Has the Stock Market Become a Gambler’s Playground?

“Gambling now is largely a socially corrosive tax on ignorance, draining money from those who cannot afford the losses.” ~ Edward Thorpe / A Man for all Markets 

Gambling is NOT investing.  Gambling has a much more negative connotation...  But why?🤔  

I submit it’s because the more one gambles, the more money one tends to lose…In this respect, gambling seems dumb. 

Investing is different…The more investments one owns, the more one wins over the long term…

And those last two words are extremely important…But the fifth word, “owns“, might be the most important…This is because the best investments take time. The good news is that the time is yours as long as you continue to own the investment.

So ask yourself, how long does one actually “own a bet”? 🤔 Gambling bets are almost always short-term. On top of that, they’re usually irredeemable.  This is not true for most investments. Investments are seldom permanent, but they are often long term. That means that in the short term—should things change—an investor can “back out” of the investment by simply selling it. Investors—like Buffett is fond of saying—don’t have to swing at every pitch…Investors are able to take their time.

But are today’s buyers and sellers of stock really in it for the long term?!  🤔 Me thinks NOT!  

My thesis is that today’s stock market participants are more interested in short term movements.  Said differently, many of today’s “investors” are just gambler’s with gumption…I believe most new entrants into the stock market are not really investing at all—they’re rolling the proverbial dice in the world’s biggest casino.  

I recently read that over 60% of the S&P500 option contract volume is for 0DTE options (Zero Days Til Expiration)…Dear reader, these are more akin to lottery tickets than they are to investments…On top of that, leveraged ETFs and single stock ETFs are raising money at record levels.

But this means the whole concept of diversifying through ETFs has been bastardized.   Instead of reducing risk, these “investments” magnify it.  

Weirdly and perhaps dangerously, promoting gambling to our youth requires less disclosure than I am required to give when simply discussing my views on stocks—or any publicly traded investment.  The SEC won’t even let my broke friends & family invest with me…But wh?! It only keeps them more broke for longer…🤨

But Post Malone is allowed to show off his “winnings” to the world without any disclosure of his losses or any reference to the historic performance (winners vs losers).  But don’t hold your breath for Nancy Pelosi or Bernie Sanders to come riding to your rescue.  It seems the “Nanny State” has not yet entered the “Gambler’s Playground.”

So what’s happening to the mindset of market participants???  🤔

To understand one’s mindset, one must understand one’s experiences, and so demographics is a great place to start that understanding, as generations seem to move and act in waves (FN:  Generations and The 4th Turning).   The problem today is that many “retail investors” are young people that have NEVER experienced a significant “bear market” in stocks.  They have been trained, like Pavlov’s dogs, to expect a bailout from the Fed and more stimulus from Congress whenever something “goes wrong”…Holy moral hazard Batman!  

Unfortunately, me thinks this ends badly…Especially when one considers that margin debt is now over $1 TRILLION dollars!  This is 40% higher than a year ago!  When borrowed money by inexperienced borrowers all chase the same “tulips” the peak in prices is approaching.  

My advice, pay attention to Buffett’s 1st rule…🤔  And NEVER forget the 2nd…😏