So by now who hasn’t been accosted by both friends and strangers regarding the GameStop saga? Who hasn’t had their neighbor, colleague, or relative start the conversation with, “Hey, what’s a short squeeze and should I get involved? ”
- GameStop – A Saga of Technology, Arcane Finance and Class Prejudice
- Jealously Underpins the Story
- Isaac Newton – the Original FOMO Bag holder
- FOMO is Jealousy
- Recognize its Corrosive Impact
GameStop – A Saga of Technology, Arcane Finance and Class Prejudice
The GameStop story is truly epic in size and scope. It not only touches on the themes of modern technology (commission free trading and instant coordination via social platforms), the most arcane mechanics of the business (clearing, 2 day settlement, collateral for variation margin) and on the much broader theme of class warfare (the derisive use of “amateur traders” to describe the Reddit army, the fake outrage over #GME’s ridiculous 20B market cap, while solemnly justifying #TSLA $750 market cap and granting it entry to the S&P 500) But let’s set those details aside for a moment. The real – the most galling aspect of the GameStop story is that it makes a mockery of us all. Here we are, whether investors or traders trying to master the market one basis point at a time. Trying hard to make 20% unlevered 50% levered per year and all these guys without any effort, any research, any training make 1000%, 5000%, 10000% in a matter of days.
Jealously Underpins the Story
So let’s be honest. Let’s acknowledge that beyond the manufactured fury lies jealousy. Who would not want to make 1M from $10,000 in just one week? After all we spend all our lives trying to achieve that goal. But therein lies the rub, as the Bard would say (he actually didn’t quite say that but go with me). Jealousy is literally the single most toxic emotion you can have not just in life – but especially in the markets.
Isaac Newton – the Original FOMO Bag holder
Let’s all go back to the 1700’s when the East India Company was the GameStop of its day. The details were different, but the mechanics were the same. At that time the price action in East India Company caught the eye of Isaac Newton – one of the brightest minds in human history. Here is what happened. Mr. Newton bought the East India Company stock early and sold it for a tidy profit. But then the stock kept climbing and climbing and climbing and Isaac Newton bought back in only to ride the trade to a massive loss after it all crashed.
Newton is remembered as the father of physics and calculus but is forever enshrined in the trading lexicon for the following quote, “I can calculate the motion of heavenly bodies, but not the madness of people.”
Mr. Newton, who by all accounts was a shrewd investor and had accumulated a considerable profit of 13,000 pounds in his prior forays into the market, lost it all and then some ( some accounts suggest his net loss was 20,000 pounds) because he was the classic victim of FOMO.
FOMO is Jealousy
And what is fear of missing out but just jealousy in another form? How many of us are guilty of fomo in the markets every day? I would argue that once we master the setup and actually learn how to trade the markets almost all of our errors come from fomo.
We missed the entry and see the trade working? F-k it let’s chase and enter.
We made good money but the trade keeps going without us? F-k it let’s double down and rejoin the move.
We are eking out 50 basis points a day in FOREX or futures while these Reddit bastards are making tenfold in one week? F-k it let’s plow into that trade.
Recognize its Corrosive Impact
The Bard was well aware of jealousy’s corrosive power to destroy everything around us. Newton showed that no one – no matter how smart – is immune to its seductive force. So we must always be on guard – because in the end this is the one thing that can truly destroy us. Yes GameStop was easy money #GME. Yes we missed the play completely. And no we should not chase it now.