[an_opabinia]

> For a classic example, just look at /r/wallstreetbets -- young people are frustrated because there's no end to this tunnel

That's a bad example. By many measures retail investors have outperformed institutional investors since March. The simple reason is that options have a built in exit strategy, the thing that's missing when most people lose in scams - including Ponzi schemes!

On the flip side, why then do they outperform? High risk, high reward. Opportunities where you lose your entire principle, like out of the money options, turned out to be wildly underpriced, simply because institutions never buy them.

Anyway, I get it, those people are stupid. But they made money.

[dvt]

> That's a bad example

I don't think it's a bad example, because if you spend some time on that subreddit, you'll quickly realize people are literally gambling with their life savings. In no small part due to disillusionment and cynicism with the current economic realities -- we can no longer work at a stable company, marry a pretty wife, have a couple of kids, retire 40 years later, and live off of a plump 401k.

[throwaway0a5e]

>we can no longer work at a stable company, marry a pretty wife, have a couple of kids, retire 40 years later, and live off of a plump 401k.

This is what nearly everyone in tech who isn't spending their free time shitposting about their side projects and the nuances of programming languages is doing. Sure you can't work your whole career at one company anymore but that's just a reflection of macroeconomic conditions, the stability is still there for the people who's skills are in demand. Pretty much no competent programmer, or electrician for that matter, is unwillingly unemployed for long enough to matter.

[dvt]

> the stability is still there for the people who's skills are in demand

Saying this after 2008 is just empirically false. You do realize that people lost their entire 401(k)s, right? My dad worked at IBM for over a decade and was laid off. More recently, my buddy (late 20s) was laid off by IBM after working there for the past 7 years; I know people in their 40s and 50s (at big companies and startups alike) that were laid off at the drop of a hat once the pandemic hit.

I live in West LA and make a "comfortable" engineer's salary. Guess what, I'll never be able to afford a house here (unless one of my startups takes off or some other equally-unlikely miracle happens). I don't care if you blame this on "macroeconomic conditions," it just happens to be the reality of my generation. To touch on the loneliness/isolation angle, while doing the whole startup thing, particularly in my 20s, I was putting off dating; although I've recently said screw it: even if I die poor†, I'd rather be with someone.

I'm very much a libertarian "pull-yourself-up-by-the-bootstraps" entrepreneur's entrepreneur but let's be real: it's not surprising there's so much cynicism.

† Relatively, of course. I grew up in post-Communist Eastern Europe in actual poverty, so my life is much better than it used to be.

[paul_f]

Unless it was 100% invested in Enron or Lehman Brothers, nobody using a competent financial firm "lost their entire 401K". The markets only took 4 years to completely recover to the 2008 top levels.

[bsanr2]

How do you measure competency? Does not the speed of that recovery, in the face of ongoing and growing pressures on the consumer class that floats the economy-at-large, leave you wary of its fundamental foundation and stability?

[dannyw]

Have you thought about cutting down your expenses, living frugally to build up your investments?

I find it hard to imagine someone making an engineer’s salary can not afford a house, even in LA.

[dvt]

Then you're just woefully disconnected from real estate markets in big cities. The cheapest, crappiest, smallest house in a neighborhood like Santa Monica (which is nice, but not Bel Air or Malibu nice) is $1 million dollars. Maybe I shouldn't complain, because I have friends in San Francisco that have it even worse. The "making six figures and living with 4 roommates" is basically a meme at this point if you live and work in SF.

The solution here is to move to Austin (which a ton of people have been doing recently) or just travel the world because, thankfully, I can do my job remotely (but many people cannot). This was actually my plan, but the pandemic kind of killed that -- maybe next year.

[shard]

Santa Monica is not a good choice for affordable living in a good neighborhood with a good school district in Los Angeles. Look a bit further afield in cities like Torrance, or even North OC cities like Fullerton or Garden Grove. If you insist on living in an expensive coastal city like Santa Monica, expect to pay for that privilege.

[v64]

> you'll quickly realize people are literally gambling with their life savings

Gambling, yes. But the stock market is not a ponzi scheme.

[ajmadesc]

It kind of is. 1. Debt accumulates 2. Return on investment grows faster than the economy 3. Capital starts to strangle economy through rent causing political tensions. 4. Suffering 5. Economic reset through war, revolution, plague.

[v64]

If you're willing to dilute the meaning of "ponzi scheme" so broadly, then yes, the economy is a ponzi scheme.

[CharlesW]

> But the stock market is not a ponzi scheme.

That depends on who you ask. https://www.hughescapital.com/the-stock-market-is-a-ponzi-sc...

[dmoy]

From that link:

> In 2010, its stock price was $20 and by 2017 had risen to $380 a share, yet Tesla reported a loss of $4.3 billion. How is this possible? The only way to explain this bizarre scenario is to recognize that the market is not efficient

I will pass on buying/reading that book based on this excerpt alone.

I am far away from a tesla fan (I actively encourage my friends/family to not buy teslas, or invest in tesla, etc), but saying "the only way to explain this" is pretty unbelievable.

[ZephyrBlu]

How would you explain it then?

I don't believe Tesla would be valued so highly or fluctuate so violently if the market was actually efficient.

[exged]

The market is efficient in the sense that it aggregates all knowledge between market participants. Nevertheless, no one actually has a crystal ball to predict events far in the future. Tesla's valuation and volatility can both be explained by some market participants expecting huge growth over a long period of time, with a correspondingly huge uncertainty over the actual outcome.

Just to put some simple numbers on things, a commonly held expectation is that Tesla will grow revenue at ~50% a year until 2030 while maintaining high margins. At that point Tesla's revenue would be approximately 1T with perhaps 100B in net income. A fair valuation would then be around 3T, assuming there is still some future growth left.

This largely explains today's 500B valuation - if there is a 30% chance of this scenario playing out (and Tesla goes bankrupt in the other 70%) then this is a reasonable bet compared to buying other stocks.

As for the volatility, imagine if the average market participant changes their mind and believes that Tesla is only likely to achieve a 40% growth rate over the next decade. This would drop 2030 revenue and profits by more than 40% compared to the previous scenario, and today's stock price would fall significantly as well.

[dmoy]

> How would you explain it then?

I am not expert enough to know, but just off hand declaring that something is "the only way" with literally no justification or reasoning puts a really bad taste in my mouhth

[numpad0]

> can no longer work at a stable company

Been wondering lately, why is a position in a stable company also generally considered stable?

I mean, it’s a scalable system designed to survive, running on cash flow. Say load reduces, or flow reduces, wouldn’t it be only sane to immediately cut down on worker nodes? Why keep, except as strategic reserves?

I suppose because strategic planning up top used to be harder in the past so reserves tended to be large?

[alisonkisk]

Come on. WSB is people goofing with real or fake money for fun and lulz. It's not for desperate people trying to survive.

[dvt]

I think that's debatable, but it's most definitely people being cynical about the current state of the economic realities we face. It's all fun and games, until someone commits suicide[1]

[1] https://www.cnbc.com/2020/06/18/young-trader-dies-by-suicide...

[bsanr2]

I dropped ~$1000 of my last savings into options earlier this year because "DIS is going to print." Actually, it's because I was unemployed and staring down the barrel of a rent payment that that money would not be able to cover. I figure I lose the money and not make rent, just as if I'd done nothing, or it makes the money back and then some, and I'm able to cover another month. If I'd sold about a week into holding, I'd have made ~50%. Then our Fed Chairman made the totally sane and not completely unprecedented decision to pump $2 trillion dollars into the economy. The underlying stock shot up and my options values evaporated overnight, amidst the issuing corporation announcing that all of its revenue streams would be effectively dead for the foreseeable future.

Just sensible market behavior.

[tasuki]

I think the second half of your comment is sarcastic but also... entirely correct?

[bsanr2]

Well, no. The bailout was unprecedented in size, it was completely insane (in that it clinches the imminent and extremely messy doom of either the American middle or investor class, depending on whether populist fear or populist rage prevails), and there is zero percent chance that the coming maelstrom is "priced in."

Most Americans have been so fully shut out of capital that they're practically begging for asset values to get rocked. They'll encourage it, even. (What do you think this lockdown backlash is, unconsciously?)

All of Disney's revenue streams shut down for 3 months and its stock went up. The market needs to be reflective of conditions and not simply the desperation to never see a bubble corrected, or people are going to start calling the bluff.

[giantg2]

For most on there it is with a small amount of disposable income or house money. But there are some doing it with the money they need to survive or retire. Or just don't understand the naked position they just screwed themselves with.

[nish1500]

Trading on the stock market (by and large) doesn't create value. If someone makes a killing, it's because someone lost it. You hear about those who make money - because it's the story you 'want' to hear.

People don't understand how money comes from value created, in the long run. People think they can game the system. Everyone feels they are not a part of the average.

[friedman23]

>If someone makes a killing, it's because someone lost it

Not true, companies can create value, that value is reflected in the stock price. The economy is not zero sum. Did all the people that got rich off of apple, google, microsoft, nvidia, etc get rich because someone else lost money?

[nish1500]

Exactly! Which is why my comment talks about 'Trading' not 'Investing'.

https://www.investopedia.com/ask/answers/12/difference-inves...

[rootshelled]

Those companies got value via selling products with a margin to their customers. So, technically their customers lost money for those companies to gain money.

Not that there is anything wrong with that. Just pointing out how I think your logic is flawed.

[anonymouse008]

Eh, depends on how you defined ‘lost’ a lot of money —

Many of the calls that have hit recently only capped out people’s gains - so yes there was an opportunity cost to that lost, but people didn’t literally lose invested capital. Not as much money as you think has gone into the red this year - even on the way down.

[refurb]

Trading creates liquidity, which supports a healthy capital market which companies can access for capital.

[bsanr2]

(I mean so does heavy taxation of capital ~hoarders~ holders, to be redistributed among the country's labor base, who will then tend to spend it immediately on goods or personal investment, but we don't talk about that.

OR

The point of liquidity is to get people doing things, but the status quo today seems more like giant firms trading above our heads to manage the risk of rent-seeking on an increasingly precariously-positioned consumer class.)

[refurb]

Neither of your points seem based on an accurate understanding of the financial markets.

[bsanr2]

I don't know why another user's comment,

Neither of his points seem based on Economic dogma shoved down your throat during undergrad.

was flagged, as it was neither inflammatory nor uncouth, but I agree with it. You seem to have an entirely elementary conception of the market and an inability to understand the ways those assumptions have fallen apart in the face of market and regulatory conditions.

[LatteLazy]

Not trying to sound aggy but... Do you have a source for retail investors out performing institutions since march? I'd like to know more about this and I haven't heard anything but I've been pretty disconnected from news so excuse my ignorance please!

[dannyw]

There’s no credible way to precisely define this, especially because success of investing is not purely based on returns of a half year horizon or so.

[cbozeman]

> Anyway, I get it, those people are stupid. But they made money.

They are absolutely not stupid. Everything they're doing is entirely rational. It doesn't seem that way, because clearly you're not in the same circumstances as they are. Neither am I.

However, I completely understand it. If you're 22-25, not married, and have far more liabilities than asset, you have no reason not to trade on high margin with an options play and try to turn $50,000 into $2 million or more.

If you lose the $50,000, you can recover. If you end up horribly in debt, you file for bankruptcy and move on.

Given the current state of affairs, its completely understandable.

[nradov]

It's hard to believe that OTM options are wildly underpriced. Institutional investors might be unable to trade them but there are plenty of hedge funds with no such restrictions. 0

[gruez]

>That's a bad example. By many measures retail investors have outperformed institutional investors since March.

The average retail investor might have outperformed institutional investors, but it's a leap to suggest that wsb outperformed institutional investors. Foe one, the average retail investor isn't buying otm options like wsb users are.

> The simple reason is that options have a built in exit strategy, the thing that's missing when most people lose in scams - including Ponzi schemes!

Not really? Options can have their value go to zero if they remain unexercised, just like if a ponzi scheme goes bust.

[ek750]

>Not really? Options can have their value go to zero if they remain unexercised

true. but as a person who plays with options, I should point out that when you buy an option contract, you don't want it to expire worthless.

However if you are an options seller, that is the best possible outcome.

[ll931110]

You can win in a single year or two. But winning year over year for 10 years? That's not possible, unless you are .. wait for it .. being part of them?

[coliveira]

If you think OTM options are underpriced you're in for a rude awakening. Sure, you can make lots of money with OTMOs, but don't expect to do this regularly.

[micael_dias]

To be fair he didn't they are. He said they were, which might have been the case in March after the corona crash.

[ra7]

After the March crash, volatility was really high. So I doubt even far OTM options were that cheaper back then.

[sooheon]

> By many measures retail investors have outperformed institutional investors since March

Source please?