Thanks to all the subscribers since the last installment in the Employee Factory series. Linked here if you missed it. There may be more parts coming in the future, but it’s “done” for now.
"'Come here,' they sang, 'renowned Ulysses, honour to the Achaean name, and listen to our two voices. No one ever sailed past us without staying to hear the enchanting sweetness of our song—and he who listens will go on his way not only charmed, but wiser, for we know all the ills that the gods laid upon the Argives and Trojans before Troy, and can tell you everything that is going to happen over the whole world.'
In Book XII of The Odyssey, Ulysses and his men find themselves rowing toward a group of Sirens. The Sirens are famous in Greek mythology for tempting sailors with their beautiful voices, only for those men to find their deaths at the hands of these half-bird women. So, as Ulysses and his men approached, Ulysses filled their ears with wax to block out the Sirens’ song. But he did not fill his own, he was curious and instructed his men to bind him to the mast. The passage above recounts their song.
The Sirens offer boundless knowledge and wisdom, all you have to do is listen to their stunning songs, come closer to their flawless faces, and somehow escape certain death. They teach us that if something seems too good to be true, that’s because it is.
But as millennia have passed, we haven’t quite learned our lesson. Sirens of some form seem to be part of the human condition. Especially now, with social media making eyeballs and earholes as valuable as dollars, there’s an infinite number of songs trying to rope us in.
That sketchy uncle trying to sell you dietary supplements that protect you from AIDs and cancer? Siren. An unlicensed doctor running around the wild west selling snake oil? Siren.
While these historical examples thrive off people’s fears of death, most of today’s Sirens thrive off promises to enhance an individual’s life. And what’s the best tool for enhancing one’s life?
That green paper baby.
Money is the key to (almost) everything in America, you simply cannot live without it. Money means food, rent, education, transportation, you name it and money can probably buy it.
Naturally, our unscrupulous Sirens try to lean into the interwebs and sing their songs, promising wealth, freedom, and happiness.
Can’t find a date? Slather some money on your chest and watch them swarm.
Hate your boss? Easy, take one fat dose of money.
Got a nagging case of existential dread? Sorry sport, have you tried more money?
But we aren’t talking about scammers here, we’re talking about those who weave a dream and promise it will keep you warm. People like financial influencers (finfluencers) and business gurus. Those who garner an audience offering wisdom, a way out, a simple scheme only a neanderthal could screw up.
These groups rose to prominence as the internet matured and their songs have matured too. The first generation of finfluencers and gurus talked about foreign exchange trading, drop shipping, e-commerce, and affiliate marketing. The newest generation that rose during the pandemic preached the power of trading equities and crypto. This current crop has been much more harmful and prevalent than the prior one.
Often these people will gain a following by showing videos of their exuberant lifestyle and claim that it was their secret knowledge of one of the above topics that gave them this lifestyle and that you can do it too! Here are a few examples if you want a good chuckle: 1, 2, 3.
But, these Sirens aren’t luring you in to kill you, that would be useless! Their goal is to build an audience to profit off of, usually by selling a course or through YouTube.
Obviously, they’re all charlatans raising a facade. If they were truly making as much money as they say they do, they wouldn’t be trying to sell you something.
But if these people are clearly frauds, why do they still have a market?
Well, all of the methods above have virtually no barriers to entry. There are no true startup costs for any of them and all could generate profit with as little as $10. There are also no knowledge barriers either, all of the learning is allegedly led by the finfluencer and the business models are simple to understand, ex. stonks go up.
Yet, none of them present risk as significant as crypto and equities. This is because the path to profit is fundamentally different than the others. E-commerce/dropshipping requires somebody to buy your product and affiliate marketing requires a following to be built. In other words, they take time to generate profit. Trading does not, profit can be made instantly.
This is why it’s so goddamn dangerous, with finfluencers pulling on the power of FOMO (Fear Of Missing Out) in order to rope people in.
Crypto operates almost fully off of FOMO. You know the whole “[insert coin] is gonna moon, get in while you can” spiel, that’s FOMO. There’s a function here of crypto being finite, so more people buying means prices rise and everybody makes money! And sure, there are people that genuinely believe in the blockchain’s future and I’m not hubristic enough to say they’re indefinitely wrong. But most of the fluff you see is people trying to get in before the next bitcoin surge or to get in on the next hot coin.
But why does FOMO have such a strong pull? Well, humans have an innate desire to be connected to a group, it’s essential to our mental well-being. FOMO is much more than Tom and Dick going out and forgetting to invite poor Harry. It can be the force that keeps you in the loop on social media and on top of new trends. Choosing to sign up for extra activities when burnt out can also be an example of FOMO. In simple terms, FOMO is making a choice to do something that’s implied to be pleasurable because a) others are doing it and b) it is finite.
Say a friend keeps telling you Tesla is gonna dramatically rise, then another friend tells you the same. Suddenly you want to get your grubby hands all over that profit, it can’t be theirs alone, without you. This is popular with crypto, the “it might go up or go down” assessment turns into “well it might go up and they might benefit, it’s best to not miss out”. This is what FOMO looks like on the peer level.
This effect gets inflated by social media because it enables instant communication with almost anybody. This leads to a lot of FOMO, a term that wasn’t even coined until 2004 and then extensively used until 2010, once social networks were popularized. Overuse of social media can lead to a need for constant validation from peers via constant comparisons, strengthening the FOMO effect. A 2017 study found that the number of likes an individual received, whether self-reported or manipulated, was a predictor of self-esteem. Unsurprisingly, a Belgian study found those who use social media excessively tend to have lower emotional stability, self-esteem and perceived control.
This is why finfluencers have so much success. They know that people are constantly comparing themselves to others on social media. They know that this is lowering their self-esteem. So, they do the same thing but add a twist. They show off their “life” to make their viewers feel inferior, reminding their viewers that they’re nothing compared to them. But then the salsa dance ends and they offer their viewers a rose — take it and you can be like me, they say.
Suddenly a viewer finds themselves at a crossroads. To live their current life or to take a chance, to follow this guy’s advice, and to live as he does. Surely, there would be no comparisons then and they wouldn’t be missing out on a solution to all their problems.
FOMO is also key at the molecular level of trading as social media’s network effect urges users to jump in on whatever trend. Certain coins and stocks will trend for their growth. Then, users will view random individuals’ gains on risky assets and feel like they missed out, meaning they’ll be incentivized to not miss out on the next risky asset poised to rise. To make it worse, high-gain trades are the most shared, and thus in front of the most eyeballs. So, people may have a warped sense of what a normal trade actually looks like. Finfluencers know this and it helps them capture their audience, as they offer guidance to the next big gain without worrying about making it realistic.
But, as influential as FOMO is, it’s a boring explanation and isn’t enough on its own. Could FOMO alone be enough to explain the rise of NFTs? Of people dumping all their savings into options/crypto? You don’t see people dropping their net worth into drop shipping or e-commerce at a whim. FOMO can’t make any poor decision justified, certainly not as widespread as the two above. Dumping everything into highly speculative assets is irrational. There’s no way FOMO would be enough on its own.
Speculative assets such as high-risk stocks and crypto can be partly akin to gambling due to the level of risk. And we all know how many Sirens there are running the gambling world, Vegas was founded off selling a dream. Consider some of the risk factors for compulsive gambling as per Mayo Clinic:
Mental health issues such as depression, anxiety, and substance misuse
Aged younger or middle-aged
Male sex
Family or friends who have a gambling problems
Restlessness and susceptibility to boredom
There are also more subjective reasons why people gamble such as to increase their financial position or to cope with their worries.
Let’s see how well this lines up with crypto. 94% of crypto buyers are Gen Z/Millenial, with 76.46% coming from Millenials alone. 70% of all crypto owners are male. The family/friends risk factor is similar to FOMO, which leaves mental health issues and restlessness/boredom that can’t be definitively proven to match up with gambling.
But let’s hold up our presumptuous horses for just one second. Risky stocks and crypto are not gambling. Gambling is only useful as a proxy because it’s a risky activity that involves finances. A wannabe trader would never consider themselves a lowly gambler, at least not when explaining their portfolio to their family.
That’s because, for the most part, gambling has a concrete risk & reward structure, $0 if you lose and a locked-in gain multiple if you win — think 2x for blackjack. The gambler knows these odds prior to participating or at least knows that it’s going to take some luck to win.
Most people who trade risky assets don’t take luck into account. They believe that most of the onus is on them and that it’s in their control. That’s the reason why finfluencers can sing their songs successfully, people genuinely believe that there may be a song that rings true.
This is a function of how opaque risky assets are. Nobody can be definitively sure of why things work, which makes consistently executing high-return plays — aka get-rich-quick plays — impossible.
Before I get the hedge fund/trading desk comment, the best equity hedge funds lost ~10% this year outperforming the market by ~10%, but still losing money. Crypto hedge funds lost ~55%. But of course, there were a few that won:
Kenneth Griffin's Citadel posted gains of 38.1% in its flagship fund Wellington, while D.E Shaw's Composite Fund went up 24.7% and Millennium rose 12.4%.
But still, if these are the funds with the best access to information, technology, and experience, they’re still not making “get-rich-quick” money. Meaning it’s effectively impossible without massive amounts of luck — swear I’ve heard that before somewhere.
But still, people decide to throw in as much money as they can with the hopes of getting rich. Even when a quick Google search can disprove finfluencers’ nonsense.
Maybe people think they’re special. I mean, trading for a big bank is a real profession, how hard can it be?
But just maybe, there’s some solace in the opaque nature of the markets.
Growing up means the same thing for every animal — to take responsibility for one’s life and become self-sufficient. Every lion must eventually hunt on their own, each bird must leave the nest, and even a rat must survive the streets of NYC.
But this is difficult for humans, it’s not as hardwired in our brains as wild animals. The pressure gets exasperated for men — who tend to have more of their social/internal value tied to what they can provide. And well, men just aren’t having too good of a time right now. The sheer existence of internet male mentors such as Jordan Peterson and Andrew Tate shows that there’s clearly a market full of unhappy men. So, should we be surprised that those who gamble and those who “trade” are predominantly men?
Consider the age profile of most of these people too — roughly 18-40. Millennials have been through the wringer financially, and are considerably further behind Gen X in terms of savings and home buying. Gen Z is currently staring down the barrel of maturity and recognizing how competitive the world truly is.
Responsibility can be a heavy sword to hold if one can even pull it out of the rock.
Yet, speculative assets can give one the hope that things can get better. This is due to weak causality arguments for why a stock/coin moves. Leading to weak opportunities for self-criticism, almost removing the need altogether. Meaning that it’s hard to find out why a trade lost money, especially when the losses are drastic.
And while this sounds terrible, there’s something comforting about having the onus taken away from you. Something about knowing that it was out of your hands, that in a sense — you are blameless.
Of course, this goes both ways. Meaning that large gains are often unexplainable. It can happen to anybody! So the responsibility of making money is also somewhat out of one’s hands.
But no “trader” would ever tell you this! This leads to the secondary prize those get from investing — a new and improved identity. When they win, they assume that they are smart investors who can pick winners. From here, you find your cousin Greg whispering in your ear at thanksgiving about how he’s forging himself a path to riches. Suddenly cousin Greg no longer views himself as a normal guy, he’s a self-sufficient trader.
That’s what our Sirens’ songs are truly about. They target the youth who fear entering the real world, those who feel lost and disillusioned, and those who lack control of their lives. They offer to take away the responsibility of becoming somebody, to put trust into something unexplainable.
So while FOMO may be what opens the door, the promise of becoming somebody worth something without definite responsibility is what ushers you through to the other side.
The world is rocky and slippery, it can be hard to find a footing. I don’t have the answers, and I don’t know the best way to find success, but I know that listening to Sirens isn’t the way.
So as we close more bleakly than we opened, let’s look to Bruce Springsteen’s “Jungleland” for some solace that we are never alone in our quest for fulfillment:
And in the quick of the night they reach for their moment
And try to make an honest stand
But they wind up wounded, not even dead
Although we only covered the bad today, there are still a lot of really good financial influencers who give realistic personal finance advice. Here are a few links: 1, 2, 3.