The madness of short-squeeze has implications for trading and investor psychology: is there a replacement for force on Wall Street?Should there be position limits on the options?
To better appreciate the effect on investor psychology, CNBC spoke with Dan Egan, Betterment’s managing director of finance and behavioral investments. This interview was changed for brevity.
I asked if this madness of small squeezes was another chat room of the late 1990s, which were also used to infpaste proper actions.
Humanity has not changed, but the formula in which we paint has changed: first, there is no commission, we have a tendency to over-consume things when they are free, second, there is the gamification of trade. Third, social media paintings have grown considerably. Finally, there’s the pandemic. There’s not much else to do. We are replacing Internet commerce with lack of connection.
You say humanity has changed, does this mean that the motivations are the same?Much of this still seems like the greed of the old days.
Greed is still there, but it’s also another. It’s almost like an uprising. People came in here with a sense of righteousness, we’re going to fuck up hedge funds, it’s another from the past.
What do behavioral finances say about this?
First, there’s a desire for belonging. People want an organization of friends with who can get rich, they want to feel like winners. People don’t publish their failures, they don’t brag about wasting money. There are many FOMOs [fear of missing] – many other people check to avoid regretting not being a part of them.
What about other facets of behavioral finance? Turns out many other people are involved in the player’s mistake: it will never end.
The fact that inventory can move very temporarily south when there are no buyers is underestimated, but no one thinks so now. They love watching it happen.
What about the fundamentals? There is nothing to recommend that GameStop be worth $300.
No one has said that GameStop is a smart action, they simply systematically take a look at short-term high-interest inventories and review to ruin hedge funds. They don’t argue about the basics. It came out like, let’s aim at the hedge funds, but it went further. Once the inventory went up, it attracted elme investors and the multitude of FOMO.
Will this episode of GameStop be a vital ancient moment?Will this correspond to a spike in appetite for threats?
I don’t think it’s a macro thing, I don’t think that says much about the investment climate, what this indicates is that the expansion-recession cycle has been considerably compressed, bubbling and then descending very quickly. Everyone has a tunnel vision and then relaxes.
Some other people on Reddit’s discussion forums seem to think this is the beginning of something revolutionary. Many brazenly ridicule basic research and say it’s about flowing. Is basic research replaced through something elseArray . . . flow research?
In the short term, will prevail, and the Internet/social media and pandemic mean that a wide variety of COORDINATED DIY investors [do it yourself] over the Internet without friction can cause bubbles and short-term cuts greater than ever before. it’s like expanding your computer’s clock speed: the same thing happens, it happens faster.
What does the average investor do when he is not completely stuck in this situation?
Recognize that these networks should attract you. Be careful before opening a website, as they should make you feel like it belongs. Be aware that your attention is a scarce resource. This is called “selective attention,” which he pays attention to.
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