Skip to content

The Retreat of the Amateur Investors

Do you remember the GME short squeeze and all the Robinhood traders?

During that craze, I did dabble in some stocks (bought some shares of Carvana when it was near it’s peak) and then took the gains and bought some NFTs.

All in all, broke even, had fun learning a few new areas, but it’s hard to sit on the sidelines when there’s all this excitement. I felt like I safely scratched that itch… some people did far more:

The Retreat of the Amateur Investors [Wall Street Journal] – “Amateur trader Omar Ghias says he amassed roughly $1.5 million as stocks surged during the early part of the pandemic, gripped by a speculative fervor that cascaded across all markets. As his gains swelled, so did his spending on everything from sports betting and bars to luxury cars. He says he also borrowed heavily to amplify his positions. When the party ended, his fortune evaporated thanks to some wrong-way bets and his excessive spending. To support himself, he says he now works at a deli in Las Vegas that pays him roughly $14 an hour plus tips and sells area timeshares. He says he no longer has any money invested in the market.” The headline might grab the attention but it covers quite a few retail investors and how they’ve reacted.

The Forgotten Lessons of 2008: Seth Klarman [Investment Talk] – “Two years after the great financial crisis of 2008, Seth Klarman shared a memo explaining how he felt that investors were quick to forget the lessons learned from one of the greatest financial meltdowns in modern history. He would remark that these lessons “were either never learned or else were immediately forgotten by most market participants”. Not quite a like-for-like comparison, but today we are ~2 years post one of the strangest exogenous shocks to ever hit the market. In this short time, we witnessed excess, despair, and everything in between. Some are now calling for a recession and a prolonged bear market while others suggest we are on the precipice of a young bull market.”

Different Types of Mistakes [Rational Walk] – “There are an infinite number of ways to make investment mistakes and each market cycle reveals new opportunities for speculators to immolate their money. Playing with leverage and derivatives will eventually end in tears for nearly all individual investors and professionals are hardly immune from occasional bouts of speculative fever. The details change but the desire to get rich quickly is perennial.” (emphasis mine)