Back in February I noted the sorry gamer who had no clue about what to do with the bundle of tax forms he'd received after playing day trader for a year on GameStop. In the words of the guy, Joseph Holler, ( 'Day Traders, Here's Your Tax Bill', WSJ, Feb. 6-7, p. B5)): "It's so convoluted I have no idea what it means. I think I will need to hire a professional!"
But that doesn't begin to tell the tale of most of these characters- many former gamers - who had no clue what they were doing in the stock market. The sheer depth of their ignorance came to light in a recent WSJ column ('The Know-Nothings Running With The Bulls', March 27-28, p B7) , by Jason Zweig. As he acidly observes:
"Bragging rights used to go to those investors who worked the hardest at learning. Now the glory often goes to those who know the least and don't even care. That has turned the traditional investing hierarchy upside down..."
He was referring to the proliferation of gamers and online gamblers who had migrated to day trading, do it yourself sites like GameStop in which the callow newbe's made fortunes by betting against the Street, e.g.
Mr. Zweig's savvy tracking of online comments disclosed the extent of regret of some of these characters. E.g. from one Tik Tok video posted in January:
"I don't know what the fuck I'm doing. I just know I'm making money."
Not cool if you have no idea HOW you are making money. Zweig went on to note: "He added that he'd only been trading stocks for three days but....just like that, made $300 in one day."
We then learn: "In the next few weeks that young man racked up 500,000 followers."
Obviously also yearning to know how to make money without doing much of anything, or knowing anything. To reinforce the pathos of this bunch Zweig then turns attention to the WallStreetBets forum featuring recurring comments like: "I can't read!" and "I have no idea what I'm doing!"
Zweig also notes the site is laden with users insulting each other with endearing terms like, "idiot", "stupid" or "3,500 related terms." This according to TopStonks which tracks stocks mentioned on Reddit and other sites.
Zweig's basic contention is that the stock market's meteoric rise is no mystery. Basically, over the past year "fiscal and monetary stimulus have flooded the economy with cash" and this was clearly pumped into the markets - so "stocks shot up more than 75 percent."
But... people could have done anything with that money, including paying off more mortgage or college loan debt, paying off back rent, or even donating to St. Jude's Research Hospital or other charities. But many chose not to, and decided to play the stock market instead. This choice perhaps also propelled by tens of thousand of gamers getting bored with the online gaming (e.g. Fortnite) and gambling.
Zweig also points out another aspect: the markets were so juiced that "you could have made money even with bad stock picks." Market success - even relative- thus became detached from intelligence, hard work.....and ignorance. Even the semi dopey gamer semi-stoned could make a buck in this market. The natural barriers that had existed before, preventing (or intimidating) any Tom, Dick and Harry from jumping in, no longer existed. As Zweig describes the nature of the market into which the gamers dived:
"It was like being invited to bet on black, without limits, at a roulette wheel on which 37 of the 38 pockets were black. Why waste time and energy educating yourself when sheer ignorance pays off so easily?"
Why indeed, because basically it is human nature to take the easy route. As Zweig notes: "What's more, many traders boasting of their own cluelessness are buying stocks with money they otherwise would have used for gambling."
In other words, confirming the Repuke tightwads claim that too many "didn't need the government handouts". Hence, much more ought to have been done to get the money exclusively to those on their last legs - maybe one week from getting their utilities shut off, or one week from being evicted from their apartment. But in a pandemic no one ought to be using relief money to gamble or do day trading. It's unseemly and somehow tawdry, morally bankrupt.
Zweig is spot on correct that most bettors (like these gamers turned traders) know deep down "the house almost always wins." But "no one minds because the hope of winning is so exciting, no matter the odds."
A lesson we well learned playing the slots in Vegas five years ago, e.g.
When we ended up winning nearly $900 but then lost all but $50 in our irrational exuberance to build the winnings even higher. But hey, we basically played through hours on end mostly with house money. Too many gamers, OTOH, have lost thousands of their own money - or at least their Covid relief money.
This brings up another point made in Zweig['s piece: "Now that just about anyone can trade commission-free, gambling on stocks offers a much better chance of making money than other kinds of wagers."
Well, also because - like playing the slots - the commission-free traders shorting Game Stop shares- don't need to do any serious research. Besides, by switching from gaming to stock trading "they're already winners - getting as much entertainment value while paying much less to the 'house'"
So in the end, as long as trading is basically commission free, and the markets are indifferent to ignorance - the gamers can still come out ahead.
Who'd have thought? Will they ever learn they don't belong in the stock market? Maybe, after Jay Powell and the Fed finally jack up interest rates several hundred basis points - when inflation proves to be as real as a heart attack.
Zweig himself offers this somber take at the end: "One of these days, perhaps sooner than later, stocks will stop rising up and the importance of understanding what you own will reassert itself."
Hopefully, for the sake of the nation's sanity, that reckoning will come sooner rather than later.
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by P.M. Carpenter | April 30, 2021 - 6:06am | permalink
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