limit variance's effect on their game, not increase it.

Again though, that's just me - not the strongest player ever, you clearly have a different opinion about it. All good.

My understanding after spending a lot of time digging into and discussing this stuff was that playing better and increasing your win rate has a much greater effect than style of play (whether yours or your opponents'). So while your short term swings might be bigger, you'll have a lower chance of a losing month (or a longer slump) and make more overall by eking out every last drop of EV.

It doesn't mean you were a bad player, but it sounds like you might have been avoiding some potentially +EV situations due to lack of comfort with trickier opponents/situations. That's fair enough if it worked for you--it's not at all necessary to play every situation perfectly to have a healthy win rate. Towards the end of my poker career I was playing mostly heads-up, which teaches you to be pretty fearless about exploiting any and every edge, and to get comfortable with aggression. But there was a point in my progression where I'd get thrown off as well. And even after I felt like I was pretty damn good, I knew players who were clearly head and shoulders above me, so it's all relative.

When someone is playing randomly (as some very newbie players might), it's a little difficult to directly exploit, but more of a patience game. It's only a matter of time until you stack them.

When someone just consistently plays bad, that's the ideal situation.

This is the sort of statement that sounds good to idiots and people who've never played poker. Anyone who's made money at casino poker is aware of how much of a hassle retards spasming at the card table can make things even if they're going to lose in the end.

No, totally wrong, it’s the exact opposite. Novices and only novices think “you can’t beat bad players cause they’re unpredictable!”

Even your more moderate point you’d rather not have them in the game is totally wrong.

In reality, every professional player loves players who do terrible, random things. Variance might go up, but variance is going to be annoying either way. Other players doing dumb things is where your EV comes from. I’ve only ever heard complaints about crazy players being a hassle from inexperienced amateurs who dabble. Pros want “live ones” in their games.

Like in chess for example - a kind of player who has more trouble with extreme novices than people their own level is someone who knows how the game “should” be played, but doesn’t actually have the skill to go off-book themselves or punish mistakes when an opponent deviates.

An actually strong player won’t have that problem.

Except that chess is a perfect information game, but poker is not. Which means it's possible to tell if your opponent made a mistake in chess, but it might not be in poker.

Disclaimer: chess novice, don't know anything about poker.

Playing poker against very novice players makes it a more volatile game. You might lose big and you might win big, but that's actually good for your EV; the beginner has no concept of bet sizing and that's where you shine. An expert playing against many intermediate player may end up winning on average 5 big blinds / hr over the course of a month. They'll certainly have losing sessions as well.

An expert playing against beginners might 'lose' 50% of the hands they get involved in still, and make a ton more money on the ones they win. It's the difference between an average of 5 big blinds / hr, and 50 big blinds / hr.

I'm not an expert by the way, I just consider myself an 'advanced beginner', who can count on making $2-4 / hr playing 1/2 no limit at the casino (based on having played maybe 200 hrs of poker in the casino). Not worth it as a way to make money, and I stopped caring enough about poker to invest the time to become better.

But you can see the entire dynamic at a table change when a loose, novice player sits down. Players no longer play against each other as much because they can count on the loose player to raise the stakes, and they're much more likely to capitalize on that.

In chess, really no one has problems beating extreme novice. You just take their pieces as they leave them hanging and that is it.

It changes the strategy, and it might take you a while to hit, but it greatly improves your potential to win.

I once played 1/2 NL uncapped at a casino, a guy sat down and put $1000 on the table. Every other hand he would raise $25-50 preflop, and call re-raises. Got all in pre-flop and pre-turn a bunch of times, every time he bust he put another $1000 on the table. This is exactly the best player to play with. Yes, you have to sit and wait for good cards before getting involved, but if you get something good, you have very good odds of stacking them.

I played professionally for years. I wanted my opponents to play as badly as possible.

Your blackjack outcome is independent of other player's decisions.

This is a statistical fallacy.

>Your blackjack outcome is independent of other player's decisions.

>This is a statistical fallacy.

Yes, "Your blackjack outcome is independent of other player's decision" IS a statistical fallacy. You're correct.

It's pretty easy to prove this.

Is the number of cards in play finite? Yes. Can other people at the table get more cards than they begin with? Yes.

If someone can impact the number of cards left in the deck, wouldn't they have the potential to change your outcome?

The problem is that the economy is being driven by rent seeking behavior and cantillion effects. This is great for the elites, but at the same time they can see how the ground is starting to crumble. As "the plebs" start to gamble they're working to blame any future collapse on the irresponsibility of the crowd. Shrinking responsibility for the fact that this is the system that they have lobbied for and created and the plebs are behaving rationally irrational.

"We taxed work generated income greater than investment generated capital gains and now everyone is speculating! Why oh why would the plebs do this to us?!"

Do you have any evidence at all for the economy being driven by cantillon effects? That is pretty much fringe economic voodoo.

Housing prices spiraling out of control, bubbles in the stock market and crypto, this crazy V-L recovery we just had out of the covid recession, insane art prices, bubbles in baseball cards, the declining tax burden on the wealthy. The people who are rich and "close to the king" are able to capture all the effects of monetary stimulus. That is leading to asset bubbles and dramatic increases in prices of the things those people throw their money at.

> Housing prices spiraling out of control

Housing prices on average across the US, on an inflation adjusted basis cost the same exact amount per square foot as they did in the 1970s. They're twice as big now. And in areas where they are more expensive, it's driven by cities refusing to allow new construction to match demand. Simply a supply and demand issue, and a zoning issue.

Why do you think the others are specifically because people "close to the king" are able to capture all the effects? That's the part you haven't proven.

The housing prices that are spiraling out of control are those which are being driven up by the increasing wealth of the upper-1% to 10%. The price of housing in Krupp, WA isn't inflating at all. The price of housing where software developers and people in finance and business and industry, and the places where people like to buy second homes is inflating.

And it is just supply and demand, and you've addressed supply but what is driving so much demand, and why do participants in that market have so much more money to be bidding up prices.

And looking at inflation in different targets of money is something that economists do all the time when they divide inflation up between CPI and core CPI ex-volatile commodities. This is just looking at the things that rich people buy and the inflation in those things versus the inflation in the broader economy. We know the rich are getting richer, the gini coefficient keeps on getting more skewed, and the things that rich people buy are getting more and more expensive. You can't call this "inflation" though because economists object because they invented that term and they'd prefer to call it asset bubbles. But cantillon effects describes it a bit better. They're capturing more of the gold and prices are rising in the things that they use it on creating skewed effects in the rise of prices in the economy.

> And it is just supply and demand, and you've addressed supply but what is driving so much demand, and why do participants in that market have so much more money to be bidding up prices.

This is something a quick visit to Wikipedia will explain to you. [1]

> Since the 1960s, San Francisco and the surrounding Bay Area have enacted strict zoning regulations. Among other restrictions, San Francisco does not allow buildings over 40 feet tall in most of the city, and has passed laws making it easier for neighbors to block developments. Partly as a result of these codes, from 2007 to 2014, the Bay Area issued building permits for only half the number of needed houses, based on the area's population growth. [1]

They literally built half as many houses as needed.

> ... and why do participants in that market have so much more money to be bidding up prices.

That would be because of the number of high-paying jobs added in the Bay Area.

> At the same time, there has been rapid economic growth of the high tech industry in San Francisco and nearby Silicon Valley, which has created hundreds of thousands of new jobs. The resultant high demand for housing, combined with the lack of supply, (caused by severe restrictions on the building of new housing units) have caused dramatic increases in rents and extremely high housing prices. [1]

Remember, these are outliers as on average across the US, on an inflation adjusted basis, the $/sqft price of housing has not budged since the 1970s. However, zoning rules left the average new house twice as big outside of metros, and regressive policies in metros skewed the supply side of supply and demand.

Thing is, I'm frustrated because you're right to be mad but pinning this on the Fed is pissing into the wind. Put the blame where it's due: deregulate housing construction. Allow supply to grow to meet demand. It's not rocket science.

The only thing the Fed has done to raise the price of houses is decrease interest rates. A drop from 5% APR on a 30-year fixed to 2.5% APR means for the same monthly payment you can afford a house 25% more expensive. Fundamentally however this didn't change the affordability of housing for the borrower class.

The cantillon effect may account for some subset of this wherein wealthy borrowers with easy access to capital are able to take advantage of the lower price of housing (before bid up) and also the lower interest rates. However, I've found zero quantification of this.

[1] https://en.wikipedia.org/wiki/San_Francisco_housing_shortage

[2] https://fee.org/articles/new-homes-today-have-twice-the-squa...

Who are you supposed to lend your money to? Companies are saving more money, they ended up becoming net lenders. That's why inflation is low. Ironically, low inflation also makes the problem worse, because companies can save even more with low inflation. The threat of being forced to invest the money is gone. Ironically (yes I am repeating myself), low interest rates also increase the savings rate of companies because it is just a windfall profit for many of them. Consumers get loans with bad conditions so they don't borrow and even if they did, incomes are stagnating, so betting on a raise in the future may seem foolish.

The answer is to increase the total investment rate via infrastructure bills or to just inflate excess corporate savings away with stimulus checks. Inflation will allow the Fed to raise interest rates, which will cut into the corporate savings rate and after that point everything will return back to normal.

The simple/safe/reliable 10% was a fluke that should never exist. Profit and risk must be in balance. If it isn't it should attracts more and more people until the balance is reached. Making it hard for people to join to keep it unbalanced is what happened and its slowly going away now.

> Profit and risk must be in balance.

Risk is one factor, but not the only one. The main factor in low-risk investment returns is time preference. In essence: People are willing to pay rent (interest) in exchange for access to money now rather than later. Those with savings can earn a profit by renting out their accumulated savings even in a risk-free scenario where return of principle is 100% guaranteed.

There is no such thing as risk-free renting out your accumulated money.

Nothing in life is completely without risk, but you can get arbitrarily close. Treasury bills are commonly used as an example of an approximately "risk-free" loan since the probability of the federal government repudiating its debts is considered extremely low. Bonds with the lowest investment-grade rating, BBB, have a 1% one-year default rate, with higher grades being significantly less (0% for AAA)[1]. The vast majority of the interest on such a loan is a result of time preference (rent), not risk-taking.

[1] https://corporatefinanceinstitute.com/resources/knowledge/tr...

You know exactly what I meant. 1% does not even cover inflation loses and you still took a risk. This is total nonsense and has nothing to do with the initial conversation.

/thread closed

If what you meant is that interest is fully accounted for by the lender taking the risk that the borrower will default on the loan then what you are saying is nonsense.

While yields over the past year have been rather low at about 2% due to some very unusual circumstances, and T-bill rates are essentially negative at a mere 0.17% nominal yield, US corporate AAA bonds have a long-term average effective yield of over 4%[0] with essentially no chance of default. This is considerably higher than inflation and nearly risk-free to the investor. These corporations could instead have saved up the amount of the payments and had that money at the end of the bond period, but they wanted the money now rather than later, and that is why they're paying you interest.

[0] https://ycharts.com/indicators/us_coporate_aaa_effective_yie...

> I really don't understand this sentiment

I agree, but I also don’t see this sentiment coming from the industry itself, with the exception of some people who go along with that narrative to get some TV time. It really seems to me more like the financial TV media are the ones who feel threatened by the emergence of WSB etc. and portray it as if it’s the sentiment of the broader investing community. But largely that community is just excited by any novelty as it creates opportunities that boring times don’t.

> I really don't understand this sentiment, as if a professional gambler would not gladly gamble with novices...

"Professional" and "expert" aren't synonyms. "Amateur" and "novice" aren't synonyms either.

An expert might be glad to go against a novice. But when there are artificial barriers separating "professionals" from "amateurs", barriers that have nothing to do with level of expertise, that's a different story.

> I really don't understand this sentiment, as if a professional gambler would not gladly gamble with novices...

It depends on the situation and the game. Some poker professionals don't gamble significant sums with novices because the novices are far less likely to behave in a manner that is predictable according to statistics or some other strategy.

Professionals have more money and experience. They should be winning really. Or at least know when to cut losses and move to other side...

You haven't argued this, but there should never be an opportunity for safe passive income that scales with your wealth.

You're only "stuck" if what you need is to inflate your wealth at the expense of someone losing theirs.

That's a fairy tail they teach in school.

You dont get money because someone else lost some. You get money because you helped stabilizing the market by predicting it right. The losers lose because they predicted it wrong. Its a net gain for everyone who is somehow affected by the market which means basically everyone on this planet. There is no moral problem with winning or with loosing as you help either way.

Also there is no need for anyone to lose, everyone could be right all the time that would give a perfectly stable market, but people are terrible at predicting the future so that will never happens.

we all gamble that have excess money to do so.

there is a huger "we all" that don't.

yeah ..had he ever head of house edge or the house cut/vig.

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