Speculation is as old as the hills. However in today's times, gambling and speculation are taking on whole new meaning.
Volatility has recently returned to the stock market, which got me thinking about some major trends we are seeing unfold in speculative behavior.
As it stands today, 25 states + the district of Columbia have legalized sports betting. It seems as though every other commercial while you are watching a game these days is a promotion for DraftKings, FanDuel, or whatever new sportsbook is coming to market.
Earlier this year, we had the "Meme Stock" mania, with new investors flooding the market on their Robinhood accounts looking to take stocks like GameStop and AMC to the moon.
(Check out my TikTok video I made on my take of what was REALLY going on during the meme-stock mania)
Regardless of your views on the rise of cryptocurrency, there’s been thousands of millionaires made thanks to the social trends of NFTs or the next new hot alt-coin. (I’m willing to bet someone reading this made stupid money on DOGE coin or a digital NFT)
So what’s causing all this craziness? As I mentioned earlier, speculation and gambling is as old as time, why are we seeing such crazy swings in the more speculative asset classes lately?
Well here in the year 2021, there's a lot of never-before-seen features playing out in front of us.
Gambling is becoming more accepted in today's society. Gone are the days of Tony Soprano showing up with Pauly and Sylvio looking for last week's due pay. Now, just download an app, find a game, and deposit money. With government legislation, and societal acceptance of gambling on sports, there has been an increase in the behavior of speculation. This has also translated into the behaviors associated with day-trading, and the ease of access to Robinhood and other similar platforms.
Another angle that I think is very important to dive deeper into is the current fiscal and monetary policy that is enabling growth in speculation. With interest rates at an all-time low, investors are being forced to go deeper along the risk curve. No longer can investors just park their money in a savings account, and get that 3-5% interest rate. In my opinion, I may never see that high of an interest rate in my lifetime. I believe the game has changed in the way our government spends, and the role the Federal Reserve will play in markets and investing.
Since the Federal Reserve has decided to keep rates low, we have the ability to gain access to "cheap money"- meaning that the cost to get a loan is significantly lower, giving investors easier access to cash than ever before. With the government passing large amounts of stimulus on top of the lower interest rates, there is more cash in the economic system than ever before. Where is this cash going you ask?
Lottery Tickets.
No, no. Not the scratch-off lottery tickets you're thinking of that you buy at 7-11 with your coffee, in the hopes of turning that $3 change you have into a quick $100. I'm talking about $DOGE, $AMC, $GME, that new SPAC that is coming public that your buddy told you about. Those lottery tickets.
I believe we are still in the early stages of the growth in gambling and speculation with today's modern technology. The government legislation supports it. The economic back-drop supports it. The connectivity of the internet and social media supports it. We will continue to see these manias pop up more often than you think.
I would be lying if I said I haven't partaken in a little lottery ticket buying myself this year. I have dipped my toe into some speculative cryptos like Solana and Polygon. I bought some meme stocks like $GME and $KOSS. I even downloaded Robinhood and bought some options on a Chinese electric car-manufacturer $NIO. (Shockingly did pretty well on that one lol)
I get it. It's fun. It's engaging. I just hope that with this rise in speculative activities also comes a rise in financial education and lessons learned on individual risk tolerance. Don't dump your savings into $DOGE. If you want to have a little fun, throw 1-2% of your investable cash into a Robinhood account and go nuts.
But don't let it bleed into your greater financial plan.
INVESTING is much different than TRADING. Don't get these two words confused.
I've written about the opportunity that exists with annual compound interest, and the benefits of long term investing into investment vehicles like your Roth IRA. If you have not read them yet, I encourage you to check them out and see the magic that a long-term, investor mindset can have.
There's a famous conversation between Jeff Bezos and Warren Buffet that I will leave you with. I think it is very relevant to today's times and why we're all trying to hit big on a lottery ticket trade.
Bezos, while speaking with the Oracle of Omaha asked the legendary investor-
"Warren, your style of investing is so simple, why doesn't everyone just copy you?"
"Because nobody wants to get rich slow."
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