The New Age Metaphysics Of Contemporary Investing
2021 was a year that will be long-remembered for retail investors’ flash-mobbing of “meme stocks” thanks to social media sites like Reddit and online trading platforms like Robinhood.
The rocket ship emojis and popular trends that included trading in non-fungible tokens of cartoon bored apes were manifestations of a deep-running trend towards extreme abstraction. From spacs, to cryptocurrencies, to NFTs, to Web3 and the metaverse, what investors wanted most were things that, well, were difficult to explain.
Today, what is most expensive is what is the most extremely abstract — the enterprises that have the greatest “hypotheticality”, the anti-real as it were. The crowd adores everything that is at the far reaches of psychological distance — in time, in place and in familiarity. We all but need binoculars to see it out there on a far horizon. Futuristic investment themes like space travel speak to our insatiable appetite for the psychologically distant opportunity – Peter Atwater, “After years of abstraction, things are getting real for markets”, Financial Times, January 11, 2022
Post-COVID financial markets may well be remembered as the time when financial markets discarded with the concept of reality.
I remember working out with my personal trainer early in 2021. He said his son was interested in a stock. Before he had a chance to name it, I said “GameStop”. It wasn’t the first or last time people would ask me about GameStop. Then it was AMC.
Later in the year, one of my gym buddies lectured me on the virtues of the cryptocurrency Cardano. At the time, I had only heard of Bitcoin, Etherium and Dogecoin. Before the end of the year, I myself would gamble $1000 on Shiba Inu, a cryptocurrency with a cute dog emoji that trades at a fraction of a fraction of a cent.
Finally there are NFTs.
What in the hell is going on?
My theory is that the loosest monetary policy in the history of mankind combined with New Age Metaphysics to cause investors to completely lose contact with reality.
You’ll see it when you believe it. Don’t believe? You have a scarcity mentality.
Back in the day, financial assets used to be measured based on the cash flows they were expected to generate. Fundamentally oriented investors analyzed financial statements and business quality to come up with an estimate of a business’s intrinsic value. They aimed to buy stocks whose intrinsic value was higher than the market price. That sort of investment process became obsolete post-COVID.
Cathie Wood’s Ark Innovation ETF (ARKK) crushed 2020 by investing in the businesses of the future – present fundamentals be damned. The Reddit mob took it to another level in 2021 when it decided to levitate the stocks of the worthless businesses of Gamestop and AMC.
At least those are actual businesses. How exactly does one value Shiba Inu or an NFT?
As usual Warren Buffett had it right when he called Bitcoin “rat poison squared”. It’s all fun and games until the crowd realizes that the emperor has no clothes.