Investing Like A Psychopath: A Fond Reflection

The American dream! Now mortgaged and with added call options!

I’ve already talked a lot recently about the two things I think will make the market crash: the passive bid and options gamma. For those of who have been subscribed long enough to remember the days of yonder where I actually thought something as pesky as valuation would matter, that argument has been neutered by the passive bid market mechanics, which I suggest you read about in depth here.

While discussing both catalysts, I have also, in passing, been casually noting that the market is now replete with unsophisticated investors: people who are speculating and taking on more risk than they can afford or understand. For them, investing has simply become gambling.

I want to zoom in on that subset today and give people an idea of what the “average” investor in the US looks like right now, just to share how quickly “diamond hands” may be inclined to furiously pulverize the “market sell” button when the decades-long “buy the fucking dip” (BTFD) charade eventually comes to an end, even if it is just for a short time before the Fed steps in to ensure adequate delusion continues.

For visual learners, investors used to look like this — brokers who took six 20 oz. pints of lager at lunch, 35% annual fees, $10,000 to place a broker assisted trade via rotary phone — also known as the good ole’ days:

Now, they look more like this:

Which leads to the impetus for writing this piece. I stumbled across both of the below posts this weekend, authored by two separate investors—both of which have done extremely well for themselves, which deserves to be recognized—but both of which appeared, from the tone of their posts, to not be satisfied enough to quit YOLOing the market and go full Hans Gruber and sit “on a beach, earning 20%”.¹

Here’s the first post. It begins with a line that belongs in the annals of investing history: “When I owned a home, I constantly felt the urge to liquidate my home and buy more [Tesla]”.

I can’t tell if that’s an original quote, or pulled from some esoteric Benjamin Graham bible I just haven’t read yet, but I digress.

And no sooner was I done reading about how “cheap” Tesla — which currently trades at 188x trailing earnings and 12x sales with a legacy business in sharp decline — is, than I saw this second post from someone with more cash in their investment account than most people ever accrue in a lifetime:

Let’s discuss first things first. I don’t take issue with the fact that these people are mortgaging their homes and selling everything they own to pour that cash into things like CoreWeave or Palantir or Tesla or RegisPhilbinCoin or Fartcoin or ShitStainCoin or whatever is trendy this week. Both of these guys have made shitloads of money and, as much as you don’t want to admit it, the argument of “SCOREBOARD!” or “stock price, bro” holds lots of water in a game where “number go up” means you get paid.

Look, if you bet on the Steelers to win a 1PM football game, and they win because of some freak fluke in the wind blowing a field goal wide for the opponents, do you say “Hey, I really didn’t deserve to win”? No, you order another round of wings, smash your Natural Light can on your forehead, shotgun another, find a bet for the 8PM game you can blow your winnings on, and celebrate — at least for the four hours until the Sunday night game. These guys are living those four hours over the last half decade.

Sure, these “assets” happen to be things I would not be going all in on if I was forced to speculate, but to each his own. It’s a free market and a free world, and I wish these guys the best. Despite what it sounds like, this isn’t a dig at their investing style or acumen. I’m a libertarian because, at the end of the day, I want everybody to be happy, and I want people to pursue the things that make them the happiest. If this means investing like a full-fledged psychopath, then by all means, go for it. Hell, I spent many years doing exactly the same thing, and while I got my ass thoroughly kicked in the options market (and betting 2AM Hawaii NCAA basketball games and Latvian Ping Pong), I can’t say that I regret it or didn’t have a good time.

But what I am hoping to provide in this post is a cross-section of what I think a large majority of the retail investing public looks like nowadays.

Roaring Kitty, god among retail trading men

I’m saying this without judging. At the end of the day, I don’t really care that there are more retail investors involved in the market now than there have ever been, and I don’t really care that a larger number of those investors are far more speculative and unsophisticated than they’ve ever been. In fact, I celebrated the GameStop chaos and explained why I thought it happened during this 2 hour interview about bitcoin I gave at 6AM one morning on 4 cups of coffee with a raging cold sore on my lower lip.

Personally, I don’t even care for the term “sophisticated investor” at all, because half of the “sophisticated” dickhead analysts and investors that are paraded around in financial media are people I wouldn’t trust $20 with, people that can’t seem to walk and chew gum at the same time, dorks who went to Penn that I had to serve at the Irish pub I worked at in Philly and couldn’t (1) hold their liquor (2) grasp the concept of tipping for drinks despite being econ majors and in general, people who appear, to me, to have the investing acumen of a Milk-Bone™.

But at some point, facts just have to be called out as facts. And the fact is that these types of investors are everywhere. With the gamification of investing, using apps like Robinhood—which I think, by the way, is a net positive for market democratization, not a negative—and the ongoing obsession with all types of gambling sweeping the nation², investing today is speculating on short-dated options on companies trading at 200x earnings, whereas in the past, it was buying 100 shares of Microsoft, at a 15x PE, with a 10-year investing horizon and getting a raging boner about the concept of your broker reinvesting dividends for a decade for you automatically.

Nowdays, we have television remotes that require software updates, AI that can’t tell you how many days are in the current month, drink “specials” in New York City that offer $15 beers and cars that turn the engine off at every stop sign and will not move and will ping and bing and bong and carry on and call you an asshole to your face until you put your seatbelt on.

Which is to say, the world has definitely changed. So what’s my point?

We all know that anytime there are steep market sell-offs, too many people smashing the sell button at the same time creates massive moves lower in the market, margin calls, and outright panic. But now, because of insane leverage and this type of speculation, the sell button isn’t a sell button anymore… it’s a panic button.

These types of “special” investors are going to have “oh shit” moments a lot faster and with a lot more intensity than normal investors from 20 or 30 years ago, who would be conservatively positioned in blue chips and whose idea of defense would be to move their money into the bond market, which nowadays crashes the same time stocks do. It’s not just the leverage, it’s the insane psychology of market participants nowadays.

The first layer of panic icing on the cake could very well be crypto — and this is coming from a guy who owns bitcoin. The fact is crypto is an asset class that moves sharply and for no reason at all. There are hundreds of billions of dollars of speculation in crypto, and there is no “book value” for it to fall below to entice people to buy it in the event of a real emergency.

Moreover, it is people who invest in crypto—by the asset’s nature—who are synonymous with people who speculate. This means that a sharp move lower in an asset class where extreme leverage is encouraged could very well be the fuse to setting off a run lower in equities, starting with the risk-on tech names, high price-to-sales names, and all types of pre-revenue and pre-profit garbage “startup” stories.

Such companies—including but not limited to Bitcoin treasury companies and crypto-focused tech companies like Coinbase and the likes—have become catnip to the same type of investors that are addicted to speculation.

Remember what happened during Liberation Day—the bond market started acting really funky after multiple down 3% to 5% days in the NASDAQ in a row. It felt as though when President Trump finally made concessions about his tariffs, we were standing on the edge of a cliff. If the bond market hadn’t “mysteriously” found a bid right when yields were blowing out of control, and if Trump didn’t basically capitulate to the market by changing his stance on tariffs, it felt as though we were about to experience a margin shitstorm the likes of which we haven’t seen in a long time.

When the margin shit hits the reality fan in markets, people still usually do have a one- to two-week buffer zone where they can liquidate other assets or at least try to wait it out and endure the pain before being forced to sell. After all, most bills and payments are due monthly. So, I strongly believe that if the market volatility had continued for another week or two, we probably would’ve moved another 10% or 20% lower in the market just on margin selling.

This intense panic will happen at some point, in my opinion, and will compound in ways that it never has before because of the type of speculation that I’m writing about in this article.

One day there’s going to be a catalyst to the downside that President Trump nor the Fed is going to be able to fix immediately. It’ll be something out of the control of both entities — and then we’re really going to find out exactly how much leverage there is in the system—and we will firsthand experience what happens when 1 billion retail investors all try to run out of one emergency exit at the same time.

Hopefully what you take from this article is twofold. First, like many of my articles, it is a reminder that valuations are extreme and that caution is most necessary when most people think that it isn’t. Second, it’s a reminder that should we wind up in a situation where there is sharp selling, not to use historical valuations as a predictor of how low we can go—because of gamma, the passive bid, the gamification of markets, Robinhood, speculation, and crypto, we have never been in this type of situation before, and the results of a crash in such an environment will be unprecedented… so, I believe it would be a fool’s errand to compare a crash in the future to any moves of years past. This time it really is different. But not in a good way.

Now if you’ll excuse me, I need to take out a home equity line of credit. The technical picture on Dogecoin looks a little too attractive to ignore.

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1. Interest rates were 7.6% when Die Hard was released. This bit of hyperbole is both an allusion to owning passive ETFs and stopping psychotic speculative investing and an allusion to putting money into a CD or the like and earning what would be today’s 20%. Usually when you have to explain a joke with a footnote, it’s not a good joke. Please don’t forget to renew your paid subscriptions.

2. You can literally take to Kalshi or Polymarket to bet on things like what time Mitch McConnell will have his next bowel movement, or whether JB Pritzker will order a 40 piece or 100 piece McNugget Meal for lunch, with added leverage and options on dipping sauces