In Alaska, I met a naturalist who told me about sociopathic bears.
During spawning season, the rivers are chock full of salmon struggling against the current. They do this until they are just about to die, whereupon they release their “product” and shuffle off the mortal coil. The stronger they are, the further they get, the best milt inseminating the best roe. Thus natural selection unfolds.
These are not salmon you want to eat. The fresh water fucks up their flesh, so that by the end of their journey they look like zombie fish and smell just as bad. But bears love them, and the good news is that there are millions of these fish trying to live out their natural purpose. So bears come down from the hills to jam as many as they can into their gullet before it’s time to hibernate. In fact, bears are compelled by their own natural calling to do this. Sometimes you will see one by the river half-heartedly swiping his claws at the water, though his eyes are clearly saying “Jesus Christ, I’m full.”
Before you get carried away, this is not an analogy about market shorts being gluttons for rotten shit nobody else wants.
It’s also not analogy about retail investors swimming upstream until they die or get eaten.
Those are for another day.
In their world, each bear has an implied territory and if another bear gets within range, they take it very seriously. When this happens, they will stop what they are doing, make threatening moves and so on. If neither bear stands down, it’s go time. During spawning season this poses a problem because there are a lot of fish but only so much river, and it’s pretty common for a sort-of-hungry, more-kind-of-peckish bear to shamble down and accidentally enter the territorial radius of another. Suddenly, both are faced with a standoff neither expected. Both of them know that there’s no real reason to fight – there’s plenty to go ‘round – so this usually ends with the encroaching bear being like, “Sorry bruv, my bad,” walking an appropriate distance downriver and all is well. Sometimes, though, one of the bears is like, “Hey, is that Carl? Fuck you, Carl!”, and the threats escalate. Then a throwdown happens, all teeth and claws, until one of them runs away.
Thems the rules of bear society.
Sometimes a bear is big and aggressive and pushes his luck. Sometimes a bear is small and cowardly, and never does. Sometimes a bear is just young or dumb, doesn’t realize he’s breaking the rules and gets clobbered when he doesn’t expect it.
But there is another kind of particularly fucked-up bear. This bear fully understands the rules of bear society and knows how events will unfold depending on how he acts. He knows other bears generally won’t fight unless they have to because they don’t want to get hurt. He knows the reasons to fight are particularly low at this time of year.
He’s also a lazy motherfucker who doesn’t want to do the work of catching fish himself.
So this smart, lazy bear will stand downriver from another bear he can see but is out of territorial range. The moment that other bear catches a fish, he will run towards it aggressively. Now, this other bear who thought everything was chill sees this other bear suddenly coming at him and is like, “Oh shit!” He drops the fish he just caught and rears up, bracing himself for a throwdown against this charging psychopath. But the lazy bear isn’t coming in for a fight. No. Instead, he snatches the fish and just runs away. This leaves the other bear, sans salmon, completely flummoxed at what just happened. It takes him a little while to get over the audacity of that asshole to get back to what he was doing.
The naturalist explained that within social mammal groups, there are always roughly 4% that act in such bald and selfish way, fully grasping social convention but manipulating it to maximum advantage. These individuals do not actually feel shame or rejection the way the rest of the group does.
We know them as sociopaths, and they tend to do very, very well until (and unless) their behavior is caught on to and they are culled from the group in some way.
The reason there can only be a ratio of up to one sociopath for every twenty-four “normal” members, he explained, is that this is the most a group can withstand before the social order totally breaks down. No one trusts each other, and everyone is a suspect.
Too many sociopaths in a group, you get the Salem Witch Trials.
Once in a while, I meet someone who rocks the pillars of how I view the world. Chris was one of those people.
In the summer of 2007, I was doing pretty well. I had owned my own home for almost two years and had mostly recovered from that particularly massive purchase (any family man who has done the same will know what I am talking about). I had a few months of emergency savings, started a college fund for my kindergartener, had a little money socked away in a 401k, and paid the family car paid off. I had a full-time job and a side hustle, so I didn’t have a lot of spare time. I decided to splurge and hire a guy from Craigslist to mow my lawn.
Chris was five years younger than me, but somehow owned 5 houses. He lived with three other guys in one of them and rented the rest out. These guys were real bros, complete with the baseball caps and devil-may-care attitude reminiscent of Bill and Ted – like a fraternity, minus the college. They had no real skills, so they did this yardwork gig for pocket money. Chris was making a killing on the houses.
This was the height of the housing bubble, you see.
Chris explained that every few months or so, he either refinanced or took out another HELOC on the properties, each having appraised 5%, 10% even 20% since the previous time, tens of thousands of dollars at a cycle. Prices kept appreciating, so he kept taking out cash. Chris thought it was hilarious how the banks were practically throwing money at him. He made it a point to put as little of his own money in the properties as possible, drawing them down to the hilt and putting the proceeds into savings accounts. He used multiple banks due to the FDIC limits, which were $100k at the time.
I was blown away. I asked him what would happen when the bill came due? I will never forget his answer or how he said it, with that stupid grin and stupid red cap and stupid sleeveless shirt, standing on my porch that hot summer day:
“When all this ends, they can take the houses, but they can’t take the money.” Then he laughed. “They can’t!”
A year-and-a-half later, I was begging a parking attendant to let me out of the airport parking lot. I had used a credit card to put my car into the garage, the last one that wasn’t maxed out. I had just returned from L.A. for orientation for a job that paid half of the one I’d been laid off from months ago, and while I was there the bank cancelled the card. I had nothing else with which to pay the parking fee, all my other funds having been drained from an accident with an uninsured motorist and the monthly grind of bills that are always due.
I was, for the first time since I had been an adult, absolutely-not-even-two-nickels-to-rub-together fucking broke.
I had never felt so humiliated in my entire life, and this grizzled, hardened, world-weary woman in the booth had my fate in her hands. She could by all rights impound my car, and then I would be in some real hurt.
She assessed me for a long time, then simply opened the gate.
I don’t know whatever happened to Chris. I never got his last name. I imagine him running some sort of hustle somewhere, and I expect he is doing well. Despite my tone, I don’t wish him ill – don’t hate the player, hate the game. This kind of gamesmanship is how people get ahead all the time.
But thirteen years later, I still can’t help but think of him as being somehow lesser than me. This is entirely the sin of self-pride, I know. I can’t help it. He understood what was happening far better than I did – hell, better than most of us did. Despite appearances, he was a shrewd man who grasped that we were on a merry-go-round of stupidity, backed by social norms nowhere close to what the actual consequences of violating them would be. While most of us followed the rules and honored the social contract, we suffered while people like Chris profited. Laughing all the way to the bank, as they say.
So who is the lesser in this equation?
Chris’ outlook and actions were the very definition of Moral Hazard.
Moral Hazard is a term experts throw around when the Plebs find a hole in the system that they can exploit.
My last post was received fairly positively, but as with all things internet there were… detractors. There was considerable concern for my lack of faith in the market indices. There was disgust at my telling impressionable young fools to put all their retirement funds into FDs instead of something sensible like an index fund. But most of all, there was desperate need to point out how stupid I was for not having saved enough money to prevent tapping into my 401k when disaster struck. One commenter believed I should have foreclosed on my house before ever touching my retirement fund.
Understand clearly: I own all my choices, past present and future. I take responsibility for all the mistakes and the consequences, and I do not blame “the system” for the situations I found myself in. I do not claim to have made perfect financial choices, but I stand by the choices I made with the information and values I had at the time.
To blame the world for your problems is the ultimate in weakness of character. Doing so is to resign yourself to being a spectator in your own life.
Further, as a point of pride I want to establish that I have honored every contract I have ever entered. I have defaulted on occasion, but I paid back every dime I ever borrowed plus the appropriate interest and fees. I did not have to. I could have let my accounts go to collections and pay 50 cents on the dollar to resolve the debt. I could have walked away from my house when it was $100k underwater. For how long it took to rebuild my credit and recover my losses from what they now call the Great Financial Crisis, it would have been the smart thing to do.
It’s just not how I do things. And if I may be so bold to speak for others, it’s not how most of us to do either.
But as an older, wiser man, I now understand that it is not how everyone does things. There are a considerable number of people – 4%, in fact – that only care about the rules insomuch as how they can benefit from them personally. Not only are they banking on most people following the rules, they understand that those people are unprepared to react when they don’t – and not even have the courtesy to feel bad about it. These predators are ever present, and thus the “normal” among us must remain ever vigilant.
As Machiavelli says, just because you abhor the rules of power does not prevent them from being used against you.
As we watch the drama of PRPL unfold, we can see a social struggle regarding intent play out. Some people are angry, feeling scammed by the champions of this ticker. Others profess a kind of strange fealty, denouncing the angry ones and doubling down on their faith. The champions themselves speak to the faithful, assuring them of their own well-meaning and shared experience. It muddies the waters, and one doesn’t really know what to think.
I don’t pretend to know the motives of these guys. I had no skin in the PRPL game. For all I know, they are fine folk who are simply zealous believers. I have seen this story unfold several times, however.
Regardless of all that, you must own your own decisions. If you chose to back the play and lost money – and some of you lost a lot of money – that is entirely on you. Same goes if you listened to that great WSB prophet Variation_Separate, if you followed Cramer on one of his many shitty plays, or just hit a spinner and clicked “buy”. How you reflect upon this, what you learn from it and how you choose to act upon the lesson are what matters.
Most people are generally good, just trying to provide for their families or perhaps buy a Lambo. But the world is also filled with people who would skin you in a heartbeat if they thought they could sell your hide for a nickel, and they do exceptionally well in a world obfuscated behind corporate entities, computer screens and internet handles. Best not forget that when entering any transaction. That goes doubly so when following the advice of strangers. Even me.
Caveat emptor – buyer beware.
In any investment prospectus, you will usually see two phrases: “past performance does not guarantee future results” and “risk of loss up to and including the entire investment.” These are the only real truths in the world of business – perhaps even life. Everything entails risk, even doing nothing. Anything can happen tomorrow. And the world, I’m afraid, is in no shortage of some real and true fuckers.
Rather than allow this reality to paralyze me, it liberates me. Passive investing, in my view, is also no better than being a spectator in one’s own life. This is not to say I’m going to day-trade my life savings on YOLOs, or that I won’t be patient and let certain investments mature. But I refuse to just “Save, Buy, Hold and Diversify” and allow all control to be passed off to the whims of an ever more capricious market. Fool me once and all that.
The more you learn the rules of business and finance, the more you will find opportunities. Some opportunities are illegal, and others you will find distasteful. You should certainly avoid those – you aren’t a sociopath, after all. But you will find many, many tasteful opportunities often disguised as risk and/or hard work. The best of them, I would say, are those where everybody wins.
Some of my previous detractors pointed out that options are a zero-sum game, or as Theta Gang puts it, “the other end of your win is someone else’s loss.” Perhaps. Perhaps. With an ever-increasing NAV of the equities market, I am skeptical of this assertion. Further, I have bought options that expired worthless as part of a strategy I profited from and sold options that I am certain were used to hedge an otherwise profitable position. Besides that, I think it’s worth pointing out that as of 2017 1% of the world owns half the money – and most of the other half aren’t in this market. The likelihood that your winning option just fucked over a fellow retard is far less likely than it is of having sapped a hedge from some fuck who doesn’t know what else to do with all his wealth.
Therefore, I reject the notion that every smile creates a tear when trading options.
Lastly, anyone who tries to quote you the “stable” returns of the S&P 500 should also be made aware of its regular 30%+ YoY swings over the past 60 years. This is not a safe place to park your money, and someone is profiting handsomely from telling people that it is. These are the “Market Makers”, the players buffeting your passively invested retirement funds back and forth like a bowling ball going down a lane with bumpers. They don’t give a shit about what you plan to do with that money in thirty years, just that you put it into the market right fucking now. Don’t ever make the mistake of thinking they have your best interests at heart.
My great sin is believing you shouldn’t let these assholes just have at it with the resources you expect to keep you going into your old age.
It’s hard for a person to really grasp the trillions of dollars at play. Take a pair of night-vision binoculars into the woods on a new moon, look to the sky and you will get a notion. These people and institutions are playing with all that money because they don’t have any idea what to do with it, just that they want more. But by virtue of holding a Social Security Number, you get to sit at the same massive table – and I’m guessing you have a pretty good idea what you would.
So I am going to say it again, because it is worth repeating: we live in a Merchant Republic awash in wealth. Go out and get your fucking slice.
You aren’t special – but neither are they.
I love you retards.
EDIT: Dear mods. I did not fuck the parking attendant. But I would have. God help me, I would have.