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Comment by rossdavidh | Hacker News Reader

"Last year, we staffed many of our operations functions under the assumption that the heightened retail engagement we had been seeing with the stock and crypto markets in the COVID era would persist into 2022..."

We are now at the point when we will find out which of the changes to behavior (financial and otherwise) that came about with the onset of the covid-19 pandemic are going to be lasting, and which are not. I do not claim to be able to predict which ones (if any) will last, but I can confidently say that Robinhood is not the only one to have been surprised by changes which they thought would "stick", going back to pre-covid norms.

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All of this has already happened. Just look at the stocks of all the pandemic companies. Peleton, Teledoc, Zoom, Docusign and on and on. Pretty much all down 80%+ from their highs.

If anyone had any notion that the markets were efficient or rational in any way regarding the actual underlying value of the companies they purport to represent, I certainly hope that notion didn’t survive the pandemic - I’m not sure what world stocks were pricing in over the last two years, but it didn’t pass even a cursory smell test.

It's rational on the predication of completely absurd stories about growth trajectories.

It's what happens when a bunch of dumb money comes into the market

It's still going on.

Nikola, a vaporware company with absolutely 0 revenues burning $600m / year, is still "worth" $3b.

HKD, a vaporware company, is being pump and dumped and is now "worth" $150b+, the size of Bank of America, despite being 50 employees with nothing of value.

https://www.reddit.com/r/wallstreetbets/comments/wegalp/hkd_...

The only way I can understand the Efficient Markets Hypothesis is as a way for academic economists to explain why they personally have not gotten rich trading stocks.

If you’re actually curious about the EMH, you should really read something deeper than non-finance people paraphrasing it poorly.

Finance people (well, the ones that actually make money trading) don't put much stock in EMH either..

I assume you mean they don’t put much stock in the strong EMH - Which is true, but the concept is the underpinning of most risk-weighted investing and some form of it (eg weak or semi-strong EMH) lines up nicely with why index funds outperform on a very broad basis.

I’m trying to think of a good analogy to CS.. maybe “Good engineers don’t put much stock in artificial intelligence”

Can you please cite some of these references?

It's a really approachable theory and contrary to what you'll read in tech message boards - doesn't remotely boil down to "the market can't be wrong". Burton Malkiel (economist most famous for writing "A Random Walk Down Wall St" and being a longtime advisor of Vanguard) has a paper talking about the early 2000's pushback.

It gives a good summation / spells out some critiques / offers his reasons for disagreeing:

https://www.princeton.edu/~ceps/workingpapers/91malkiel.pdf

Thank you very much

the market is the most efficient place you can put your money, and the companies that underlie the market are the greatest stores of value with the best growth opportunities we know of, and the pandemic didn't change that.

Dying to hear where else you suggest putting investments...?

If one believes the current market is bogus, then it is quite possible to move money into hard/sticky assets. Real estate is the prime example of this, as it’s in everyone’s interest that real estate not crash too hard. Similarly bonds

Big question to ask if you are betting the market is bogus is whether the market will stay bogus while your “safe” asset stays flat.

of course you have alternatives to invest in, but whether the public markets are bogus or not is not a question of your personal belief.

Yes, the market is very efficient at losing money as well by punishing foolish people that believe the market is only efficient at making money. Buy, buy, buy!

If anything, the current situation is a demonstration of the opposite. The claim that markets are efficient and rational is based on long term price finding. This includes a lot of noise. If Peleton never makes a profit, the market will eventually find the correct price.

Any institution that invested in "home workout" stuff deserves to lose every dollar they put in, how could you not see that coming.

Would you say the same about working from home generally, which seems to have more staying power (even if we are seeing some return to office)?

It seems not-crazy to me that someone would have thought that WFH was going to stick around post-COVID and thus also make people want to keep being able to work out from home.

they’re quite different

first and foremost, working out at home has always been available. If you prefer working out at home you were probably already doing it.

Second, a lot of people enjoy a social aspect of gyms, or even just find it motivating to be around other people working out even if you don’t talk to them.

You only have to spend a little time around fitness oriented folks to know workout at home was never going to stick

I worked in a consumer goods VC during this time and we couldn’t believe anyone was touching these companies, most were just instagram-aesthetic branding on cheap machines

as a bodybuilder for 20 years, i completely agree with you. working out at home has never had the same appeal to me or anyone else i knew who worked out as going to a gym. i got a peloton during covid isolation and it simply wasn't the same. i went to the gym the first day it opened and so did every other regular. i knew peloton wasn't going to continue thriving, however i do have to say they have very quality equipment so they'll probably continue to do okay.

Any poignant advice for a skinny person spinning wheels For a year?

Yeah but regular gym goers aren’t really the target market. That’s a small market as is and companies depending on it plateau pretty quickly

With your experience, what do you see working out?

Conversely, did you see it coming and make a ton of money?

you can’t really short private companies as a normal person and even if you could you would never outlast the money VCs are willing to pump in to prop it up until they find the greater fool buyers

Your best bet is just to stay away when something smells

Next up, the remote work craze. Everybody thinks they are super productive working from home but on a larger scale I imagine it took a huge hit.

Plus it is dystopian as fuck. People need to be around people outside of their immediate family to stay sane and I promise you most of these new remote workers are basically never interacting with people outside their small bubbles.

It’s gonna swing back. Calling it now. A ton of people I’m know made some seriously impulsive moves into houses way out in the middle of nowhere thinking this will last. It will be interesting to see how well their bet paid off in a year.

> A ton of people I’m know made some seriously impulsive moves into houses way out in the middle of nowhere thinking this will last

I've seen it too, and I was really surprised because a house is a 5+ year commitment, and it wasn't (and still isn't) clear WFH will be commonplace that far out.

Not sure why commuting two hours a day into the office to sit at an open office desk is any less dystopian.

Not sure why it’s so hard for people to understand that there’s a solid chunk of the population that gained nothing from it.

COVID and lockdowns literally gave the majority of people social anxiety. They won’t give their WFH up easily.

Plenty still use Covid as an excuse to avoid returning.

Just saying, the ones who might end up being surprised are those who think that the crazy days of 20/21 are definitely over. For all we know, it's just summer now. Not that I don't dread further lockdowns or even necessarily expect them, but I have them on my list of possible scenarios.

Oh we will be getting locked down again in the fall I am sure of that. Canada didn’t upgrade it’s definition of fully vaccinated for no reason. Come fall those “fully vaccinated” will be allowed to enter restaurants and work while those who oppose further shots will be told stay home

I am willing to bet $100, through any escrow mechanism of your choosing, that we are not getting locked down again. There’s no appetite for it, and no reason to do so. Vaccine requirements are not a “lockdown” though by any common understanding of the term.

Hard to convince people to lockdown when they see their friends and family getting Covid and bouncing back in a week.

There was legit fear of the disease in 2020-21. It has now morphed into a strong flu - and the data shows it.

I wonder if those of us saying the same thing in 2021 will get an apology. Of course I know we won’t.

We’re witnessing a reversion to the mean. A lot of companies are facing a tough reality - especially those with poor cash flow.

A lot of the numbers I’ve seen are basically a reversal to an existing trend line projected into 2022. Maybe a bit of “rebound” behavior for things that were possible (eg travel).

I suspect we’re going to see a regression of most new trends. Especially anything that felt too related to lockdowns.

There prior earnings had substantial revenue from crypto. That’s mostly dried up. Then you’ve got the GME reputation hit.

Meanwhile fidelity who avoided crypto and has a great reputation saw & continues to see growth

They didn't avoid cryptocurrency..they've been mining. BTC offerings in friendly nations (Canada).

What? Fidelity has a huge digital assets division and literally added Bitcoin as a 401(k) option

It should have been obvious to anyone that people would do less day trading once they had anything better to do.

And once even throwing darts to pick stocks stopped producing big gains.

The same thing basically happened in the run-up to dot-bomb. It was really easy to make book with day-trading in 1999 or so. See also crypto.

Or when making money became harder.

Amazing the number of people I personally know who took 1 year of day trading to be the “norm” and made big life decisions based on their results. From quitting good jobs to buying houses they can’t afford, all because they made big money in 2021 and thought they could keep repeating it every year.

This happened in 1998-1999 too. People got online trading accounts, did great and then decided to try to invest for a living.

You should not take investment advice from people who have been doing it less than a decade. It takes time to sort out the lucky from the smart.

I would even argue that a decade isn't necessarily enough time. The decade in question might have been the 1990s.

Or the 2010's.

Unless you're going to do it for living and really invest hard into educating yourself, I don't think you should also take the investment advice from people who have been doing it for more than a decade, unless the advice is "buy index funds and HODL" (I maybe exaggerate a bit, but boiled down to the essence that'd be it). For a common person that doesn't plan to make a career out of it and spend a lot of time honing one's skills, daytrading is rarely going to pay off, IMHO. You can do it for fun, there are more expensive hobbies probably, but as a means to support yourself in the old age... well, you might get lucky. Or not.

if you've been doing it for more than a decade, hopefully that is the advice you will share

Heh I made 30% trading! Of course had I just let it ride in an index fund I’d’ve made 50+%…

Nah a lot of the tech and meme plays were up hundreds to thousands percent returns. Of course they were hit the hardest in the down turn, but the money making potential was pretty insane.

Options trading in particular is really addicting, like gambling. I’ve had periods where I was completely sucked in, looking at charts and news all day.

I will admit I’ve had thoughts in the past of “I should just quit my job and do this” without any practical consideration as to how sustainable it would be. Not because I thought I would be rich, just because I wanted to trade all day! It’s kind of like being addicted to an MMO lol

What type did you do?

I did that too and you’re spot on about how addictive it can be. But I looked at my wins and realized that I had no real thesis and was essentially gambling. Had to quit at that point.

I talked with a “professional” day trader who basically said “write down your strategy on a piece of paper pre-market and the. Paper trade that strategy. If it doesn’t match what you were doing then you weren’t acting like a professional, you were a gambler”.

To any one person, sure. But, as the saying goes, "None of us is as dumb as all of us."

Once you start move into the realm of group decisionmaking based on hypothetical future demand for $OUR_WORLD_CHANGING_PRODUCT, positivity culture starts to take over. Plenty of people in the room where the decision is made may be thinking, "But what if this is a passing fad and people don't really love our product in any sort of durable way," but nobody wants to be the one to actually say it.

I would even go so far as to say that those whose temperament would allow them to say something like that out loud in the boardroom generally don't get promoted into the kinds of positions that get you invited to boardroom meetings.

Positivity culture exists because there’s no real downside for the people exuding it. You swing for the fences and the losses and layoffs are someone else’s problem. Most decent people might find such decision making distasteful and that excludes them from leadership.

It's sort of like optimistic concurrency. Sure, transactions straight-up get killed on a regular basis. But if you make transactions cheap things that are easily replaceable, then the overall system might still benefit.

I think that all you really need to do to translate the principle to business culture is replace the word "transaction" with "someone's career".

It is also because executives operate on the long tail of a pareto distribution. You get there by capitalizing on a large number of successful gambles. With few exceptions, you don't get their without beating the odds several times in a row.

Hindsight's 20/20? Why would we feel sure that people wouldn't keep up with habits they picked up during COVID? That seems like it could have been similarly likely to me -- someone picks up day trading, gets hooked, and now it's a regular habit.

Well, you'd ask the question "why weren't they doing it before?". If the answer is "they didn't know about it", you might expect them to keep doing it. But not otherwise.

Day trading has had a lot of popular awareness for a long time.

Day trading has all the meaning and fulfillment of cigarette smoking and slot machines, but with none of the addictive chemicals or flashing lights. So it's not surprising that people didn't hold onto the habit once there were better alternatives.

Even if you know something exists, you might just have never tried it for some reason until something causes you to, at which point you might realize you enjoy it.

E.g., I got a bike over COVID, found I liked biking a lot, and have been doing it a lot more now.

That's just one data point though, and the issue is whether or not things would stick for the population as a whole.

In a related sense, Peleton did really well during the pandemic and now they're doing really poorly.

From a user perspective, day trading is very similar to online poker or other gambling activities. The exception being that everyone wins sometimes, and everyone loses other times.

Anecdotally various betting games had a similar growth curve. People rush in when it’s easy, and then rush out once it’s hard.

Matt Levine called this the "Bored Markets Hypothesis" at the time. Seemed pretty obvious both then and now in hindsight.

I think people are going to be more tech focused as a result of the pandemic. I notice that the majority of my meetings, even mundane meetings, are virtual rather than face-to-face for example.

The big difference that is happening currently is inflation, recession fears, and fear among the general public about financial turmoil. The entire situation has been very poorly handled by governments and institutions around the world who seem to have collectively pretended that nothing was wrong. In particular inflation has been poorly fought because a huge percentage of the left wing were insistent that public spending would not cause inflation, but did not have a chance to implement that public spending in the 2010s due to the rise of the far-right so have absolutely nothing to show for it except inflation. Now the US is trying to cause a recession so that inflation and economy instability can be brought back under some resemblance of control, but the US is still acting as if it's the only major economic power in the world - Asia for example has been far less hit by inflation and many countries (including India) are not predicting a recession.

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