Moderator Note
Since we have plenty of Elon Musk threads already, let’s not turn this thread into yet another one. If you want to continue to discuss Elon Musk, please do so in one of the Elon Musk threads.
For this thread, let’s focus back on the original topic, please.
That may be difficult for you to interpret because it’s not remotely what I said, which is that the issue is financial literacy. Not only is financial illiteracy a prime cause of why people remain poor, it’s why they support the very policies you’d like to see abolished, because they don’t know any better. All too often, the answer to “Hey, what happened to that goose you had that laid golden eggs?” is “We ate it!” You can go on about the vast resources the wealthy have, but you’re ignoring the fact that lottery winners, pro athletes, successful influencers, etc that accumulate wealth lose it all about 70% of the time (including the young man in the article). Policy won’t fix that - financial education would, and not just the high profile examples that make the news, but the day-to-day mistakes the poor and middle class make that widen the wealth gap from their side.
when you owe the bank 500 its your problem when you owe the bank 500 million that’s the banks problem -JP Getty
At least Getty used his money to build one of the nicest art museums I’ve ever been to. Nobody’s ever going to name a museum or a concert hall or a university after Elon Musk.
On the contrary, my point was responsive to exactly what you said. Now you’re saying something different. I was responding to the following point (emphasis mine) in relation to how to get rich:
The issue isn’t that people can get rich without digging ditches and laying bricks or whatever someone arbitrarily decides is “worthy,” since anyone can do it; the issue is most don’t know it’s possible or, if they do, how to do it properly.
My point being that many aspects of the stock market are a zero-sum game, especially in the short term – somebody’s winnings are somebody else’s losses, and even in the long term, the ability of markets to create new wealth – the proverbial rising tide that raises all the boats – is limited. So the ability of the well-connected wealthy to make vast sums of money, both in publicly traded markets and in private ones, no longer works if everybody and their dog is trying to play the same game. This is why, as per the book I cited by the economist Thomas Piketty, unbridled capitalism has been a powerful and intrinsic force in promulgating and increasing wealth inequality, overwhelmingly favouring the rich.
Your original point was about getting rich, this is now about how not to lose wealth you already have. And I disagree that lack of financial literacy is the reason that some people gaining sudden wealth manage to lose it all, unless you stretch the meaning of “financial literacy” to such a meaningless extent that all it means is “common sense”.
The kind of common sense that I could sum up in a few sentences, like putting a significant chunk of that wealth into stable and secure investments like reputable corporate bonds and diversified blue-chip stocks or just index funds. This doesn’t require sophisticated financial literacy, just a working brain, or in the case of the young man who’s the subject of this thread, a brain unclouded by boundless greed and overconfidence.
Another point I forgot to make earlier. When a stock like TSLA experiences a very rapid rise like it did between 2019 and the end of 2021, the tremendous increase in “value” (its price multiplied 27-fold) is often touted as a wonder of the capitalist marketplace, and those who rode it on its upward trajectory touted as investment geniuses. But all this “value” is in an important sense largely an imaginary fiction, because the underlying fundamentals haven’t changed nearly that much, if it all. That’s why this sort of bubble is usually followed by a correction, which is indeed what happened to TSLA, and why this guy – because he was so highly leveraged – lost everything.
One may well ask, if the high price when it peaked in late 2021 was such a “fiction”, how come some investors could, by definition of a liquid marketplace, sell at that price and get real money in the form of real windfall profits? Because the fiction is “real” in the sense that there are suckers out there willing to put their hard-earned dollars into buying at an unrealistically inflated price, supported not by sound fundamentals but only by hopeful dreams and wishful thinking (the same reason that some are putting good money into Trump Media & Technology Group – DJT – which is basically a worthless scam). Some, like our friend here, even leveraged himself to the max to do so.
This illustrates my point that many aspects of the stock market, especially in the short term, are a zero-sum game. Where do you think the $415 million that our friend lost went? Aside from the commissions he paid, his losses mostly went to the winners – those smart enough to have put their money on the short side of TSLA at that time.
Just a nitpick, but puts and calls are options (to sell or to buy), not “highly leveraged bets”.
Puts you make money if the stock goes down and calls you make money if the stock goes up. But as I understand it, generally the most you can lose is the premium price you paid for the option if the market doesn’t go your way.
It’s in buy shares on margin or “shorting” stock where people tend to get fucked. Because in that case you are borrowing shares (which you have to pay interest on) in the hopes of buying them with the profit you expect to earn when you sell them after they decrease in price.
Ironically, he would have made money shorting TSLA.
The article also says this dude “contacted a representative at RBC Private Banking about obtaining a loan against the equity in his RBC trading account” to buy a house or something. So he was also getting into Securities Based Lending, which can be problematic for the borrower if the stock price drops. He was also borrowing against his equity to buy more securities (Margin Lending).
I’d still like to see the math on how a $88k investment becomes almost half a billion in two years. That’s an 19,000% return on what would have been an impression 2,600% return on just the stock price. But what I imagine he did was just keep borrowing against his TSLA shares to buy all sorts of options (mostly calls probably). Then TSLA tanked, RBC sold his shares to cover his margin calls and his call options expired worthless.
Ergo, the system worked. Some greedy dummy doesn’t get to be a decamillionaire for long fore being too greedy and dumb.
Not sure what you’re nitpicking about. Back in my youth when I was doing some small-time day trading as I hobby, I dabbled in put and calls and I know what they are. “Highly leveraged risky bets” is exactly what they are. They’re highly leveraged because if the underlying stock goes the way you’re betting, you can easily make many multiples of what you invested (based on the stock potentially moving only a little in the right direction). You can also easily lose everything you put in (but no more than that, unlike shorting a stock).
They’re risky bets because they’re time limited and you pay a considerable premium for the time to expiry. Commissions are also higher than ordinary stock trades. To make money, you not only have to be right about the direction the stock will take, but you have to get the timing right.
The investor cited in the OP should’ve dealt with an honest, consumer-oriented bank like this one.
You should sell those right away. Equity grants or RSUs etc should almost always be sold as soon as they vest. You never want your retirement nest egg to be tied to the same company you work for. Company folds and you lose your income and your retirement.
TD Bank also has a reputation for some fairly shitty customer service practices, which may or may not be related but is probably all part and parcel of poor management. Not that any bank, on either side of the border, has particularly great management.
That said, though, I think it’s unfair to extrapolate from this that RBC had any legal or even moral culpability in this guy’s downfall. He failed to exercise the most basic precautionary common sense that even a dog with a bone knows how to do.
I have no idea how hard RBC tried to dissuade him from his lunatic strategy, but surely the elite Private Banking division of the country’s largest bank would have at least politely suggested that he was being an idiot. To which he undoubtedly replied, “no, you!”.
When an idiot is generating millions in profits for you, you tend to let him do what he wants as long as you stay on the right side of the law and reasonable expectations of ethical behaviour. Believe it or not, Canadian banks have a very strong sense of ethical behaviour. When it comes to following the law, they are very much part of the “establishment”, almost an extension of government itself. So what happened with TD in your example? I’d say monumental incompetence is a good bet, something else Canadian banks are known for, since they operate as highly protected quasi-monopolies that have become highly complacent.
According to the Justice Department, the TD Bank money-laundering conspiracy case goes beyond “monumental incompetence”.
If someone went down to my local bank branch and dumped big piles of cash on the counter for a deposit or money transfer, I’d hope that eyebrows would be raised.
“a very strong sense of ethical behaviour”. 
I have no reason to defend TD or any Canadian bank. But as a former IT consultant I’m pretty familiar with their culture, both the good and the bad, and they’re absolutely obsessed with both following the letter of the law and being perceived as doing so, and with building an image of trustworthiness.
What happened with TD is almost unfathomable, and I can only assume it was both incompetence and perhaps major systemic problems in its US operations, which likely had a vastly different culture than the parent company.
100% correct. This strategy served me well. You already have your salary in the entity. You shouldn’t have your investments there also.
My original point is about financial literacy, which does help people get and stay rich. Your response to that starts above with:
Your points, from what I’ve seen, are that capitalism is a corrupt, gate-kept system that only works for the rich, and knowing what you’re doing (financial literacy) is irrelevant. That seems disproven by the story. A 20-something carpenter made $415M (CAD), so where were the gatekeepers? He lost the money and his argument is he took bad advice because he didn’t know what he was doing.
You’re dismissing financial literacy as “just common sense” buthat term is relative - what’s common sense to Warren Buffett is not common sense to a 20-something carpenter, or a recently-signed pro athlete with a degree in basket weaving or a lottery winner. We watch the majority of people in the US screw up their finances out of ignorance, yet when someone talks about financial literacy people crank up the Pink Floyd and chant “We don’t need no education!”
You’re considerably distorting my points, and muddling the substantial difference between getting rich and preserving wealth you already have. The former takes a certain degree of financial sophistication (though not necessarily very much if “getting rich” simply means growing your wealth much faster than inflation). For instance, simply parking your investment in S&P index funds has historically generated impressive returns. Whereas simply hanging on to existing wealth (meaning at least outpacing inflation with no appreciable risk) really is just basic common sense.
The people who get windfalls of millions of dollars and quickly lose it all do so not because they don’t possess a high degree of financial literacy, but frankly because they’re morons with no common sense. Sometimes they lose it, like our friend in the OP, because they continue to take insane risks with their entire net worth. Sometimes they lose it because they go on outrageous spending sprees, the problem here seemingly being an inability to do simple arithmetic. It’s not a problem of financial literacy, often it’s just a problem of letting emotions overwhelm common sense.
I also am not claiming that capitalist systems in general, or even the stock markets in particular, are intrinsically “corrupt”, although some aspects of markets strike me as unproductive or counterproductive to the general welfare. Nor have I ever claimed that it “only works for the rich”. What I’m saying is what has been factually borne out by many studies (again, I cite the classic book I mentioned by French economist Thomas Piketty) that the operation of capitalist markets overwhelmingly favours the wealthy who can exploit it far more effectively than those less fortunate, and that this is a major contributor to expanding the wealth disparity gap between the wealthy and everyone else. This is a sad situation that is socially destabilizing and ultimately unsustainable.
My understanding is that puts and calls are often used to help manage portfolio risk or generate income as part of a broader investing strategy. But my point (for people who may not be familiar) is that they are not “high risk” in the way shorting a stock is high risk (i.e potentially unlimited losses).