I’m curious what others think about a trend I’ve been noticing.
It seems like the wealth gap is widening rapidly. People with education, professional careers, and access to investment opportunities are accumulating significant wealth through stocks, equity compensation, and other assets. Meanwhile, wages for many hourly and blue-collar workers have not kept pace with rising living costs.
At the same time, social media is saturated with influencers promoting trading, options, prediction markets, sports betting, and various “get rich” strategies. Stories about people making large sums of money in a matter of days are everywhere. Whether those stories are representative or not, they are hard to ignore.
This raises a couple of questions:
Is participating in these speculative markets actually rational in today’s environment? If job security is increasingly uncertain and traditional paths to financial advancement seem out of reach for many people, why shouldn’t someone take risks in stocks, options, or prediction markets? At what point does investing become gambling?
What are the long-term consequences when companies with limited profits achieve enormous valuations and become major components of retirement portfolios through index funds? Is this a sustainable system, or are we creating conditions for future instability?
History is full of financial manias, bubbles, and economic transformations, but the current situation feels unusual to me. I’m interested in hearing whether others see this as a normal evolution of capitalism, a speculative bubble, or something else entirely.
I would say yes. This article was just posted yesterday in Bloomberg so you are clearly not the only person wondering about this. I’d add that the market is certainly in a bubble and despite recent shocks to the market (Iran war, inflation, etc.) the market keeps growing to record after record far exceeding actual valuations because you have all these people seeing it as the only route to prosperity today. As a result, they keep throwing money at it.
Welcome to the SDMB!
Gen-Z Traders Go for Broke in Pursuit of a New American Dream
Lottery-like meme stocks and options can seem like a way to beat high home prices, inflation and AI job threats.
Ish Lukhey was 16 years old and working a part‑time job at a gas station when he opened his first brokerage account under his mom’s name. His interest stuck, and by the time the pandemic shut down in-person classes, he was a freshman in college. Cooped up in his parents’ house in Minnesota, Lukhey continued trading, but now on his own account with Robinhood Markets Inc.
At the height of the Reddit-fueled r/wallstreetbets frenzy in early 2021, when retail traders drove a surge in meme stocks such as GameStop Corp., the conventional wisdom was that someone like Lukhey would eventually grow bored of watching lines on a screen once classes, dates and parties resumed. But Lukhey, like many others, didn’t stop. He joined the subreddit r/TheRaceTo100K, a community for those pursuing a $100,000 net worth, which has more popular seven- and eight-figure variants. The now 23-year-old fashion retail salesman had found a community that encouraged his ambition to trade his way toward starting his own business and buying a house.
“With how expensive life is, it is difficult for people to accomplish the goals that they want to accomplish,” Lukhey says. “You used to be able to with just one high or medium-to-high income. And I think as people start to realize that, then you have to look at, what are the vehicles to increase my net worth?” - SOURCE
Thank you. I’m really enjoying the quality of discussion here and will probably be lurking for a long time.
I can only speak for the semiconductor industry, but some of the valuations genuinely scare me. I understand the AI growth story, but the speed and scale of some stock increases seem disconnected from reality. Maybe the market is seeing something I’m not, but from inside the industry, some of these prices feel difficult to justify with fundamentals alone. Economy is on a thin line, at least that’s how I feel.
I know I’ve been “gambling” in the stock market. It’s crazy how much AI stocks have skyrocketed and I wonder when to sell. For example, Micron is currently up 300% since the beginning of the year, and that is just one of them. And like you, I feel like the economy has to be shaky despite these record growths.
What a thoughtful and interesting OP. I’m not sure if I have much to contribute on this issue but I’ll register my opinion that the stock market has been distorted so much as a financial instrument that the whole thing basically operates like a meme stock at this point. Tesla, a car company with declining sales and 15 years of failed tech promises, is more valuable than the rest of the world’s auto industries combined. SpaceX – a much more successful company – is still massively and insanely outvaluing the rest of the aerospace industry worldwide combined. It’s one thing for a meme stock to be gamestop or whatever, and it’s another thing for 2 of the top most valuable corporations in the world to be a meme stock. At that point, you have to wonder if they’re meme stocks or the whole market is just a meme market.
Perversely, I think part of the reason is that the giant mutual finds and index funds and other institutional investors basically follow the value in the market and amplify this effect. Originally index funds were supposed to be about stability and investing in the blue chip companies or the entire stock market, but because a lot of these indexes inherently invest in companies proportional to their value, if you can somehow perform some sort of magic trick to get your company valued highly (and at least one example of that is the cult of Elon Musk and whatever other financial manipulations he does), then the institutional investors and index funds prop you up on account of you already being perceived as valuable.
Prediction markets were mentioned in the OP. My BiL works in finance with futures markets and has always bristled at the notion that the various markets were akin to gambling. He agrees though that prediction markets are basically outright gambling. Worse, with Trump in power when those markets really came into their own, there is precious little regulation or oversight. Indeed, deeply suspicious trades are made all the time (insider trading, market manipulation, etc.). May as well go to Vegas. You’d probably get better odds (unless you have insider knowledge).
The rush to bet money on sports and in prediction markets correlates with ease of spending $$$ with what amounts to legal online bookies.
I recall a stat I saw the other day that said 1 in 5 Americans has an account with an online betting service.
Nope, actually it’s more than a quarter of Americans have such accounts; half of men aged 18-49.
Doubtful that has much to do with perceptions of overcoming income inequality. Most likely a sizable chunk of that reflects current or incipient addiction to gambling, fed by easy availability and tacit approval of organized sports and media which benefit from interest and ad revenue.
The best analogy is the rise of the internet. Conspiracy theories have existed forever. Loudmouths have existed forever. Fringe theories have existed forever. Cults have existed forever. Stocks have existed in somewhat modern form for a century. What the internet did was make them available to everybody, and easily spread worldwide, not just by word of mouth and small publications, within the reach of more billions than the entire world’s population at the start of the 20th century.
Gambling has also existed forever. The premier sports 100 years ago were boxing and horse racing, which existed for people to bet on: with only slight exaggeration everybody knew a bookie. The numbers racket was near universal. Card games were a primary form of recreation for males. The Irish Sweepstakes, forgotten today, was a national obsession. State lotteries were just as popular as they are today. Stocks have always been gambling. All they lacked in the past was an easy way for everyone to participate at the same time everywhere.
The modern world of instant and omnipresent communication magnifies everything to unprecedented levels. Humans remain depressingly the same. Bread and circuses always win in times of trouble, and we’re in deep trouble today.
I would disagree with this bit. I get it but it is not. While buying a stock is taking a chance the person buying the stock can have a great deal of information to decide whether buying the stock makes sense. Gambling is a roll of the dice (sometimes literally). There is no information to know what will happen next. That is gambling. The difference between the two is an educated bet versus pure luck.
Also, stocks and futures and bonds and options (and some other things) serve a real purpose and help the economy. Gambling is just some company extracting money from people who hope they are the rare lucky person that beats the odds.
An educated bet is a bet. The prediction markets thrive on people thinking they have made educated bets. So do sports markets. So do most things have gambled on over the years.
I wouldn’t argue that stocks have a place, although markets functioned without them for centuries and private corporations thrive so much that sometimes a public company will take itself private.
But in a world in which SpaceX is valued at $2.5 billion - after briefly hitting $3 trillion, even though Musk owns 80+% of the voting stock - I defy anyone to make a cogent case that stocks are not a form of betting. The only reason we don’t say that publicly is that the perpetrators have too much prestige and influence. It’s identical to some cults being worthless cults while others are called major religions.
I would say the primary difference is that when a stock goes down one generally still has an asset, it just isn’t quite as valuable as it had been. And there is the chance that it will go up again if one holds on. Worst case scenario, one has a tax write off. Whereas with gambling all losses are complete.
Stocks are considered the best overall investment over the long term, with a larger annual return than any other publicly available asset. I don’t dispute the value of stocks for investors, and I certainly don’t dispute their value for people like Musk. (I also never forget that the value of a stock can go to zero or near it. I live in Rochester, which Kodak and Xerox once made one of the wealthiest cities in the country. Where are they now?)
What I would argue is the idea that a stock price based on the net present value of future absolutely unknown conditions is anything other than an educated bet about that future. Rational market theory is in decline as behavioral economists have shown that stock valuations are better explained by non-rational psychological motivations. Nobody can explain how a “rational market” can determine the proper value of a stock, because no way exists to determine what the proper value is, other than circularly in the current price of the stock.
I would also remind everyone that just as most people who play the prediction and sports betting markets lose money over the long haul, day traders and others who chase stock prices also lose money over the long run. Index funds with near zero fees also over time beat almost all managed funds with fees. However, none of the economists who urged average investors to go this route ever predicted a market in which a handful of companies provided 30-50% of the growth not just in the NASDAQ but also in the S&P 500. Most of the growth comes from nothing but future glorification of AI, an unknown full of unknowns. If some of those fail, in hindsight all commentators will nod and confirm that the market was overvalued. In the meantime, how is it rational to buy anything else, given that those companies with no growth might be run out of existence by that same AI?
I have stocks in my portfolio. I have not made any major alterations in this Trump world of daily uncertainty. I fully understand and am sometimes terrified by the realization that doing so is a short term bet, because I have no rational reason to switch to anything else. The future is completely unknown. I’m merely betting that the market will remain sufficiently irrational for long enough to get me through retirement.
And this is where I’m gambling. I have most of my money tied up in all market mutual funds. But I had way too much cash and put a lot of into about 30 AI & tech related companies a year ago. Holy crap - it’s way up. I have to be ready to sell (and take the cap gains tax) if it does crumble. TBH, I’m still putting money into some of them when they have a “bad” day. It’s my gambling.
Folks are getting rich on this shit. It’s nutty times.
At the grocery store where I work, we have a vending machine that sells Pokemon cards. It’s set to only release a small amount of its stock at a time in semi-random intervals, because people can and do watch those machines obsessively for them to restock, then rush in and buy out the entire thing (or as much of it as they can afford) hoping to find a rare card that they can flip on eBay. It’s rare for me to pass by it and see anything actually available for purchase - and when there is something available, there’ll be a crowd loitering in our exitway hoping for a chance to buy it out.
That’s the extent to which gambling mentality has permeated our society these days - literal children who want to play a card game designed for kids have been shut out of the market by people in search of a jackpot.
I really think it is because our current economy is such shit there are a whole lot of people who see these things as their only hope.
Hope shouldn’t even be the word. They are desperate and taking a chance on that golden ticket. It is all gambling and their odds of winning are crap and those who run these games know it.
Same with the financial markets. If you think retail investors (you and me) have a chance against the institutional investors (the professionals in big companies) guess again.
Retail is Little League against the pros.
ETA: I am NOT saying you should not have an investment account and use it to make some money. We all should. But it is more a savings thing than a way to make a day-to-day living for most of us.
In response to the OP, yes. A whole lot of people are in financial doldrums or holes where they need quick urgent infusions of money. The only plausible way to do so is to suddenly win big in gambling, be it sports or something else. And unfortunately most of them will just get deeper in the hole.
When you go into a casino to gamble, you know the actual odds for the game you are playing. Finance it’s all just made up.
I guess maybe we need to clarify what the OP means by “gambling” vs “investment”, “speculation”, or “risk management”. What makes insurance or loan underwriting, my 401k, my wife’s job rating mortgage backed securities, crypto (or conventional currency) speculation, speculative markets, or playing blackjack in a casino similar or different? In a sense, they all involve trying to profit by predicting an uncertain outcome.
I supposed the difference is to what extent professionals are able to quantify the odds of the outcomes and approach it in a systematic way. As opposed to a “ordinary person” throwing money at it and hoping luck or whatever is on their side.
I also suppose another, perhaps bigger difference is whether the expected outcomes produce anything of actual value. Even under the best of circumstances, IMHO crypto, predictive markets, and winning at blackjack or roulette does not produce any new economic value. New homes or medicines or consumer products aren’t created. Someone just guessed correctly and money was transferred.
To me, that’s the biggest concern. Not that good working folk are putting more money than they can afford into speculation. It’s the the overall modern economy is increasingly becoming an economy based on ever increasingly complex layers of market speculation of abstract shares of ownership through hedge funds, private equity firms, and investment banks such that the actual work has become devalued.
That was my thought too; lots of people probably have always wanted to gamble, but until about 2000 or so, you had to physically go somewhere that allowed it, or find an illegal game of some kind. Most people didn’t do either, so they just didn’t gamble. Stocks were similar- you had to have a broker, which meant that you more than likely had to have some minimum amount of cash that made it worth their time. Again, most people didn’t.
Now you can get on the Web and get an account to invest in the stock market or gamble online without much in the way of hindrances, and now many people do.
It’s nothing to do with the economy, it’s all about how easy it is for people to get involved.
I suspect to most untrained/uneducated people, there isn’t much difference at all between putting $50 on red, vs. buying 5 shares of , other than the time frames and magnitudes involved.
I don’t have much of an opinion about whether they generate economic value or not; ISTR something in business school a quarter century ago that concentrated on how wealth was generated, but it was pretty obscure theoretical stuff. Seems to me though, that there has to be somewhere in the economy where wealth is actually generated rather than just transferred and accumulated, but where/how that happens outside of the obvious “catch fish in the sea and sell them” sort of thing was never clear.
