Ever seen the film This is England? British film. Young kid, bullied at school, befriended by skinheads and transformed from lone loser to uniformed gang member in a day. It’s a powerful example of the positives and negatives of gangs.
Positives include: belonging to something, having friends, a set of rules to live by, and no need to think for yourself.
Negatives include: compromising your values to belong, an inability to think outside the square, and a loss of independence.
It is the core tenet of all gangs and groupings, from skinheads to religions. People pulled together by choice or circumstance to adopt a collective behaviour pattern under a common banner. Belong, Believe and Behave.
Our groups define us, and once we belong, it is hard to challenge, change, or exit them, to defy common opinion, think for ourselves, and do better. We settle into patterns, and in the stock market, there are all sorts of gangs, most of whom are stuck in their ways. They include:
- The Warren Buffett gang. A delusional band of groupies with unrealistic ideas that they can read a few quotes and emulate the smartest investor of our time.
- The “I don’t know anything about the stock market but hold a lot of stocks” gang. Largest membership of all gangs. Many of their members will bore you at dinner parties with unresearched, social media-based facts, theories, and fantasy delivered with certainty. A subset of the Warren Buffett gang.
- The long-only, long-term, it’ll be alright in the end gang. Also known as the “Eyes Wide Shut” gang. Membership requirements involve having more money than you need, so you can meet long periods of losing money in big stocks with firm inaction. An ability to forget is useful. An inability to sell is a prerequisite for new members.
- The treating the stock market like a casino gang. Any losses censored, any gains trumpeted. Membership requires you to be behind the eight ball of life, knowing that one day your ship will come in if you can just keep winning. It doesn’t, and you don’t. You give up on the stock market eventually and blame your losses on a Machiavellian plot against you.
- The daytrader gang. Members have a weakness for glamorous ads for stock market software featuring a twenty-six-year-old trading currency on a mobile phone in the back of a limousine that drops him off on Wall St. These gang members give up their jobs to trade the market until, inevitably, their spouse or bank balance gives out, and they rejoin the workforce after learning that day trading is a very stressful full-time job. There’s nothing glamorous about it, and the certainty of making $100,000 a year far outstrips the chance of making $100,000 a year.
- The technical gang. Membership involves not bothering to do any real work other than using chart-based trends and observations to identify what everyone else is doing and doing the same thing until the trend ends. Surprisingly disciplined gang, and that alone ensures their continued existence and wealth. Most effective members also belong to the fundamental gang.
- The CFD gang. Main criteria for membership also includes a susceptibility to marketing and not knowing or caring that with some providers all you get for your cash is a ledger entry in someone else’s bank account. You put in your $10,000 once, blow it like a betting account, and then have a decision to make: just how fast a learner am I? The slow learners do it again. Eventually they spot that the biggest advertisers in the country are the companies that make the most money out of their customers.
- The Options gang. Smart gang members only join for short periods when in possession of a piece of reliable inside information. Long-term membership is tiny and requires you to be writing calls against huge underlying share holdings, which you roll at expiry by calling your options broker from your racing yacht.
- The Futures gang. As a private investor, you only stay a member until you work out that futures are for professional fund managers and traders who are legitimately achieving a purpose, not punting, using futures. Not a gang for the mortal investor. For retail investors, it has the highest client attrition of almost every other product, and the only ones making any money in the long term are the brokers. This is a very small gang.
- The one stock forever zombie gang. Highest depression and billionaire statistics of all gangs. Gang members include a disproportionately large number of retail brokers who work on the basis that the way to get rich is to find a stock that is less than a cent, that has half an idea, buy millions of shares, and then spend the rest of your career marketing it. You can tell if someone is a member. One day they will ring you up to invite you onto their yacht, or ask you for a loan.
- The gold bug gang. Annoyingly rich. Well done.
- The small resources gang. Requirements include an understanding of the Perth property market, an ability to say “Stronger Forever” without giggling, the gall to do a share placement every year at a discount to the current price, the ability to swamp failure with geological data, the ability to display perpetual optimism, and the fortitude to wait it out until the planets finally align, as they sometimes do. A subset called the lithium gang formed in the last two years. It still exists, just.
- The stockbroker gang. More subsets than a penitentiary. It requires the ability to perpetually answer the question “How’s it going” with a straight face and the statement “Fantastic. Yeah, really good”. Most members are colourful at lunch, can spin a great story, sell you eskimos, smile when lying, but will never bore you.
- The “I don’t have any money in the market” gang. The partners of these gang members have learned that there is a difference between sophisticated investment and unsophisticated gambling and have banned their partners from screwing up their family’s future any more.
- Then there is the “Doing the best I can looking after my SMSF” gang. 1,148,481 members managing 616,400 SMSFs. Good gang. My gang.
