The Profits Driving Market Narratives And Hyperbole

Spencer bought NIO a few days ago, and he is already up 35%”

The quote above is a friend’s text describing his 15-year-old’s investing prowess. When asked if Spencer realizes NIO Company (NIO) is worth about twice the Ford Motor Company (F), the reply was the equivalent of a blank stare. 

Spencer, and many new investors/speculators, both young and old, are currently enamored with stocks.

Most of these new entrants are passive. Passive investors and speculators are taking center stage. As they do, they diminish the role of active investors. By default, this means that liquidity and capital flows become paramount to investing strategies. At the same time, fundamental and technical analysis fall by the wayside. (For more on the popularity of passive investing, please read our article The Market’s Invisible Guardrails Are Missing.)

Most passive investors and all speculators lack fundamental and/or technical guidance. They have nothing to steer their decision making other than the current hype and narrative. Given this environment, we think it’s important to understand the new breed of investors and the narratives and media influencing them.

Gambling vs. Speculating

The democratization of investing is, in part, responsible for an onslaught of popularity in investing. Zero commissions and easy to use online trading platforms like Robinhood open stock investing to the masses. Spencer and his buddies can open an app and buy a share or fraction of a share of NIO in an instant.

Narrative, The Profits Driving Market Narratives and Hyperbole

The ease of buying shares and upwards market trend make investing seem like easy street. In many respects, stock speculators are gamblers, but at times like today, they play with better odds. In sports betting, for example, the result is binary, win or lose. Bet enough, and you are almost guaranteed to bat .500.  Sports betting, slots, and casino games have transaction fees, called a vigorish or vig. The roughly 50/50 odds and the vig all but guarantee that over time almost all gamblers lose.

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Disclosure: The primary focus of this article is online media. The media trends and tactics discussed in this article are not reflective of all authors and media outlets. It should not be ...

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