Awkward Introductory Stuff
I am not a furu and have nothing to teach you. Read this only if you’re curious for my thoughts - I hope, but don’t guarantee, that they’re worth your time.
I’ve considered starting a Substack for a while, principally because I actually like writing. I also figured there may be some therapeutic benefit to focusing some of my thoughts on markets and making them public - perhaps it’ll help me think more clearly and improve my pnl, perhaps someone else may find it useful. Feel free to DM me with feedback or abuse eitherway.
The Ways of Market, Ego, and Social Media
I snarked the other day in Lord Fed’s Discord: “do the twitter accounts you follow remind you more of podcast hosts or serious traders?”1
The joke unhelpfully indulged my own ego, but like all jokes, was trying to hit a kernel of truth. Even after cutting my Twitter follows to ~150, I still spend an undue amount of time and attention reading content from folks who are far more interested in having an opinion on the markets than actually profitably trading them.
It’s like what Ed Seykota said:
“Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.”
He said this before the age of social media. But you could easily adapt it for today, adding that the most visible people on social media are really in it for the likes, retweets, and replies - making or losing money is a secondary consideration.
This is Twitter’s double-edged sword for the trader or investor: there’s the potential to engage with genuinely smart & talented people. But you share the same public square with loud morons who sometimes sound smart, vain narcissists, and outright charlatans who are there to turn your interest (markets) into a content marketing scheme.
Even when you can immediately recognize the differences (and even with some sophistication, it’s not always obvious), it can be enormously distracting to deal with. I’m quick to set up adblockers, spam filters, and ignore other attempts to solicit attention elsewhere in life - yet readily offer it up online. It’s problematic.
Hence, three weeks ago I found myself in a DM saying something to the effect that, “it’s easy to forget when you’re on Twitter & Discord, but the only game that matters is you versus your pnl” - and it became clear that it was time for a break.
It wasn’t my first or last break from social media. I’ve done this a few times. And every time I come back to social media? I’ve never missed anything.
It’s just a new iteration of the same loop, regardless of where the market is:
There’s a reason to worry even if the market is going up… and if the market is going down, it has to to make new lows
Gratituitous doom-and-gloom bearporn with overlay comparisons to the last major crises
Some ticker is “wildly overvalued” but still keeps going up, and folks are mad about it instead of buying it
Furus patting themselves & eachother on the back, whether they actually called anything correctly or not (nonetheless gave an explicit, profitable trade that could be followed in real time)
There’s some market micro-structure excuse for why macro forecasters are getting blown out (0DTEs, Opex, etc)
Macro forecasters making new predictions and moving the goalposts on their last ones with no accountability
Folks assigning a moral component and arguging why their investment approach or trading strategy is The One True Way, and society is worse off if anyone allocates capital differently2
And each narrative that was getting engagement and being uncritically parroted when I left has passed without having meaningful impact.3
And having tracked the data and done the reflection, my pnl has always improved when taking a break from social media. Perhaps one day I’ll cut the cord for good - but it’s not a decision point for right now (I have too much fun with the memes, shitposting, and jokes). But, of course, that’s just me… and I do know of folks who are energized by the engagement and use it to generate new trading ideas.
My purpose here is less to advocate ditching social media, though it’s a worthy consideration, and moreso to point out how much noise it creates - and noise is always bad when making investment decisions.
Listen to the Market, Not the Narrative
All that said, I wanted to share a few observations - especially in the context of ES coming just shy of 4500 last week and many retail traders / investors refusing to believe it or finding reasons to disregard the move and keep trying to short it.4 Some of this stuff is common sense, but perhaps a reminder will be helpful.
The Stock Market Exists to Be Longed
Over long periods of time, the stock market generates exponential positive returns. Obviously, I don’t expect anyone reading this to be investing with a 50-year horizon5, but it’s important to keep in mind when you’re trying to short the market. The default state of affairs is for US-listed equities to go up. That’s the big trend that you have to be very careful about fighting. That doesn’t mean that you should never short stocks or can’t make money being bearish - but you need to do so with extreme discretion and care. Far more than the accounts on Twitter selling doom show - who somehow never seem to stop out or face margin calls6.
Also consider that there’s a fundamental asymmetry in the risk: it is way better to be long & wrong than short & wrong. Buying early, when the market is still falling, has excess positive returns over long durations. Take this a step further and put it in context to right now: the bulls who were buying on the way down in 2022 are setting up for better risk-adjusted track records than the folks who coyly moved to cash and were buying T-Bills at 5% but are now bringing demand back into the market. Unless some new, really bad thing happens, this likely moves the floor on US equities further up above the October bottom.7
Whereas the folks who were caught short & wrong have no buffer: yes anything can happen tomorrow, but they’re now caught needing a major liquidity event or catastrophe to bring the market back down. It’s a negative carry position (ie. costs money to hold) that’s fighting the fundamental trend of the market, which has started to reassert itself. Needless to say: pay respect to the Gods, but do not put yourself in a position where you need to rely on them.
Most of us on FinTwit would never bat an eye saying that, for most folks, it’s good advice to DCA into index funds… Think of the hubris it takes to deviate from this default strategy, nonetheless to do the exact opposite of it - trying to time the market and play against its natural direction. Recall that the market has a strong propensity to punish hubris.
We All Think We’d Know the Bottom…
I started trading & investing in 2011, entering the workforce right after the GFC. I loosely followed markets during the crisis, but had no real risk on - so I didn’t have the perspective of an actual participant then. By the time I had started working and saving money to invest the bottom was already in.8 Once I started getting more serious about trading, I’d look over the SPX chart from 2008-2009 and study the bottom. It was so obvious in hindsight - and I was keen on the next big collapse in stocks to buy in at size and make generational wealth.
But of course, in real time, I’ve now missed this opportunity several times (2015, 2018, 2020, and again in October 2022). In fact, even after Lord Fed set me straight (ie. made the bull case) in Jan of this year, I was still underinvested most of the rally.
Stocks make bottoms when the market tries and fails to move lower on extreme pessimism. Good luck not getting sucked up into that when it’s happening. I’m still working on it.
…And Forget that the Market Climbs a Wall of Worry
For all the Twitter doomers drawing comparisons to rallies that happened midway through the dot-com and housing busts, I’m not seeing nearly as many comparisons to the 2009-2013 period. For those who don’t recall or weren’t in the market then: most headlines were about the next thing that was going to crash the market and send us back to new lows, and everybody was worried about buying a short-term top in the rising market. The phrase “don’t fight the fed” was born of this era, as bulls went from a minority to the consesus view. And yes there were hiccups and drawdowns along the way, but the market never did stop ‘climbing the wall of worry’.
Even for years after the bottom was actually in, folks refused to believe it, and the market was treated as something incredibly fragile. Perhaps it actually was - but the optimists who bought in regardless are the ones who made money. Fortunately at the time I was young, dumb, and didn’t have Twitter.
But Some Folks Just Love Fighting the Trend
Perhaps another day I’ll jot down some thoughts about the pathological aspects of being a doomer or contrarian - but for now I think it’s best to end this post with the simplest observation of them all.
There’s two ways to make money in this game:
Be right when the crowd is wrong, and take their money.
Be right when the crowd is right, and ride the trend.
These aren’t mutually exclusive, but I’ve found that attachment to a particular thesis will keep my perspective fixed as ‘one versus the other’. Turning bullish in January was contrarian and uncomfortable, so I resisted it by staying underinvested9. And despite Spooz running 300 points in a month, being bullish may still be early & contrarian in context of a potential multi-year bull market emerging.10 Think of how many folks will keep trying to press shorts higher, and how much more manic the market could get after several months of sustained gains…
At some point, being right when the crowd is wrong should give way to being right alongside with the crowd. There’s no need to fight every move or always be outside of consensus, so long as you are actually minimizing noise, looking ahead, and managing your ego alongside your risk.
Markets are discounting mechanisms that look far into the future with pretty high degrees of efficiency - yet it’s unfortunately easy to get caught up in the noise of the present or indulge our egos that think that we know better.
There’s no shame in acknowledging that most of the time we don’t actually know better. It’s actually quite liberating and keeps the game exciting. The market, like the rest of existence, is under no obligation to make sense to you.
-Hound
I’m not here to plug anyone, but need to give credit where it’s due. Lord Fed is one of very few folks on Twitter who walks the walk. I’ve learned more from brief chats with him than the trial & error of 10+ years of trading my own account, relentlessly reading, and building a few basic quantitative trading systems. And he donates the money from his Substack to animal charities, which is a nice thing to do.
I geniuinely believe that “it takes all sorts” to make a market. I’ll make jokes about approaches that don’t make sense to me, but I appreciate that they have their niche and a right to exist. Most approaches exist because they actually do work under certain circumstances - different issue if folks are using a poorly adapted approach for the existing market regime.
For a few months in 2021-2022, I maintained a spreadsheet each day that I’d update with the top ~3 themes / narratives I saw on Twitter. Do this for more than two months and you will immediately lose the illusion that anyone loudly proclaiming anything knows what they’re talking about.
I try not to give advice, but never, ever do this. You have an opinion and the market is gutting it? You’re wrong & get over yourself. People quote Warren Buffett saying, “be fearful when others are greedy and greedy when others are fearful” and conveniently forget that he also says, “Rule #1 is don’t lose money”.
Those folks happily buy index funds and sidestep the mental illnesses of both Twitter & trading.
Because they’re actually paper trading, and their Twitter presence is either content marketing or performance art.
I’m not making any explicit call on the near-term direction of the market. Just observing that, at yesterday’s close, there are a lot of professionals who are underinvested after 2022 and will need to buy equities at higher prices instead of the bottom they expected lower. This is more painful (both mentally and in pnl) than having bought into the falling market last year.
Like most folks new to investing, I started as a value investor. And this time period was one of the rare moments in time when value actually delivered excess returns. Arguably, it was a bad learning opportunity even though I made money, because value stopped working and I was left clueless by ~2014.
Fun sidebar: I was cleaning last week and found a journal of mine from 2019. In one of the entries I was making a list of all the ways I could think of to lose money, and #2 was being underinvested (as an opportunity loss). Sometimes you can know not to be a sucker, and the ways in which you will be a sucker, and it’s still extremely hard not to be a sucker.
Once again, not making any market call here. I’d be surprised if this rally keeps going at it’s current rate without a pullback, but it could happen. Over a multi-year period, I think it likely that stocks will be up, so seems like the right thing to do would be buy any dip presented.
Good post, still very relevant today! Update for 2025?