Hunger Games

You have been told that investing in the stock market is like betting on a sports game.

You have been told that you are a SPECTATOR in the game of markets, that you are WATCHING a game being played out in front of you by lots of different companies.

You have been told that you should make 'bets' on those companies based on how well you think those companies can play the game that you are watching. The companies will play the game and they will keep score by 'beating' or 'missing' on revenues and earnings and the like, and then that score will determine whether or not your bets pay off.

You have been told that the better you are at 'analyzing' the teams playing this game, the more 'due diligence' you put into studying the teams playing this game, the more money you will make with your bets.

You have been told that everyone can win with their bets, that this is how you, too, can achieve the wealth that you deserve.

You have been told that the odds are ever in your favor.

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  1. Bingo. Thank you.

  2. Avatar for robh robh says:

    Yet another reminder— follow the money. You may think you are the customer but you are not. You ARE the product. And you (your eyeballs, tweets, posts, stock orders, search history, viewing history, emails, etc) are being sold to the highest bidder.


  3. Did Dr. Ben just publish his long-awaited book???

  4. Wishful thinking: Eliminate Citizens United, bar anyone from being able to accept a speaking fee or related activity from holding public office, charge a dime a share and stiffen the Fair Doctrine laws while including social media. Not very small d but I think we’re are too far down the tube to extract ourselves without a painful clasp of our behind.

  5. I feel as if I’ve said this a few times over the last six months, but it continues to be true: Ben, this may be your greatest note yet.

  6. Avatar for bhunt bhunt says:

    Thank you! This one was from the heart, and it gave me a chance to weave together so many threads from the past 8 years!

  7. terrific piece.
    One quibble (as a Pats fan !!), the anlogy doesn’t quite work, because GME went BACK to $400 the following day after RH shut down. (The media won’t talk about this - just watch, i.e., small investors had a chance to sell the next day - but didn’t.)
    So it would be like the Jets not being able to play offense for the 3rd Q, but then getting the ball back in the 4th, and going ahead again, only to lose in the end.
    and as we can see with GME<70 as I write this - the House always wins.

  8. Avatar for rguinn rguinn says:

    Let’s call it the Pick 6 exception!

  9. This is one of the best notes you’ve written. “Sheep Logic” is a close 2nd.

  10. Avatar for mwc mwc says:

    as a newer member, here for the notes more so than the market insight, this is just phenomenal. the zen reference really put a bow on it.

  11. Avatar for Dan Dan says:

    99.9999% of people misunderstand the meaning and the twist of the story, The Emperor’s New Clothes.

    There was no reveal at all - there was no “Aha!” moment when people’s eyes were opened. Not a single person was deceived by what went on; everyone saw from the start that the emperor was naked, including the emperor himself.

    The genius of the story was that swindling weavers and tailors were able to frame a false narrative so that (1) everyone’s vanity and interests were being served (everyone got a “cut”), and (2) there would be a penalty for everyone who broke the false narrative.

    As for the child who cried out, “But, he’s naked!” The child was the first who had no stake or penalty in the false narrative, neither in upholding it nor in breaking it.

    The crowd – the hoi polloi – also had no skin in the game, so once the child broke the ice, they too yelled “He’s naked!” Most people just copy what other people do, after all.

    The best line of all is that of the emperor:

    • The emperor knew he was naked but thought, "This procession has got to go on." So he walked more proudly than ever, as his noblemen held high the train that wasn't there at all.
  12. Avatar for Kpaz Kpaz says:

    I’d add - prohibit stock based compensation, and a hard stop at 100% of the float short. How can you borrow non-existent shares to sell? WTF…

  13. During the financial meltdown in Feb and March 2020, I could see that there would be a lot of corporate debt that was going to go bad. So I took a substantial position in the LQD. It was just starting to work for me when Powell came out on public television and said he was going to buy all those corporate bonds that were vulnerable to slipping out of “investment grade”. He literally changed the rules in the middle of the game and I’m still feeling the burn. Utterly unfair. This whole imbroglio that you’ve so eloquently described just pulled the scab off the wound. Keep it up, Ben. You are a bright light in an otherwise grim and murky financial world. Thank you.

  14. And to think that any investor could just imitate the hedge funds by taking on 10X leverage to pressure their shorts and get bailed out at the first hint of the tables being turned. Infuriating. Stop the leverage!! Sorry about the rant.

  15. Avatar for 010101 010101 says:

    If you inhibit the normal actions of a very large crowd of people,
    they will look for anyway possible that they have available to achieve a
    similar modus operandi as is their norm.
    Productive people will find a productive outlet for their energies. Given
    the means of liquidity, spare time and web based trading accounts is the
    WSB episode an emergent property or maybe the first line of a masterpiece
    typed by accident?  

  16. Avatar for jws43 jws43 says:

    Rehypothecation. If you sell a borrowed seller the new owner can also lend it out. Limiting this would create all kinds of weird effects. Some ETF who was forced buyer all of the sudden can lend their shares and make that money for holders. It is weird when it goes over 100% but I don’t see how you limit this without tons of unintended effects.

  17. Avatar for bhunt bhunt says:

    My rules-changed-and-get-kicked-in-the-teeth moment was summer of 2012 and Mario Draghi’s “whatever it takes” speech followed by the entirely mythical OMT program.

  18. So the Pied Piper leads the people following the Emperor’s new clothes to the other side of the hill where the grass is greener! And the grass actually looks greener on the other side of the hill because the view is orthogonal. So when somebody says the grass is greener on the other side of the hill, this becomes a relativistic experience based on the the point of view, but everybody will agree - the grass looks greener over there.

  19. Avatar for twclix twclix says:

    I’ve come to realize that “Value” and “Growth” never really existed except as narrative. The equity markets are simply about the stocks–they are literally, the “chips” in the game of wagering. It’s not that fundamentals don’t matter at all. But they don’t matter to the market makers and other interested parties who benefit from order flow regardless. And fundamentals do matter in context to larger narratives that impact the specific name.

    But capturing the narratives is the essence of it. Not oodles of research on a single name. Having a plan for managing your exits, your gains and losses and your emotions is more important than trying to anticipate the unanticipated.

    Digital currencies, for example, are valuable only because they are part of several intertwined narratives that have gained steam. So where are the fundamentals? What we see, really, is a narrative that catalyzes the current FOMO. In this respect they aren’t much different from equities. Interesting that someone like Bill Miller, known for years as a king of value and fundamentals, has become a crypto enthusiast. I don’t know how Bill managed to get his head around the space–but he was following the narrative because the “fundamentals” are simply not in evidence.

    But the narrative is much in evidence. And it’s tradable so it’s being traded. Instead of market makers, we now have coinbase and digital exchanges. These groups are the new market makers. They are more efficient that the current market makers who are derived from under the Buttonwood Tree–but they only care about order flow.

    Meet the new boss, same as the old boss. Abandoning a well-developed consciousness focused on the beautiful girl after you set her down is something we all do. Paying attention to shifting narratives and our own part in believing or following them is not only hard work–it’s quite rare.

    Thanks for the essay, Ben.

  20. Is it possible we’re overthinking this. In my experience there’s far too much incompetence in the world to support grand conspiracies most of the time.

    This felt like more of a Bear Stearns moment. Even before the margin masters called a halt to the madness, my reaction was that Robinhood had lost control of the game and the numbers were getting too big for it to survive. Perhaps a book will eventually be written about this event and we’ll learn the truth, but it seems most likely that the call came from the risk management department, not the Gods of Wall Street. The recruitment criteria for a risk manager is cold hearted bastard. Someone woke up in the middle of the night, screamed Oh s…t! and the game was over. What’s changed is that the system is getting very efficient at dealing with crises. That doesn’t negate your narrative about the Fed being there to protect the system; it does mean they’ve gotten a lot better at it since 2008.

  21. Playing the player versus playing the cards. Knowing you have more pennies and will prevail under a “Gambler’s Ruin” premise it is in your best interest to involve as many other players as you can attract to your game. The more the other player(s) believe in their chance of success the more they will invest ( wager) in the game.

    Knowing that besides statistics being in your favor you can also skew the game is what turns this into a con. And any good con has to have a few “winners” to continue to attract new players.

    Are you feeling lucky today, kid?

  22. I’d like to believe the risk management department would make that call, I’d really like to believe that, but I don’t. If that were true, it would’ve happened a week or 2 before. Somebody got tapped on the shoulder from the Fed, treasury, etc. and said shut it down or we will. If, and it’s a big if, it ever comes out, will be interesting to see which banks, hedge funds, piled in under the Robin Hood narrative. GME was the headline, but there were just too many others causing collateral damage outside of Robin Hood for it to have been 1 risk department.

  23. Long-time reader/follower via Twitter. Subscribed after reading this note.

  24. Avatar for bhunt bhunt says:

    I didn’t even think about all those links when I was writing this note, but now that I look at it in retrospect … yeah, I kinda did!

  25. Avatar for bhunt bhunt says:

    Thank you, Jeff! And welcome to the Pack!

  26. Avatar for bnuner bnuner says:

    Thanks for including the manifesto at the end of this excellent piece. Re-reading that statement was the thing to do today.

  27. Avatar for alpha2 alpha2 says:

    Hey Ben, have you heard of our “Smart Motorways” in the UK. These are freeways where they have removed the hard shoulder or safety lane in order to increase the number of lanes. This saves the cost of widening the motorway, all that is required is an upgrade to the surface, more gantries and more cameras, naturally. Instead of a safety lane there is now an extra lane monitored by cameras 24/7 where, in theory, AI cameras pick up any stationary vehicles and immediately close the lane by means of warning signs on overhead gantries.

    In fact although they have rolled out the “Smart” motorways it turns out that they have not simultaneously rolled out the AI cameras and in many cases are relying on human observation. In many cases it is up to 20 minutes before the lanes are closed. Oh, and the safety refuges are twice as far apart as originally proposed.

    Unsurprisingly many more people are being killed when their cars break down. We are still told by the Government that these are “Smart” motorways.

    Eventually we will come to believe it.

  28. Avatar for Laura Laura says:

    Always appreciate your writing Ben. I believe the meta narrative comes courtesy of neoliberalism and am doing my part to deconstruct it in the way that makes sense to me.

    I work in the entrepreneurship ecosystem and wonder how that underdog activity might contribute to badly needed systems innovation. In reading your piece I was reminded of this article I came across years ago advocating for cooperative ownership structures for the platform business models that digital technology enables.

    I’d be curious to read any of your writings dealing with the game of entrepreneurship in the water we swim in if that’s an angle you have covered before. There sure is a lot to write there IMO!

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