The Retreat of the Amateur Investors
wsj.com
wsj.com
These are definitely not investors, and they aren't even traders. They're /r/wallstreetbets gambling addicts. Most of them don't have trading "systems" (no, joining a Discord doesn't count), most follow technical analysis as if it were the Delphic Oracle, most mainly gained in the ridiculously bullish markets of 2020-2021 (I don't know anyone that lost money during that bull run), and most buy and sell options (which are meant to be used as hedging, not investment, instruments). I almost doubled my (non-index) portfolio by making the most obvious plays ever (durr, airlines will probably go back up, casinos will probably go back up, cruise lines will probably go back up).
Now, it's much harder to make free money, so yeah, they're "retreating" if you can call it that. But really, sideways/bearish markets are the true test of an investor, not the frenzy of bullish rallies. There's a handful of brilliant people on WSB (like DFV, among others, which are actually good, albeit high risk, traders), but after their coverage in NYT a few years ago, it's just become a cesspool
I would argue that these were not the "most obvious plays ever." Airlines were making most of their money from business travel. It wasn't necessarily foreseeable that business travel would rebound somewhat and that increased leisure travel would make up the rest of the difference.
Additionally, you should really compare your performance to how a baseline investment would have performed over the same time period. VT almost doubled from the the start of the pandemic to the market's peak, so it is not really fair to say that you traded your way into doubling your portfolio.
Doubling your money is fucjing fantastic no matter how you slice it.
Let the guy have his win lmao
People should not push the narrative that you can make money from stock picking when it's just not true in any practical way.
Me, I just buy and hold on undervalued companies that make sausage machines rather than sausages, have been for a decade, and I’ve seen an overall gain of 38,000%. No leverage, as my strategy occasionally entails watching everything slowly decline 20% during from time to time — but I bought equities in businesses that I believed had legs at the time, and continue to do so for the same reason.
The sports betting wasn't part of his investing strategy. This feels like a "No True Scotsman" fallacy to say these people aren't really investors.
And as long as you hold the stock, from the tax man's perspective, from the company's perspective, from your trading platform's perspective, you're an investor. It's irrelevant how long you had the stock. If you sell it, you're going to pay taxes on the profit from your 'investment', which makes you an investor.
These case studies are all people that jumped in and tried to make a short-term profit off of market trends. This is very risky and akin to gambling; the formal terminology though is speculator, not investor.
Agree to disagree. An investor is someone who buys into financial vehicles with the intent of making more money. That's it. There are different types of investors but how they actually do it is an 'implementation detail'. You can be an investor and a speculator at the same time. While you're hold the stock, you can proxy vote, you can sell the stock, you're by definition an investor.
EDIT: What does the IRS consider you an investor if you made money from stocks? Or do they check to see if you're interested in 'the fundamentals' first? Do they investment income and expenses like capital gains and such to be 'investment' incomes or 'speculation' incomes depending on your 'system' of investments? Asking for a friend to check if they'd get a tax break because they weren't real investors.
If we broaden the definition of "investor" as much as you're describing, the word becomes meaningless. It's important to distinguish between "investors" and "speculators", and this is how we do so.
No, because the casino does not sell securities (re-read my comment, please). You're conflating how the market behaves (or how specific stock behaves) vs the market itself. Ask the tax man, does money from casinos get taxed differently than capital gains from stock sells? Why is that?
> If we broaden the definition of "investor"
I'm not broadening anything https://en.wikipedia.org/wiki/Investor
"Investors take a systematic approach to growing their wealth, buying assets with reasonable levels of risk in exchange for long-term growth. Speculators, on the other hand, buy assets that may experience rapid growth but can also lose their entire value if they go out of favor... Popular assets such as stocks and bonds can be investments or speculative assets, depending on how you approach them." [1]
> An investor is someone who buys into financial vehicles with the intent of making more money.
OK, fair enough, you did say "buys into financial vehicles", which excludes playing the slots. Regardless, and if for no other reason than to debate with a shared vocabulary, I still contend that it's important to distinguish between someone who takes calculated risks based on thorough research and industry knowledge vs. someone who does the Wall Street equivalent of "playing a hot tip at the race track".
If you agree with that, how do you propose we do that, if not with different terms for different concepts? And if you don't agree that the distinction is important, how do you propose that someone looking for a money manager make their criteria clear to others?
EDIT: I wouldn't base your opinion of who is or isn't an investor on what the IRS says. This is the same organization which said that buying a clarinet for your child is a medical expense, after an orthodontist argued that playing it helped correct their kid's overbite. [2]
1. https://www.bankrate.com/investing/investing-vs-speculating
2. https://turbotax.intuit.com/tax-tips/tax-deductions-and-cred...
I don't know, is it important to make that distinction? What's so special about this? Is this some sort of protected guild? How do you distinguish between someone who went to college, majored in CS, writes protocol-level code professionally and holds 10 patents vs someone who went to a bootcamp, copy-pastes code from the internet while working in a web shop writing PHP extensions for wordpress?
> I wouldn't base your opinion of who is or isn't an investor on what the IRS says. This is the same organization which said that buying a clarinet for your child is a medical expense, after an orthodontist argued that playing it helped correct their kid's overbite.
I don't see the problem with that. Another instance of something similar is the health benefits from playing the Didgeridoo https://en.wikipedia.org/wiki/Didgeridoo.
Again, it is if you're interviewing a money manager. And that's basically what you're doing when you're judging a stock tip, whether from /r/WallStreetBets or anywhere else. That's not to say that professional investors don't post on Reddit. But so do a lot of idiots who talk a good game. My bet is that there's more of the latter than the former.
If you wouldn't give equal credence to the software opinions of your two hypothetical examples, then you shouldn't do so with the investing opinions of my two examples. I'd sooner trust the advice of people with more knowledge vs. those with less. I'm not sure why that idea is such a tough sell for you.
Obviously, feel free to do what you want with your money. I know which of the two people I'm trusting with mine. The market will tell us who was right in the long run.
- how they're calling themselves (investors vs traders vs speculators vs etc..) - how other people are calling them (investors vs traders vs speculators vs etc..) - whether or not some group of people considers them true 'investors'.
I'm talking (and have been talking) about the terminology here.
> I'd sooner trust the advice of people with more knowledge vs. those with less.
Again, please re-read my comments. Your text has nothing to do with what I said. When I said it's not important to make the distinction I was referring solely to the terminology.
I mean, it's important in the sense that it's generally useful to be able to differentiate two things that are, in fact, different from each other?
When I order orange juice with my brunch, I don't want the waiter to come back with apple juice. When I ask my general practitioner to recommend a good oncologist, I don't want them to refer me to an ophthalmologist. Why would this be any different?
Things mean things. To the extent that we blur the lines of our shared vocabulary, we make it harder to communicate with each other. Maybe you've never needed to distinguish between these two very different concepts, but lots of other people have.
Long-term gains (more than one year) get a discounted tax rate.
Short-term gains, which are most likely speculative, are taxed as ordinary income... the same rate as winnings from gambling.
Gambling - mathematically, you're going to lose over time. This is why blackjack, the lottery, and sports betting are gambling. Every system that has payouts based on what people put in, minus a cut for the bookie, is in this category.
Investing - the mathematical odds are in your favor. Stocks, real estate, etc., as the payouts are based on the ongoing creation of value.
Gambling? There's no house in poker (cept for the fees for the dealer, which i would assume is fixed).
For some people who dedicate their lives to it, it's a game of skill, and an investment when played against lesser mortals.
If you're betting on the players in the game, then it's clearly gambling.
Technically, their investment EV is far higher than stocks and bonds. Could be on the order of 2% per day, if it wasn’t for those meddling back offs and limits.
1. limit the amount of bets
2. using multiple decks
3. reshuffling the decks long before the deck runs out
making the return so miniscule as to be a waste of time.
1. Bet sizes can be up to around ~$10k with a 1% - 3% EV per hand.
2. Doesn't matter too much, standard 6 or 8 deck shoes still are 0.5% EV at true count 2 and +0.5% thereafter.
3. This matters more, but most counters eye dealers with 70%+ penetration of all the decks, which still averages to the +EV above.
Returns are ~$50/hr at your average casino but the sky is the limit for having mid 6 figure bankroll and being a smooth social engineer with $5k bets at high roller tables. Some hands are +$50-$250 per.
- Some sports bettors apply advanced analytics and win consistently. We can still sensibly use the expression ”sports gambling.”
- Conversely, people ”invest” in crypto schemes that are sure to lose
The conceptual distinction you’re drawing may be a useful one, but I don’t think it perfectly follows the contours of the words ”gambling” and ”investing.” These words are used in different contexts for random historical reasons. On average, the contexts in which we would say ”investing” are a lot safer than the contexts in we would say ”gambling,” but it’s not totally cut and dry.
Don't forget the mother of all obvious plays.
"Maybe crude oil's true price is higher than -$40 per barrel" (yes, negative dollars).
EDIT: To be fair, oil traders got burned in the short term by calling the bottom at $10, $5, $0, -$5, -$10, or -$20. Showing the complications around "calling the bottom". Yes, it turns out, that the price of oil can collapse to spectacularly low values. Still, the price of oil did in fact recover above these levels, so buying oil at any of these entry points would have netted easy wins over the next couple of years.
One maxim I heard: in a bull market, the less you know, the more you make.
I am not actively investing, but I do now central banks are not playing against anyone on any market. When they announce, they follow up with policy, the announcement is to ease the market into it. Betting against that is, well, not so smart.
I do not think of part-time gamblers or day traders.
An amateur investor is someone who is investing their own money. A professional investor is an investor who is being paid by somebody else (a fee of some kind) to do the investing on their behalf.
Amateur/professional doesn't refer to the method they invest using. They could be using gold-fish to tell them what to buy, or they could be using sophisticated computer and math models to buy/sell.
The future is bright.If the article actually says there is a function here for individuals to direct preferences, and somehow "inform the market" well ok, wisdom of crowds.
If the article really means "a giant suck hole of chumps we can rip off because we know more than them, and they have sentiment, and enough stake to lose to make it worthwhile" thats kind of .. wall street bets but in a newspaper.
I very much doubt active traders (people with more than one transaction per week let us say) is the scale of the market of concern here. I think its far more likely as people look at income from holding, the relative worth compared to initial investment, and availability of income stream products and investments they're moving out of shares and into other things. Pensioners do that.
They're not all get-rich-quick fantasists. The illustration and their quips to returning to $14/h jobs in Vegas are not really a national trend as much as seniors pulling out of direct shares into EFT, or property, or income stream products from banks.
Let's be real. 100 shares of a billion or trillion dollar market cap company does not an investor make.
The amount you invest is a quantitative attribute, whether you are an "investor", or not is qualitative.
You could say that a "Professional Investor" is someone whose main income comes from investing. A "Day Trader" for instance.
Amateur investors only buy index funds, anything else is speculation.
Why is that?
and socially because the goal of the system is to get participants to behave in "optimal" fashion, for a certain very specific definition of "optimal".
Imagine how dysfunctional the world would be if you could never loose money investing in something.
This brings up questions like "where did that extra $50 come from", but maybe you get the point of the original comment now.
This is the underlying principle of investment, that the money is being utilized by someone for potential economic gain.
If that money is just parked such that its always available for a return then it isn't really an investment.
The quiet part: "Silly workers, thinking they could buy they're way into the capital class with some surplus hours of earnings. They don't even know how the game works! Ah well, back to the toiling for them I suppose."
A risky bet that loses doesn’t mean the bettor did something wrong, and one that wins doesn’t mean the bettor did something right. They played odds against unknown factors and came out up or down. If the market is efficient at all, it’s in the aggregate, not on an individual basis.
But for “amateur investors” enough loss may mean that they’re out of the game, which is different than for those who have the luxury of more capital.
Personal outcomes for “amateur investors” are very much about luck, even when pursuing more ostensibly conservative strategies.
Its not like you have to have a certain amlunt of money to invest : we have nano options and fractional shares now. Theres no barrier to entry. E.g. you can run the same strategies as pros with the same risk of losing your bank roll. Having more money doesnt make it inherently less likely that youll lose all of it