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In the late seventies a meme went through the investor community in America:
If after ten minutes at the poker table you do not know who the patsy is—you are the patsy.
There are two ways investments can make money.
1. You’re investing in something that’ll geniunely increase in value. Like how an apple seed is cheaper than a well–cared-for apple tree. This is awesome.
2. You’re investing in something that you can send for more money down the line to some other sucker who’s left “holding the bag”. This is not great.
A lot of times on the stock market, it’s a little of column A and a little of column B. In both cases, you buy something because you hope the price will increase. Sure, often the price will collapse horribly, but hopefully you’ll get out before then.
(The Bottle Imp is such a brilliant satire of this.)
During the tulipmania, crashy bubble as it was, some people did make a lot of money. Others were left bleeding and penniless. Same in many other bubbles: beanie babies, the subprime trench BS of 2008…
Yeah, yeah, Lotus and Moxen still haven’t crashed after 20 years, and the Mona Lisa is more than 500 years old and still expensive. They haven’t gotten more value, but their prices have increased. But most vintage postal stamps, for example, have fallen dramatically in price.
Other times the thing is flimsy AF. This can be hard to spot. The tulip bulb thing might seem dumb, and it was since it did crash within three years, but the bulbs weren’t just “one use and they’ll wither”. The idea was to take care of the plants and keep growing new bulbs from the old, and eventually resell. Although with the ever-increasing bubble, a lot of it was amplified by buying selling futures by people who never even saw the bulbs.
A lot of the time, some of the participants in a price bubble are mistakenly believing that their investments are long-lasting and sound.
Anytime you’re hoping to make money by selling it to some other sucker down the line, like in The Bottle Imp, ultimately you’re hoping to make money off of their misfortune, off of hurting them.
When an autograph destroyed the world
StackSmith at the Ctrl-C club has a follow-up
That’s right. When you buy stock, let’s say in some eco-friendly mom&pop shop, you’re not really helping them grow or funding their efforts. You’re only betting on their success, not contributing to it (exception: when stocks are first being issued and when there is new issue).
It’s so similar to the horse racing track. It’s just money going around and numbers going up (or crashing), not really building the future. The horse doesn’t go any faster just because the stakes are higher.
But, when you’re using stocks to gamble on the success of corporations, that’s still distinct from gambling on there being s bigger sucker down the line. The idea is hopefully that the stock’s price will go up because fo the corporation becoming more valuable. The hideousness of growth is still better than just bottle-imping pure nothingness.
Gambling can pay off if the EV is good and if you catch the right waves. Abstaining from gambling can also be costly, relative to CPI in an inflation economy. But, gambling can also leave you utterly ruined since it’s so risky. The human world is so messed up.