About a year ago I went on Corey Hoffstein’s flirting with models podcast. Outside of my thesis, one important change in the microstructure that I listed was the shift in speculative sentiment due to a change in the demographics of the buying power.
Simply put, this means that millennials (and under) are more inclined to make speculative investment decisions.... this is aided by the confirmation that they were correct because asset prices continue to rise. Like a gambler on a roulette table more winnings means more gambling.
The important thing to note is how this translates over to asset prices. This means that we should expect asset price changes to demonstrate wider variance. This means price changes can move more rapidly and more obscure than we are used to seeing.
We are seeing this thesis confirmed in the NFT space, Crypto, and single stock. There are tons of examples of “craziness” during the last year.
But I hope folks understand this, adapt to it, and change their mentality. We are in a market that keeps grinding higher and is giving a false sense of security.... as fast as they rise, these asset prices will fluctuate the same way on the way down.
Hence why I get so frustrated when people show me backtest results from the 1980s and 1990s
This market in 2021 is nothing like those markets...running regression samples and trying to make direct sense of it is literally comparing apples to oranges.
This market in 2021 is nothing like those markets...running regression samples and trying to make direct sense of it is literally comparing apples to oranges.
In a way, I’m actually shocked that people are surprised when assets like Solana or GME, goes up 500%.
If you actively trade and observe what is transpiring in the market then this should just be another confirmation of what we already know... not new information.
If you actively trade and observe what is transpiring in the market then this should just be another confirmation of what we already know... not new information.
Asset prices change off of one thing, literally 1 thing..... investor sentiment.
Investor sentiment is a non linear system Iif you want to quantify it ...aggressive winners keep adding more and more to their holdings due to a false sense of confidence that occurs while winning.
Investor sentiment is a non linear system Iif you want to quantify it ...aggressive winners keep adding more and more to their holdings due to a false sense of confidence that occurs while winning.
So some millennial who is leveraged on asset XYZ makes money on it, then takes his winnings and leverages even more on asset ABC....this is a continuous whirlpool as asset prices continue to rise with it. The market follows, while some 50 year old fund manager is sitting there
and trying to short the asset because “it can’t keep going up” or “this doesn’t make sense”.
Complete perfect example of a trader who has not adapted with the times, the market will eventually engulf him.
Complete perfect example of a trader who has not adapted with the times, the market will eventually engulf him.
So when you list out what the main things are in this market that are causing it to react this way. Understand it is largely due to a shift in the way how people think about investing. Cautious investing is out the door with the young generation, it’s get rich or go broke trying.
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