Tag Archives: Day trader

The Mindset That Could Sink Wallstreetbets (And Others)

As someone who makes a living from investing, I have watched the Gamestop/Wallstreetbets events with interest. Today, I decided to venture into the belly of the beast and try to find out what these traders are all about.

I noticed two common patterns:

1) Us-vs-them thinking. The individual trader versus the evil hedge fund industry.

2) Determination to hold a position out of machismo

Take a look at some examples below (usernames redacted). These are all from today alone:

The backdrop to these conversations is the cratering of their most widely held stock, Gamestop:

The initial buying of Gamestop and other heavily shorted stocks had some logic: Wallstreetbets wanted to engineer a short squeeze. A rapidly escalating price would force hedge funds that had shorted the stock to buy it to close out their positions. Otherwise, the hedge funds would face even worse losses. But, since all those hedge funds have to buy at once, the price can spiral higher and higher.

Despite the logic of that move, I find many people’s judgment clouded by us-vs-them thinking and machismo. Whether hedge funds are morally good or bad has no bearing on whether a position is worth holding. And one should never identify with an investment emotionally. If one’s identity and manhood (something tells me these posters are probably mostly men) are wrapped up in holding Gamestop stock, how can you make a rational decision based on the facts?

Will you choose to invest or not invest based on data, or will you just hold your position all the way down to 0 to show everyone how tough you are?

Perhaps a lack of machismo is one reason why female investors tend to have a better track record:

According to the Warwick University research, women’s outperformance can be attributed to the type of investment they tend to favour.

The study revealed that men are more likely to take a risk on more speculative, “lottery style” stocks where they believe [they] have the potential to make a lot of money very quickly. Men also tend to hold on to lossmaking investments in the hope that they will come good.

Financial Times

Instead, I suggest adopting a philosophy of non-attachment. This is a concept often attributed to Buddhism. It has parallels in many other religions, including Christianity. If we detach from our opinions and possessions (including stocks), we can view things more dispassionately. That investment isn’t you. You are you. The investment is just an investment. And it either makes sense or it doesn’t on its own merits. What’s more, whether you made millions or lost everything, it doesn’t change who you are.

I find meditation helps me in this process. It gives me a chance to get outside of the normal rushing freight train of thoughts and examine my opinions and beliefs from the outside. Or just simply take a break from them!

Time will tell whether the likes of Gamestop make good investments, and whether Wallstreetbets remains a phenomenon or fades. But detaching from our emotions and opinions and viewing them from the outside is a useful strategy we can employ forever.

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Photo: “Ship sinking in the Strait of Gibraltar” by ^ Johnny is licensed under CC BY-NC 2.0

A Professional Investor Explains GameStop in a Few Text Messages

This morning, my friend Bill* texted me asking if I knew anything about what’s going on with GameStop, whose share price has skyrocketed recently. I may have told him a bit more than he wanted to know! But I thought this text thread might be useful to others too, so I published it below:

This type of trade is too speculative for me, but I do find it interesting. The link to the post explaining the suspension in GameStop trading is here.

P.S. Since I use Signal for text messaging, I can’t take screenshots, so I recreated this conversation using this interesting tool.

*Not his real name