“There is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.”
-Jesse Livermore
As a lifelong student of capital markets, there is rarely a dull time, at least not during my career. From the Asian contagion and Russian Financial crises that brought down Long Term Capital Management in 1998 to the dot com bust, the accounting crisis in the early 2000s, and the housing bust that led to the Global Financial Crisis in 2008, the challenges seem to never end. That was just the first ten years, and the list goes on and on. With the recent surge and collapse in Gamestop stock, I am reminded of Jesse Livermore, the legendary speculator who profited from the 1929 crash, perhaps said it best:
“… Human nature never changes. Therefore, the stock market never changes. Only the faces, the pockets, the suckers, and the manipulators, the wars, the disasters, and the technologies change. The market itself never changes. How can it? Human nature never changes, and human nature runs the market – not reason, not economics, and certainly not logic. It is our human emotions that drive the market, as they do most other things on this planet.”
GameStop (GME) – Last 3 months
The short squeeze engineered in Gamestop is more complicated than a David vs. Goliath story. Crosscurrents of our present state of high inequality combined with the pandemic’s imbalances have understandably created anger toward the establishment. It was a brilliant and elegant way to stick it to Wall Street’s large hedge funds representatives. Unfortunately, anyone late to the party was left holding the bag, although it was never about the money for many in the WallStreetBets crowd.
In the end, it all comes back to psychology and the human condition. Market cycles repeat again and again as memories are short, and the financial markets are an enticing place to hope to make a lot of money fast. Successful investors learn over time and sometimes the hard way. Slowly patterns become evident, and processes are implemented to keep oneself from falling prey to delusions of instant riches. The lessons do not come easily and often with financial and psychological costs. These experiences and observations are the seeds of a successful investment philosophy developed and refined over time.
As a steward of financial capital, implementing an investment process takes discipline and focus. Robust investment processes pay off over time, not all of the time. It is through difficult times that experience and steadfastness become evident, and one clearly demonstrates value. In the end, it is not that difficult to make money in the markets, keeping it is a different story.