Investing in an Age of Distraction

Temptations abound in financial markets today.

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After two weeks of travel I will, starting next week, finally get back to my regular Thursday publication cadence. Last week, I had a blast chopping it up with my man Sam Ro at Future Proof in Huntington Beach, and Wednesday of this week, I was invited to give the keynote address at the Wheeler Wealth Summit in Ponte Vedra, Florida. 10/10 time at both events, would definitely run it back. Now, to today’s blog.

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My favorite weekly tradition is Wednesday night poker with a group of business school friends. It breaks up the flow of the work week and provides an opportunity to catch up, crack jokes, and, of course, get our gambling fix.

One of the funnier aspects of poker night is that, despite our meager buy-ins (we typically play $50 buy-ins with $0.25 and $0.50 blinds, though, thanks to my deep war chest of chips, early losers can easily buy back two or three times), everyone takes the game so, so seriously, and the full range of human emotions comes to life around the poker table.

You can see the fear in someone’s eyes as they call a $5 raise, not knowing if their opponent has a higher straight. Shouts of anguish and jubilation explode from opposite sides of the table as someone loses $20 because their triple Kings lost to a full house. Furrowed brows hint at the intense mental calculations at play as guys think through probabilities on a $7 hand. Most nights, we make and lose less than the cost of a Chipotle burrito with chips and guac, but we treat it like we’re playing in the World Series of Poker, with millions of dollars at stake.

It’s a bit absurd that we take poker so seriously, considering that it’s a game of chance and speculation on which we wager $50 a week, but that’s part of the fun. A little speculation is fine as long as you know that you’re speculating, you know how much you’re willing to risk, and you keep that speculation separate from the rest of your finances, and that’s exactly what poker night provides: a healthy outlet for speculation.

One of the hardest thing about investing in 2024, however, is that the line between speculation and investment has never been more blurred.

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40 years ago, investing was straightforward. Index funds were nascent, you might have had a pension from work, you probably owned a few government bonds, and, if you were fortunate, you bought a house. That’s it. No one was trading stocks, because in order to buy or sell a position, you had to hop on the phone with your broker and pay him up to 1% for every transaction. $100 fee to buy $10,000 of Apple? No thanks!

Now, however, we live in a much different world where trading is free, speculation is rampant, and there’s a market for everything, all accessible from your phone.

Beyond simply buying and selling stocks, you can click a few buttons and buy short-term options contracts in seconds. There’s a huge difference between buying $10,000 of Apple stock because you like its long-term growth prospects and buying $10,000 of Apple call options expiring in two weeks because you think its China iPhone sales numbers in September will beat expectations. The former is investing and the latter is speculating, but when both options are available in the same apps at the same time, it’s easy to convince yourself that you’re “investing” in those call options, because you are, technically, putting money to work financial markets.

Crypto markets are like the Wild, Wild, West due to lack of regulation and constant token issuances. Market participants play an unspoken game of musical chairs, waiting for catalysts to drive their coins up while secretly hoping they can sell to another sucker before the price comes tumbling down. This doesn’t sound like investing, but it’s all just lines on a screen at the end of the day, right?

Or what about “prediction markets,” which allow you to place bets on everything from the Federal Funds rate in January 2025 to the winner of the presidential election? Many of these contracts are CFTC-approved derivatives, like oil and soybean futures that airlines and farmers use to hedge against price fluctuations. If you bet on an election, but you place that bet on a prediction market instead of making a handshake agreement with your friend, is it now “investing”?

Oh, and let’s not forget our media cycle that bombards us with “BIGGEST MOVERS OF THE DAY” each morning and afternoon, ensuring that we monitor each and every one-minute tick of the most volatile stocks, and a social media feed filled with folks gloating about lottery ticket-turned-life-changing wealth (though, of course, we rarely hear from the losers):

Investing has never been harder than it is today because there are so many distractions tempting us to trade and speculate on anything, anywhere, all the time, but investing is supposed to be a passive endeavor.

We have a stock market that has averaged 9% returns annually for the last century, and, sure, future returns of that level aren’t guaranteed, but the track record looks good so far. Less than a year ago, you could get a guaranteed 5% return on 10-year treasuries. You can just invest your money here, keep adding money over time, let compounding do its thing, and you’ll be just fine.

But no one wants to talk about long-term compounding when you can trade your way to a 100% return, right here, right now. Just hit the correct buttons, of course. And that’s why investing is so hard in 2024: how are you supposed to take a “long-term” perspective on anything when your brain is constantly stimulated by temptations begging you to make a trade?

- Jack

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Jack's Picks

• Just a fantastic blog by Morgan Housel on the importance of charting your own path.

• Great piece from Kyle Harrison on how and why venture funds should focus more on developing apprenticeship.

• Really interesting piece from my colleague Max Knoblauch on how the boom and bust of LA’s streaming scene has impacted the media labor market.

• 🔒 For paid subscribers, I published some updated market thoughts a month ago concerning my thoughts on Alibaba (and Chinese stocks), PayPal, and more. This week, it looks like the market finally agreed with me.