Why Would Someone Want You to "HODL" a Stock They Also Hold?

could they have a self-interested reason??? 🤔🤔🤔

I’m in the new issue of Vital City, talking about involuntary commitment. Check it out.

Somehow, the meme stock thing is still going - or, at least, the GameStop (GME) thing is still going, albeit to much less media attention and with a much lower stock price. Many other meme stocks have failed their way out of being memes, including some which have gone all the way bankrupt, like Tupperware. Meanwhile, Wall Street long ago started accounting for these shenanigans in their evaluation of the stock’s value, diluting the ability of the Reddit crowd to move it significantly. But thirty seconds of Googling will reveal that there are still many congregants at the church of Roaring Kitty. And while I don’t find that mysterious, human psychology being what it is, I do find it odd that the news media continues to cover this stuff with a veneer of evenhandedness, given that the whole thing can’t work.

Investing in the stock market is similar to gambling, though in a different sense than most people would think: professionals in both fields rarely take big risks and almost never generate huge immediate financial gains. People who work the stock market professionally, where it’s notoriously hard for even massive institutional investors to consistently beat the market, aren’t out there throwing their entire bankroll into a single stock on a hunch. They tend to spread the wealth around to avoid the risks of any single deal going bad. They also have to bake into their budgets the understanding that they will eventually enter a fallow period where their returns are bad in general. That’s the variability of the market. Indeed, stock brokers of the traditional variety have always made their money primarily with the fees they charge the clients they advise, not from returns on their investments; the former is reliable income, the latter is not. Many or most of the people who consistently make a living trading stocks have a system that produces a minor edge and have to make up for the vagaries of minor market fluctuations by playing the long game. And, as you’d imagine, the ones who make the largest profits are the ones who have the largest stakes, that is, the ones who are already wealthy.

You can pretty much just copy and paste “gambler” into that last paragraph. Yes, professional gamblers are definitionally people with a high tolerance for risk. But most actual professionals (as opposed to your cousin saying he’s moving to Vegas to play blackjack professionally) don’t throw down huge stakes on individual bets. Again, there’s variability in sports as in the markets; sometimes Buster Douglas beats Mike Tyson, and if you’re consistently throwing down your whole nut on individual events, eventually you’re going to be broke. Instead, most gamblers spread their money around, have a system that produces a slight edge, and grind out money with that edge over time, sometimes having to take an unexpected loss because of the roll of the dice. (Figurative or literal.) That’s what being a professional gambler is, for most people most of the time, grinding out small gains over time. They may very well make more than they would on a salary in the square world, but most of the time they’re not making huge bets and reeling in big paydays. And, as you’d imagine, the ones who make the largest profits are the ones who have the largest stakes. That’s probably not you.

In other words, the stock market and gambling share the condition of not being ways to get rich quick, with the people making a lot of money on individual stocks or bets overwhelmingly already being rich. In the popular imagination, these are ways to escape the shackles of the slow accumulation of wealth, but for most, they’re an exercise in the slow accumulation of wealth. And those who can most reliably produce very large gains are those who need them least.

So, GameStop. The initial runup of the stock price was treated like a kind of magic, in much of the coverage, but reflected the most basic fact about investing: people buying a stock drives the price of that stock up. The Keith Gill/WallStreetBets phenomenon was a demonstration of the power of the internet, more than anything; a sufficiently large mass coordination of people picking stocks has always had the capacity to move an individual stock. The desire to punish short sellers brought a little (dubious) populist branding, and the influence of a short squeeze was widely discussed. But fundamentally, GME went “to the moon” because a charismatic leader and an online community of dissatisfied fanatics were able to drum up enough buying to move the stock, with the added bonus that the media attention brought more and more people into the craze. Once people had their money in, they were told in increasingly-religious terms that they must “HODL” - hold on for dear life. In the meme stock space, the duty to never sell is discussed in hushed tones, like a holy commandment or a knight’s code of honor.

Which, of course, is all transparently horseshit, the notion that the people shouting “HODL” are themselves intending to hold for as long as they can. Everyone saying that is someone making a calculation about how to get out before the suckers do. Every last one. Because none of them, I’m sure, has a burning desire to die with GameStop stock, which will then be passed on to their descendants who themselves will never sell. The stock does not pay dividends; unlike in the old timey 1920 days, there isn’t even a cool stock certificate you can pull out and fondle. So why hold GameStop three years after its famously unsustainable peak value? Because they think it’s going to go up again, and when it goes up enough, they’re going to sell. They don’t want to hold a stock, they want to sell a stock, for American dollars. Just like how even the most committed crypto enthusiasts don’t have any intention of keeping their investments in Bitcoin forever, but would rather convert it to actual money at some point. Like, obviously. This is all a money-making enterprise. That’s why so many people were excited about it! There’s only “Deep Fucking Value” if there’s actual monetary gain, at some point. People didn’t buy the stock to admire it in their Robin Hood account. They bought it to make money, and the only way they can make money is by selling some or all of the stock, which violates the whole cult of HODL.

Which brings us to the central question: why do people who own a stock that you also earn want you to hold onto yours? Why would they express that desire with great fervor? Because, of course, they want you to keep the value of the stock as high as possible when they sell before you. They want you to hold your stock because they want the value to be higher when they sell, which makes yours worth less! And of course enough of them selling will reduce the value of your own investment considerably. If you’re buying into a stock that has a high price because it reflects a consistently profitable business, you can hope with at least some confidence that that underlying fiscal reality will buoy the stock and make it an attractive investment even after you sell. But if a stock is being inflated purely by market manipulation by a dedicated online group, then inevitably you come upon a basic problem: any significant group getting out will reduce the price of the stock, hurting those who follow the directive to hold and prompting many others to get out in a panic. Quite literally, everyone who bought into GameStop can’t make money off of doing so because somebody’s got to be late to the selloff. Which is why this whole thing is such a particularly sad expression of aspirational capitalism; the meme stock people celebrate their own jocular spirit of togetherness, but fundamentally all of them are looking, someday, to fuck the people who wait too long.

Lots of the people who bought into the GME craze lost money, probably most. You can look at the chart above; that huge initial spike could only happen through many new entrants buying in, which means that they bought the stock at an inflated price even relative to the stock’s meme period overall. Those who bought near the peak, which again must be many given the basic movement of the price, sold at a loss or still hold stock for a company that has no business having anything like the market cap GME has, even post-bubble bursting. This past May, some $13 billion was wiped out from the stock’s value in a week, and a hugely disproportionate amount of the people taking that haircut are individual weekend warrior investors who can hardly afford the loss. And you can spin whatever narrative you want about how there’s gonna be the “Mother of All Short Squeezes” or some other black swan event that catapults the stock again. The basic reality is, as I said, that if everyone’s planning to get out when the price is right because the stock has been overvalued by mass market manipulation, there is no way that everyone who buys in gets to cash out. In a very literal and direct way the GME investors are in a zero-sum game against each other.

The poor financial sense of all of this has been laid out many times. But that’s the point of a cult, right - to substitute fervor for sense. I’ve often wondered whether Gill, who apparently still maintains his own stake in GameStop, really thinks it’s all a good idea. I could easily see this as something that got out of hand for him, and now he’s a prophet figure in a very delicate situation. The initial insight that GME was over-shorted was absolutely on the money, and if he and a band of loyalists had simply gotten in and gotten out, they’d be richer and free of any obligation to keep holding on. But an interesting trade became a movement, and when it did Gill became a messiah. And it’s hard to stop being a messiah. With a remarkably credulous movie making the GameStop diehards into heroes, and millions of people yearning for any possible chance to escape the day-to-day grind, they might keep the price overvalued for a very long time. But they can’t all hold on forever, and the person telling you to HODL ultimately is someone who only cares that you hold on for just a little later than he does.

I’m afraid you already know what to do instead: get a job, max your 401(k) contribution, stick that money in a boring index fund and absolutely do not touch it, spend less than you make, and wait. With the money you make and Social Security, you should have arranged a comfortable retirement for yourself. Of course, that’s not what most people are looking for. They want to be wealthy, now, they’ve been steeped in a culture that tells them there’s nothing else that matters, and they have not been lucky enough to be born on third base. It’s very human and understandable thinking. It’s just also destructive, a testament to how the supposedly rational hand of capitalism pushes so many people into flagrantly irrational decisions, chasing the dream. And that leaves the rest of us contemplating whether it’s worth making the most offensive statement of all, in these United States: you will never be rich.

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I leave you with this recent post from r/WallStreetBets, which would seem to have a good chance of being deleted:

I've held this in long enough. The shame, guilt, lies. Pretending to be cool and knowing what the fuck I'm talking about. I've been holding this in for years. I've cried and cried and cried. I'm fed up with my bitch behavior. It's time to fucking take things into my own hands and change. I'm not stopping, I'm going to gain this all back the slow, and right way. Here's my story.

In 2019 I learned about the stock market. Like a responsible retail investor, I created baskets and diversified my equity investments.

In 2020, I learned about options.

My first gamble was a meme stock I found on WSB that rhymes with Ped Pad Peyon. That was the start of my entire $1M loss and life downfall.

It felt so good to see those big spikes in gains.

But it also felt like the end of the world when it all went to $0.

For some reason, I always came back. I tasted the forbidden fruit, and was addicted.

Fast forward two years, I needed a source for more trading capital - I sold my house and car, maxed out credit cards, borrowed from the bank, and lenders. I lied to family/friends to get money, and worked odd jobs that were shameful.

My wife who I'd been with for 12 years left me, we didn't sign a prenup so there was that whole process...then she took custody of the kids.

Sure, I lost $1,030,220.81. But the worst part of it all, is I lost loved ones, every friend in my life, and every single asset I owned. I cried like a fucking bitch for days on end, slept on benches, backyards, and under bridges.

I managed to save up some money, and am now living on my own, in a one-bedroom apartment.

I know it I can do this. I know I can make it all back. I've heard stories and seen people do it. I understand all the technical analysis, indicators, price action, gamma exposure, OI, risk-free interest, blah blah fucking blah. I know it all. What made me lose it all wasn't my understanding of the markets, it was my ego, my greed, and lack of discipline. My psyche.

I've spent the last 2 yrs dedicating myself to mastering every technical aspect of the market. I've met 10 figure retail investors, hedgefund managers, and everyone in between. Really dedicated myself to learning the markets. Most importantly, I've made good progress mastering my emotions. I've even gone on months without masturbating. I needed to model a stimulus that was just as rewarding as gambling.

I'm here to show that I can gradually get out of this hell-hole.

I've managed to trade back up to $25k, and in the last week I made $14k (options + futures). I will get back to $1M. I'm just here to prove to the world and myself that this isn't over.

Is it the most hedged / low risk decision? Fuck no. The degen surely lives on inside me. But I've tamed it. I guess if you're looking for entertainment, or a person to root for, you can find me on X. Username is lost1million. I'll try to give periodic updates here as well.

This is pretty much it for me. Here we go.