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Gambling Mentality Rages On


Parsad
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It's not just the retail trader, excess is everywhere:

 

"Money managers are having such a tough time getting their hands on debt in the $2.8 trillion market for junk bonds and leveraged loans that they’re calling up companies and pressing them to borrow, instead of waiting for bankers to bring new deals to them."

 

https://ca.finance.yahoo.com/news/junk-buyers-desperate-debt-pressing-110000798.html

 

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I think some of the retail behavior is explained by lack of financial education, but I also think if we were in the financial position of most Americans this behavior would be viewed as more rational.  For people living on $15,000 per year, making high risk but life changing bets may not be irrational behavior when they see no other opportunities to move up.

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This whole episode makes me thankful for the existence of a professionally managed CPP in Canada.

 

Sure, people may have their gripes about CPP (and them running ads), but at the end of the day having CPP as a backstop protects investors against themselves doing stupid stuff like investing in meme stocks.

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This seems crazy, but looking at the survey:

1. This is an online survey, and people regularly lie on surveys.

2. It implies 92 million adults in the US bought one of these stocks on the basis of surveying only 1089 people. That doesn't smell right.

3. "Half (53%) of this group invested $250 or less in viral stocks while only 15% invested more than $1,000." This is lockdown boredom gambling with small sums, which seems contained to a small number of low float stocks currently.

4. "One in five (20%) also invested based on the advice of a financial advisor." Who are these "advisors"??

5. 60% of the respondents claim not to have a brokerage account. How are they trading???

 

I agree with the general sentiment that excesses are growing larger and more widespread, but this article and survey look worthless to me.

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Last night I updated my spreadsheet that tracks net worth across all accounts and assets. I do follow the market regularly but looking at the numbers in the spread sheet Q over Q was sobering. Hard to see how this continues at current pace and imagine what will happen when it stops. Oh well, back to daily life.

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My brother-in-law, who previously did very little investing, has been talking about his latest stock pics, which he claims are "sure bets" based on his following of Dave Portnoy (barstool sports)…

 

One of my employees (chemical plant electrician) has been talking about his Dogecoin and AMC buys.

 

Both of these individuals are otherwise intelligent people, rational, not crazy, not gambling addicts, etc.  It has become the new normal today.

 

I do wonder if the additional stimulus $ over the upcoming months will add to the gambling.  I won't rule out the possibility things will get even more crazy before the tide changes.

 

 

 

 

 

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My brother-in-law, who previously did very little investing, has been talking about his latest stock pics, which he claims are "sure bets" based on his following of Dave Portnoy (barstool sports)…

 

One of my employees (chemical plant electrician) has been talking about his Dogecoin and AMC buys.

 

Both of these individuals are otherwise intelligent people, rational, not crazy, not gambling addicts, etc.  It has become the new normal today.

 

I do wonder if the additional stimulus $ over the upcoming months will add to the gambling.  I won't rule out the possibility things will get even more crazy before the tide changes.

 

Same here on the brother-in-law thing. He's bought all the Robinhood stocks. Amazing. Of course, he's done pretty well, so no reason to stop.

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My macro views are usually trash, so there's your warning. That being said, I hear echoes of Nikkei 1989 in the US market. Stocks, real estate, bonds - most everything is absurdly overpriced. The Japanese were at least smart enough to let the air out of their bubble, and Japan remains a prosperous society despite the post-'89 capital destruction. It doesn't seem like our own policymakers are that smart, to be honest.

 

PS: The Nikkei finally surpassed its nominal high from December 1989 - it only took 31 years.

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Stocks, real estate, bonds - most everything is absurdly overpriced.

 

Even the largest growth stocks (FAANMG) are not "absurdly overpriced". Some of them are actually somewhat cheap. FB. GOOGL. I could make a buy case for most of FAANMG.

Real estate? Depends on location(s). A lot of US RE is comparable to or way cheaper than Europe or Canada or Australia (AFAIK).

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Stocks, real estate, bonds - most everything is absurdly overpriced.

 

Even the largest growth stocks (FAANMG) are not "absurdly overpriced". Some of them are actually somewhat cheap. FB. GOOGL. I could make a buy case for most of FAANMG.

Real estate? Depends on location(s). A lot of US RE is comparable to or way cheaper than Europe or Canada or Australia (AFAIK).

 

When Facebook went public I remember talking to a friend and doing some fundamental analysis to convince them it wasn't overpriced, that in actuality it looked underpriced. Based on that, I then went on to buy zero shares and keep most of my account in cash because I wasn't investing at the time so I could remain focused on building my business that failed....

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This whole episode makes me thankful for the existence of a professionally managed CPP in Canada.

 

Sure, people may have their gripes about CPP (and them running ads), but at the end of the day having CPP as a backstop protects investors against themselves doing stupid stuff like investing in meme stocks.

 

Totally agree!  If everyone was left to their own devices, we would have utter chaos! 

 

I'll be 52 in July, and even after everything I've saved and invested, I wonder if it is still enough.  I also know that the majority of people my age and those heading into retirement have a fraction of what I have saved.  Without CPP, universal healthcare, medicare, etc., there is no way they would be able to live a retirement life with any dignity. 

 

Cheers!

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For the life of me I can't remember where I saw this little bit, whether it was SNL or Youtube or elsewhere, but a wife is disgruntled with her husband and his gambling ways...essentially he's blown everything the family owns. 

 

When the family confronts him in an intervention, he defends himself and says that everyone is blaming him for things that weren't his fault...that people called him a degenerate gambler...he then points out how offended he is by it and smugly states "I work, I work, I'm a day trader!"

 

Cheers!

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I mean the signs of a market peak are certainly there. This time around it’s looking more in the less established space (would say Small Caps).

 

Here are the signs of a looming market top

- Famous celebrities and musicians are starting SPACs

- Famous celebrities are finance gurus

- Tesla buying Bitcoin to reinforce the circularity

- GameStop (and 50% of ppl thinking it was going to $1000)

- Pokémon Craze 2.0

- Sports cards craze 2.0

- Multiples have shifted from EBITDA to Revenue

- Citron exiting short research

- Getting massive moves in various parts of the market (its Lithium one day, then EV the next day, then some Chinese play, then NIO, then back to some BS concept stock)

 

Bubbles can last 1-2 or 20 or maybe even 100 years, in the long run we’re all dead anyways

 

Maybe bitcoin gets to 100 million before going to 0.

 

I wouldn’t dare go to cash but if you look back at 2021 say in 5 years, and someone said what were the signs (insert EV/CRYPTO/SPAC play), it was pretty obvious

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I wouldn’t dare go to cash but if you look back at 2021 say in 5 years, and someone said what were the signs (insert EV/CRYPTO/SPAC play), it was pretty obvious

 

That's what I struggle with. Sure, I will accept we are in a bubble but what do you do with that assumption? Invest in value assets in hopes they don't crash as bad when the bubble pops? Or go hard and play the EV/Crypto/SPAC roulette while it's still hot in an attempt to juice gains before the crash?

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I wouldn’t dare go to cash but if you look back at 2021 say in 5 years, and someone said what were the signs (insert EV/CRYPTO/SPAC play), it was pretty obvious

 

That's what I struggle with. Sure, I will accept we are in a bubble but what do you do with that assumption? Invest in value assets in hopes they don't crash as hard when the bubble pops? Or go hard and play the EV/Crypto/SPAC roulette while it's still hot in an attempt to juice gains before the crash?

 

Find the upside without downside plays. Pabrai loaded up on Silicon Valley Bank in 2000 because it had warrants from dot com startups that weren't showing on the books.

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I wouldn’t dare go to cash but if you look back at 2021 say in 5 years, and someone said what were the signs (insert EV/CRYPTO/SPAC play), it was pretty obvious

 

That's what I struggle with. Sure, I will accept we are in a bubble but what do you do with that assumption? Invest in value assets in hopes they don't crash as hard when the bubble pops? Or go hard and play the EV/Crypto/SPAC roulette while it's still hot in an attempt to juice gains before the crash?

 

Find the upside without downside plays. Pabrai loaded up on Silicon Valley Bank in 2000 because it had warrants from dot com startups that weren't showing on the books.

 

Ya I’m sure there are some asymmetric bets in the market today, just got to find them.

 

My current way of playing it, is first be careful of the risks of overinflated assets. My way to not get caught up is simply not buying GameStop, not buying NIO, not buying the 0 revenue 50 billion market cap company.

I don’t think many on this board have a significant % of portfolio in these names but many people on Reddit’s portfolio is filled with 0 revenue multi billion dollar lithium or EV or garbage concept stock. So avoid the very very obvious overvalued plays.

 

In terms of tilts, (either sector or style) it’s a good point you bring up. I think if you invest how one should invest (thinking of value in terms of future cash flows) and not based on a PR of lithium, EV, bitcoin, if there was a broader correction at least you won’t be hit as bad as the overinflated names. I’m assuming these overinflated names have a beta > 1 so you should be hit less

 

In terms of pure profiting from a correction, you can buy puts, place shorts, sector tilt, etc.

 

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I wouldn’t dare go to cash but if you look back at 2021 say in 5 years, and someone said what were the signs (insert EV/CRYPTO/SPAC play), it was pretty obvious

 

That's what I struggle with. Sure, I will accept we are in a bubble but what do you do with that assumption? Invest in value assets in hopes they don't crash as hard when the bubble pops? Or go hard and play the EV/Crypto/SPAC roulette while it's still hot in an attempt to juice gains before the crash?

 

Find the upside without downside plays. Pabrai loaded up on Silicon Valley Bank in 2000 because it had warrants from dot com startups that weren't showing on the books.

 

+1. Although not true to my name - you can always find set up in other asset classes such as bonds, currency, etc. Equities still have great asymmetric bets, especially in the $100M below range. Found two already. IPO's that fell out of favour is awesome. Additionally, there might be another recession in the near future. Typically dips happens in twos.

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