1/ Learning painful lessons vicariously is preferable to touching a hot stove or peeing on the electric fence yourself. Vicarious lessons aren't as vivid as mistakes you make yourself, but they're still valuable. One great learning opportunity was the late 1990s Internet bubble.
2/ When NASDAQ peaked in March 2000 if you didn't see people learning vivid lessons, you weren't paying attention.
1. The only thing you can spend is cash- This seems obvious, but if you need cash fast and take a giant haircut when quickly selling an asset you own, it is vivid.
1. The only thing you can spend is cash- This seems obvious, but if you need cash fast and take a giant haircut when quickly selling an asset you own, it is vivid.
3/
2. When a correction happens, everything financial is correlated. People run from risk. This causes them to sell what’s most liquid and that, you know, quickly impacts price. What people thought was diversification, isn't, especially in the short run. Cash gets scarce fast.
2. When a correction happens, everything financial is correlated. People run from risk. This causes them to sell what’s most liquid and that, you know, quickly impacts price. What people thought was diversification, isn't, especially in the short run. Cash gets scarce fast.
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3. Losing what was once real cash hurts emotionally far more than losing paper wealth.
In 2000 some people owned shares which had zero basis that went from a very high price to zero. Other people paid cash for those shares that went to zero.
Paper wealth is paper wealth.
3. Losing what was once real cash hurts emotionally far more than losing paper wealth.
In 2000 some people owned shares which had zero basis that went from a very high price to zero. Other people paid cash for those shares that went to zero.
Paper wealth is paper wealth.
5/
4. Lenders who offered margin debt or prepaid forwards on shares that have traded radically down won't say: "Take your time in getting that cash to me." Collateral will be sold at what may be the worst possible time. Staying power collapses to zero. You're totally screwed.
4. Lenders who offered margin debt or prepaid forwards on shares that have traded radically down won't say: "Take your time in getting that cash to me." Collateral will be sold at what may be the worst possible time. Staying power collapses to zero. You're totally screwed.
6/ Were these lessons part of this recent GME carnival sideshow for some people? In some ways, but at the scale of a pimple on the tail of the Godzilla that happened in 2000.
The GME stock rise and fall was like watching a car wreck in slow motion if you lived through 1997-2001.
The GME stock rise and fall was like watching a car wreck in slow motion if you lived through 1997-2001.
7/ An entrepreneur built a company and sold it to Lucent in 1999 in a stock deal. His Lucent stock then fell in price, but he didn't sell because he would incur a loss from the high water mark he booked in his mind. This is loss-aversion at work. He rode Lucent all the way down. 
8/ A hedge fund manager raised $250 million for a short fund in 1997. His shorts took the fund to zero and the limited partners had zero return of capital by mid 1999. Not just no return on capital, but zero of capital too.
Being too early is indistinguishable from being wrong.
Being too early is indistinguishable from being wrong.
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