What caught my eye this week.
I read hundreds of investing-related articles to compile these Weekend Reading links each week. Far more than when I was just doing my own active investing research.
I enjoy it. But I also wonder how much it skews my perception of the markets and investor behaviour.
Hot takes and weird observations are what spreads and commands attention, after all. Nobody is very motivated to write “same old, same old” – except of course my staunchly passive co-blogger.
And reading all this kerfuffle every week has led me to wonder whether the stock market really has become as ‘degenerate’ as the Millennials commentators say?
Or is that just how it appears from inside this snow globe of opinion?
Funding the fanaticism
Some things have clearly changed a lot over the past decade. Mostly driven I’d suggest by free share trading and vast social media platforms, but also by the influence of crypto – especially the mega-bagging returns from Bitcoin and Ethereum that have underwritten this shift towards investo-gambling.
How many twenty-somethings would be YOLO-ing their life savings if Bitcoin had fallen back to $10 and stayed there?
Exactly.
It didn’t though – it minted millionaires – and the lingo of the resultant crypto movement has leaked into how punters wielding free share dealing apps talk about stocks, and how at least some trade them.
There’s lots of reports with data showing that retail traders are an ever-bigger driver of stock volatility. But are these just the same people who were punting on tinpot resource stocks 25 years ago, and hyping their trades on ADVFN and The Motley Fool?
Or is it all a sign of some deeper structural malaise?
Asymmetric investing warfare
Over the past few years a narrative has developed that explains this apparent embrace of reckless speculation not through the technological drivers I see – zero-commission apps, mass-broadcast platforms, and blockchain – but through an almost Marxist lens.
In a compelling piece this week, a crypto-focused blogger called Jez presented what he dubs ‘hypergambling’ as a logical response to asset inequality:
the core issue here is the cost of owning a house, and the expected timeline on an average salary.
with this core social contract broken, people look for shortcuts. crypto, memestocks, and the rise of option and leverage trading are examples of the public’s increasing desire for volatility and asymmetric upside when linear can’t buy a house.
It’s interesting that my fellow curator-in-arms Tadas Viskanta also believes these forces are real:
For a long time it seemed the arc of financial markets was bending towards the interests of the individual investor. One could easy argue that arc has shot off in another more degenerate direction.
But then Tadas reads even more from the opinion hosepipe than I do. Pehaps he’s suffering from the same narrative overload?
Either way, there’s also the bigger, bigger picture.
If you’re someone like me who believes the current US administration is wildly overstepping multiple lines of legality, cultural norms, and decency, then it becomes even easier to fear the wider world “turning and turning on the widening gyre”, as Yeats once put it:
“Things fall apart, the centre cannot hold. Mere anarchy is loosed upon the world.”
Why play by the old rules when even the ostensible leader of the free world is trying to bend the data to his will?
As the longstanding economics blogger at Bonddad put it this week:
Now we have the additional wrench in the works in the form of a mafia-style blowout being the operative behavior from the US Administration.
If sowing chaos were a winning economic move, banana republics everywhere would be wealthy.
There’s a good reason why they’re not, and that’s because chaos and corruption make it impossible for producers to foresee the results of their economic actions.
With the first family having their hands all over crypto even as legislation is rewritten by their guys at the top, the stage is arguably set for what Bloomberg’s Joe Weisenthal has dubbed ‘The Golden Age of Grift’ [paywalled link].
Investment manager Cullen Roche quotes official statistics to show a trend that isn’t all in our heads:
Will this chart now go ‘to the moon’ like a heavily-pumped memecoin? Or will the US government stop collecting the data before it gets the chance?
Unfazed while Rome burns
This dispiriting landscape is a long way from the core Monevator message of sensible passive investing.
Heck, even my active investing antics are snoozy and long-term by comparison.
And in contrast to the flashmob stock punters who gather at Reddit’s Wall Street Bets, I’ve stressed you should take what I and anyone else writes with a large dose of salt.
Moreover there’s plenty of evidence that ever more people are investing in index funds.
Fund giant Vanguard has produced data too that shows very few of its customers are trading in and out of their funds based on the latest news headlines, or other tumult in the markets.
So which way are we really going?
Perhaps like everything else these days we’re polarising into two camps. Shut-out degenerate gamblers looking for a quick leg-up into money-baller society on the one hand, and steady Eddie millionaires next door – eventually – plodding towards financial freedom on the traditional path on the other?
Or perhaps it’s all just light and mirrors and it’s the same as it ever was?
Tell us what you think in the comments, and have a great weekend!
From Monevator
How to construct your own asset allocation – Monevator
Stoozing: why borrow money on a credit card just to save it? – Monevator
From the archive-ator: When to buy insurance – Monevator
News
Government considers replacing stamp duty with a new property tax – Guardian
The lowdown on London’s new ‘Pisces’ market for private companies – Yahoo Finance
Borrowing dip offers some respite for Reeves, but tax rises still loom – This Is Money
The average retiree spends £22,140 a year [And other retirement data] – Quilter
DeepFake of Anthony Bolton drives latest ‘pump and dump’ shares scam – This Is Money
The ONS is overhauling how it calculates house price statistics – ONS
UK housing has slightly outpaced population growth over the past decade – Property Industry Eye
Post-Brexit industrial resurgence latest: UK’s third-largest steelworks collapses – BBC
Denmark to end letter deliveries in sign of the digital times – BBC
Built to letdown: housing supply up, rents…up? – FT
Products and services
Where can you earn inflation-busting interest rates on cash? – Which
The pros and cons of fixing your mortgage for ten years – This Is Money
Get up to £1,500 cashback when you transfer your cash and/or investments to Charles Stanley Direct through this affiliate link. Terms apply – Charles Stanley
Lloyds Bank launches new way to deposit cash in shops – Which
Freetrade’s shares ISA will be free from 1 September – T.I.M. [Sign-up for a free share worth up to £100 via our affiliate link]
Most affordable commuter hotspots revealed – Yahoo Finance
Get up to £100 as a welcome bonus when you open a new account with InvestEngine via our link. (Minimum deposit of £100, T&Cs apply, affiliate link. Capital at risk) – InvestEngine
Where are the cheapest places to buy a cottage…? – Which
…and more characterful cottages for sale, in pictures – Guardian
Yet another long-term government bonds mini-special
Why it’s worth watching long-term gilt yields [Paywall] – Bloomberg
Long-term rates are rising with no compelling explanation… [Video] – Sky News
…though inflation came in at a hotter-than-expected 3.8% in July – CNBC
…and the US curve is steepening, too – Apollo Academy
Are long gilts at 5.5% a no-brainer? – Interactive Investor
Fiscal dominance and the unexpected rise of emerging markets [Paywall] – FT
Comment and opinion
“I’m still working at 70. I love my job so much, I commute three hours a day” – The Times
Tax policy prevarication comes for the property market – Propegator
The extremely frugal might be on the right side of history – Guardian
Stop wasting time worrying about safe withdrawal rates – Purpose Code
Gold is shiny enough for a strategic portfolio allocation – Carson Group
Playing the ultra-long game – Novel Investor
Crypto and your portfolio – The Uncertainty of it All
How to eliminate that intense financial FOMO – Financial Samurai
Why these 75-year-olds love working – Next Avenue
Larry Swedroe returns explanations mini-special
Price predicts future equity returns, not future earnings growth – Morningstar
The key drivers of corporate bond returns – Larry’s Substack
Naughty corner: Active antics
The calculus of value – Howard Marks
Where to invest when nothing looks cheap – Morningstar
GLP-1s are booming. Shares in their producers, not so much – Sherwood
Things are hotting up in the UK REIT sector – CNBC
Harvourvest CEO on private equity’s great jumble sale – Semafor
Kindle book bargains
What They Don’t Teach You About Money by Claer Barrett – £0.99 on Kindle
Too Big to Fail by Andrew Ross Sorkin – £0.99 on Kindle
50 Economics Ideas by Edmund Conway – £0.99 on Kindle
Mastering the Business Cycle by Howard Marks – £0.99 on Kindle
Or read one of the best investing books of all time – Monevator shop
Environmental factors
Are we on our way to Earth’s sixth major mass extinction? – Guardian
The climate crisis will blow up via the insurance sector [From July] – How Things Work
Salmon breed in Yorkshire’s River Don for first time in 200 years – BBC
Alphabet [Google] is the latest tech giant to fund a nuclear reactor – Semafor
For heat stressed trees, autumn is coming early – BBC
Wildlife is thriving in Korea’s demilitarised zone – Guardian
The Thames has dried up just a few miles from its Cotswolds source – BBC
Robot overlord roundup
MIT reckons 95% of generative AI pilots are failing – Fortune
AI is a mass delusion event… – The Atlantic [via Abnormal Returns]
…with even Microsoft boss troubled by reports of ‘AI psychosis’… – BBC
…but should we really embrace a world of many AI personalities? – Noema
Evidence investors use ChatGPT in their trading – Marginal Revolution
What if AI doesn’t get much better than this? – Cal Newport
The puzzle of AI facial recognition – Harpers
Not at the dinner table
What’s with the thousands of Union Jacks and St George’s flags? – BBC
Charity workers being targeted by far-right anti-asylum activists – Guardian
The hidden costs of trade protection – Larry’s Substack
ICEing the US economy – Paul Krugman
Off our beat
The violinist problem – Seth Godin
Mapping the battle for online grocery delivery – Platform Aeronaut
A veteran’s guide to self-publishing [Exhaustive!] – Kevin Kelly
The hypersonic missile race is hotting up, and the West is far behind – BBC
Materialists: a true reflection of today’s dating market – Guardian
Over-tourism is hitting Europe’s hotspots, and some locals are fed up – CNN
Rotten Tomatoes is rotten – Stat Significant
And finally…
“…0.01% of your net worth is actually a great proxy for what constitutes a trivial amount of spending for you. For example if you have a net worth of $10,000, then paying $1 more (or 0.01% more) for something shouldn’t have any long-term impact on your finances. Similarly, if you have a net worth of $100,000, you should be able to pay $10 more for an item without skipping a beat. I call this the 0.01% rule.”
– Nick Maggiulli, The Wealth Ladder
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It is as it always was-life is a crapshoot but there are certain well tried and proved behavioural rules that give an investor a fighting chance but that’s all it is -a fighting chance
Environmental factors like wars and tsunamis etc can make fools of us all
I think there are two camps but I would divide them into “extremists” and the rest
Extremists ( a small percentage of investors) move the game on but mostly crash and burn-active investors ?
The rest (most investors) put safety over performance-index investors ?
It’s a complementary synergistic system that seems to work
As a paid up member of the rest I constantly follow the antics of the extremists with great interest and deep fascination-there are nuggets of gold in amongst their wild antics
Its sobering to remember that John Bogle was classed as an extremist in his early years but his particular golden nuggets moved all of us investors many notches up the successful investing scales
xxd09
Can you share a link to the vanguard survey you mentioned about index fund investors not moving in and out of markets?
It would interesting to see the picture across wider index providers. I expect vanguard’s “boglehead” following may be more disciplined than others.
I think speculation is very much a “same as it always was” situation, it’s just more visible now with social media.
Ps. That investment scam chart is a real eye opener!
The reference to Howard Marks memo on value is thought provoking.
We know equities are expensive, AI will change things, will AI equities provide exceptional returns…
We have seen the TMT market exuberance of the late 1990’s , we know how it played out and it may well provide pointers for what’s happening now. Back then we saw that playing safe early was the same as being wrong , the art is riding the up wave and getting out toward the end of the run. On that occasion it went on for five years, I wonder whether that previous experience will guide what will happen this time round ? Do people try and jump slightly earlier ?
We have crypto doing its thing at the same time, personally I see zero underlying value and expect it to end badly but I don’t ‘get’ gold either , so it’s probably me !!!
I wonder how potentially two simultaneous crashes could play out ?
Emphasis on value/yield/ rafi indexes for equites ?
I read Distortion by Nomi Prins recently. The thesis was that the money pumped into the financial system in the GFC has distorted the world of finance by bloating it far beyond any correlation with the ‘real’ economy of goods and services. This has, of course, made those with assets, you and I at the very bottom end, feel richer than perhaps we really are.
So I’m with Jez. hypergambling is perhaps a logical response to asset inequality due to asset inflation. As an analogy, I was that asset-lite muppet in the early 1990s, getting on for half underwater on a house. I did seriously consider letting it all go, walking away and going to work in Germany – the world was less interconnected in those days, as an EU citizen I had the right to work there, those were the days my friend, we thought they’d never end… I would probably have been able to shuck the ‘with recourse’ issue of the mortgage. Abbey National would have been able to claim on the mortgage indemnity guarantee they effing well charged me £1000 on top for even though it did me no good at all, and hello world, start again.
As it was I concluded that the future value of a decent job and the use value of friends and local knowledge was worth more. But I can sure understand the temptation of the disaffected to lay it all on red, because I saw it once in different circumstances.
If the thesis of the book is correct, and it was at least made cogently, then for those without assets life as a lottery ticket is a rational response in aggregate. A lottery with its egregious promise of it could be you is a financial system where people’s dreams are far greater than the underlying reality, because everyone thinks it’s more likely to be them than it really is.
The pumped up financial system of today is not the homely farms and productive assets that Warren Buffet cites as the reason to be in the stock market. There’s more of a lottery in it than old-stagers give credit for, this ain’t your father’s stock market. We do not know how the story will play out.
Some of this asset inflation is because virtualisation has dematerialised a lot of things, but they still theoretically have value – ChatGPT is patterns of code running on patterned stones. But some of the distortion is inflated asset prices, houses people can’t buy because all that created money has to be lent out, and various other pathologies.
Even as an old git I have some element of Naseem Taleb’s barbell in the mix – I buy stuff that I can’t see as other than going to zero (AI, biotech) as a small part of my holdings. Because of the intense belief in this trash – well, not so much biotech, but AI still. Even though I think it’s all tulip bulbs in the end, the world will never have enough power to run the wet dreams of AI fanatics and AI will never do what it’s supposed to IMO. We are already seeing hints of the impending AI crash in the Zuck doing an AI hiring freeze, presumably because even as a tech bro perhaps he fears this is the great circling drain.
I’m not a hypergambler because if the risk end barbell goes to zero I can let it go and say that’s not a big part of my networth. But if you start with zero and can walk away from any downside, well, leveraging up may make sense. Somebody has got to destroy that dreamed up capital the GFC created, and some mix of hypergambling GenZ, inflation and financial repression will probably do it. That will probably also cost passive investors something. Not all of the presumption that equities go up in real terms in the long run is due to greater efficiency and productivity. Some unknown part of it is GFC flab.
@Hariseldon #3 > Back then we saw that playing safe early was the same as being wrong ,
I believe Warren Buffet didn’t do so much tech, because he didn’t understand it, so he says. He seemed to do OK. Nobody has to invest in the tulip bulbs du jour, as I think WB also said, you don’t have to swing for every ball
If La Reeves is worried about the cost of long term borrowing I suggest that she announce that the IHT-raid on pensions will not apply to any gilts held within pensions as long as the gilts’ maturities are greater than twenty years away.
Well, if all sorts of other mad advice is offered to her, why not this bit?
Obviously there’s a world of difference to meme stonks and s**t coins OTOH, and market-cap-weighted index funds and ETFs on the other.
But… isn’t there just a teeny weeny bit of the Perpetual Motion machine in both, if truth be told here (or, as Terry Smith puts it, “Passive Investing: The Self-Reinforcing Momentum Strategy”)?:
A company buys back its own shares, so fewer shares are left in circulation.
This makes its earnings look bigger on a per-share basis, which makes the stock look cheap.
As the stock price climbs, the company becomes a bigger part of major indexes like the S&P 500.
Since index funds have to buy more of the biggest companies, they keep adding to that stock.
This extra buying pushes the price up even further.
After all, @TI, you invest exclusively actively because, I presume, you see opportunity and risk not captured by the ‘passive’ approach.
There’s many ways of winning (getting to your personal goal) and many types of winning (what that goal is).
Some want all weather
Some want low volatility
Some want near certainty
Some want highest risk adjusted returns (Sharpe and Sortino)
Some want to shoot the lights out
Some want diversification
Some want concentration
Some want value
Some want growth
Who are any of us to judge? And there’s no need for exclusivity or permanence. Goals change and people change. A mix of approaches can bring its own benefits (and challenges).
I don’t like crypto but I’d never say no to considering a dabble in it just because of that (and I have some minimal MSTR exposure for that very reason).
Each to their own. Live and let live. It takes all sorts of investors and speculators to make a market.