During the last 72 hours, I've received some requests for my opinion regarding the whole GameStop situation. Is it just pure gambling, I've been asked, or is there something broader in progress? An army of investors, mostly residents of Reddit WallStreetBets, has used the Robinhood app to make and lose fortunes. The whipsawing of GameStop stock is the latest and evidently one of the greatest consequences of this army's newfound logistical power.
Initial Thoughts
Well, now that I've taken a quick look at the storylines, I have a few opinions. First, however, let me be clear. I know nothing about stock trading, less about subreddits, and my only familiarity with Robinhood is that I once lived on Robin Hood Drive in Clarksville, Tennessee. This will be one of those rare occasions when I attempt to opine regarding something I know nothing about. But bear with me.
An article that provided some contextual footing was Jon Sarlin's CNN piece on January 29 titled "Inside the reddit army that's crushing Wall Street." I recommend it as a starting point. Anywhere you look in mainstream media, you'll find interviews with people who have made sudden fortunes from very little starting money, and a few interviews with those who have then lost those fortunes. For example, today CNN ran a piece about a 10 year-old investor who made more than $3,000 on an initial $60 investment. A similar story features CNN interviewing a Missouri man with a 35K salary who quickly made a million dollars. So what people are asking me is, "Is all of this just pure gambling?"
I know a gambling subculture when I see one, and WallStreetBets appears to be its own two-fisted degenerative subculture. If you substituted "sports gambling" for "options trading" and read the subreddit forums, you'd come to the conclusion that you're dealing with out-of-control, hardcore gamblers who have no idea of the likelihood of making a profit. Somehow, because this is stock market investing, the media tone is more forgiving.
Before criticizing this stock gambling subculture, however, I have some caveats. Having some background in journalism, I'll point out possible pitfalls in taking all reportage at face value.
Journalism Caveats
Since the landscape of sports gambling is generally sampled and reported in certain flawed, misrepresentative ways, I think it's helpful for me as a member of the not-savvy-about-options-trading club to understand that the same kind of misrepresentation may be occurring for GameStop reporting.
For example, the Jon Sarlin CNN column I referenced earlier was very, very helpful to me in providing an understandable framework, so kudos to him. However, and it is a big however, it's important to understand that for someone familiar with the material, it was easy to impose tone and spin to the piece. The big responsibilities of the author include his choice of interview subjects, what he chooses to ask those subjects, and the decisions he makes as to whom to include. Plus the author gets to edit the responses to his questions. So basically what I'm saying is that the entire tone and spin of the piece, and what the public takes away from it, is dictated by the cherry-picking of interview subjects and the cherry-picking of what they said.
The fundamental challenge of writing this kind of story is to responsibly blend the objective, historical background and seating material for the piece with interview segments that are chosen because they are representative of the whole, not because they make for compelling reading or sexy clips that grab attention. At least that's the way I see it.
When sports gamblers are interviewed, usually they're chosen for some mega-freakish win or because of some degenerate storyline. There's rarely any sense that people being interviewed are representative of any whole. That's the problem I have with many of the initial media interviews with GameStop investors. I don't walk away with a sense of whether they've been chosen for freakish wins, disastrous storylines, or because understanding them helps you understand the entire milieu.
Are They Just Gambling?
Okay, enough with the caveats. Based on what I've read to this point, WallStreetBets traders come across as arrogant, self-absorbed, degenerate gamblers. Now I'm going to defend them in a bit, because I'm going to frame things in a bigger context, but for now, in the context of the resources they have on hand and what they are doing, they seem stark raving mad to me. Many of the quotes from the Sarlin piece reveal out-of-control people who lack long-term financial discipline. Many of the quotes make the investors sound like gambling addicts on a bad tilt, and descriptions of the groups' chats suggest most of them are committed to this lack-of-control addiction.
I want to directly quote a line from Sarlin's column, "But unlike many other online communities, there is also a clear financial goal for the people in it." Now that is an interesting comment on which I almost gagged. A "clear financial goal" is also the wished-for-outcome for the vast majority of those picking up dice, playing poker, or betting sports. Having a "clear financial goal" is like wanting to have eternal life. It's a great idea, but unless you have a sense of how many people actually pull it off, having that goal doesn't, in and of itself, do you any practical good.
Defending the Army
Now I'm going to step back from my immediate impression of this particular subculture and defend these investors, who are generally not one-percenters. I have no real beef with anarchist investors, as long as they are clear-headed about what they are doing and about their chances of financial success.
Way back in 1984, I gave a paper at the National Conference on Gambling and Risk-Taking. The paper appeared to be well received, but a few of my concluding comments garnered some pushback during the socials after the sessions.
I have always argued against addicted out-of-control gambling behavior. However, I also fully defend the use of negative expectation gambling as a tool in a broader context. For example, playing at being James Bond in a casino environment may enhance one's non-material resume, so to speak. Cultivating the perception that one is urbane, worldly, and willing to take substantial risks has value. Whether gambling enhances you in the eyes of business colleagues and potential lovers, or provides a respite from a day-to-day grind, those non-material aspects may have more overall value than the material resources sacrificed while gambling. So I'm always aware of that. I'll lecture recreational gamblers when the mechanics of what they are doing is wrong, but I won't tell them that the actual gambling is wrong. Not my job, and I'm not in their shoes, so I don't really know what they get out of their gambling. I try to correct dumb betting from a math perspective, not an overall context perspective.
The pushback I got during the conference social events was that some people couldn't believe I didn't automatically define losing a big chunk of annual income, say 25%, as a gambling problem or addiction. I refused to automatically do that, as I don't know what the person is getting out of his gambling participation. I'm not God. Maybe it's what gets that person up every morning. Maybe it's the primary context that facilitates he or she having sex. I just do not know.
Conclusion
I circle back to the anarchist investors. The Sarlin piece revealed a burgeoning social network for these people, a political purpose of sorts, a devil-may-care, financial disaster precipice kind of cachet. I don't know to what degree they draw their identity and their purpose from anarchist (and likely idiotic) investing. Not my call. Does it make sense for them to do it? I have no idea. Maybe it's what gets them a date on Saturday night.
Sarlin's descriptions of the online social interactions of the WallStreetBets investors reminded me of American sociologist Erving Goffman's comments about gambling. Quoting anthropologist Natasha Dow Schull, "Goffman regarded gambling as the occasion for 'character contests' in which players could demonstrate their courage, integrity, and composure in the face of contingency."
This is where I mention some key facts regarding "contingency" facing non-one-percenter investors in 2021. The framing statistics for the anarchist investors' behaviors are that (1) almost 75% of Americans die in debt, (2) the average debt for those in debt is roughly 62K, and (3) things are not getting better.
Once these numbers frame the context for these traders, what appears to be an insane go-for-broke mentality seems a bit more rational. Their attitudes and perspectives make much more sense.
Bob Dietz
January 30, 2021
