Some things I’m wrong about – A wealth of common sense

Jim Simons created perhaps the greatest market beater ever built at Renaissance Technologies.

The Medallion Fund returned a ridiculous 66% per year for thirty years.

The fund traded a lot and I’m still not entirely sure what signals the code breakers and rocket scientists were using. But in Greg Zuckerman’s book The man who solved the market, one of the firm’s partners said they only got about 50.75% of their trades right.

No one is saving a thousand in the markets. Everyone gets things wrong.

Here are some things I’ve been wrong about over the years:

I thought bitcoin had a chance to become digital gold. At my daughter’s soccer game last year, I got into a crypto discussion with some other soccer dads. One man is a huge bitcoin enthusiast. He asked for my long-term vision.

I said if bitcoin becomes digital gold, that would be a victory.

He looked at me like I just ran onto the field and tripped over the girls. That’s it?! Bitcoin is becoming much bigger than gold. Just look.

Maybe that’s the case, but I think we can put the digital gold comparisons aside for now.

When central banks around the world wanted to diversify away from government bonds, they bought gold. When investors wanted a way to hedge higher budget deficits and a lower dollar, they bought gold.

Bitcoin is tanking while gold is soaring.

I’m not going to throw dirt on Bitcoin’s grave just yet. Crypto has already looked many times deadlier than a doornail and is coming roaring back.

But this environment is a disaster for the crypto space. Everything we were told bitcoin could be didn’t happen.

In fact, it still behaves like a tech stock:

I’m sure there will be a new bitcoin story in the future, but the stories marketed so far haven’t stuck.

I thought bitcoin had a chance to dethrone gold in this new age of technology and innovation.

So far I’ve been wrong.

I thought the meme stock crash of 2021 would slow down speculation. At the time, it felt like GameStop, AMC and the other meme stocks were a flash in the pan.

The pandemic left people with extra money from Covid checks and time on their hands. Speculating on stocks made sense.

From the euphoric highs of early 2021, GameStop and AMC are down 71% and 99%, respectively. Losses of that magnitude should take the speculative fever out of Reddit/Robinhood traders. That was my thesis anyway.

No.

Retail continues to gain market share:

Retail traders are becoming bigger players in the trading of individual stocks, options and futures. They swarm over themes and act like a pack of locusts.

Here’s how you get a silver chart that looks fake in terms of the parabolic rise and insane crash we’ve seen over the past week:

Social media has changed the market structure forever.

This isn’t going away.

I thought DoorDash would be a Covid fad. During the pandemic, when we were all stuck in our homes, it made sense that food delivery became more useful.

When the world opened back up, I assumed people would stop paying for convenience, especially when inflation skyrocketed in 2022.

Wrong.

According to The New York TimesNearly three out of four restaurant orders are not eaten in the restaurant. Look at the revenue growth for DoorDash per year:

That’s almost 40% year-on-year revenue growth since 2020.

For many households, paying for the convenience of food delivery went from luxury to necessity.

This wasn’t a fad.

Many households are now addicted and this is changing the food industry (some would say for the worse).

I didn’t think the Fed could raise rates so high because of the government debt. I wrote a blog post in 2021 about how to keep interest rates low because of our rising national debt.

It ages like an afternoon spent in the sun all day.

My position was based on the idea that we could not allow interest costs to consume a large part of the budget. That was wrong.

You can see the national debt rising this decade:

In 2022, interest expense on our debt was roughly $400 billion or 7% of total expenses. Last year it was 14% and almost $1 trillion:

I guess we just decided to borrow more and pay the higher interest.

I should have known.

I thought the Lions would make the Super Bowl one of these years. The NFC Championship game against the 49ers two years ago was our opportunity. Now it feels like the window is closed. Oh well.

I thought an AI bubble was inevitable. Based purely on the history of how these things work, my starting position was that all AI investments would lead to a bubble. It still could.

But AI is advancing so quickly that you have to be open to a scenario where this whole thing isn’t a speculative bubble bursting.

Claude Code from Anthropic is the first version of my AI dream, a personalized AI assistant that can perform multiple tasks for you at the same time.¹ Claude seems to have single-handedly dragged down the software complex’s stock prices in recent weeks.

This one isn’t known yet, but I think it’s time to think about the possibility of AI adoption happening faster than we thought.

It’s both exciting and scary.

Michael and I talked about bitcoin, gold, DoorDash, AI and much more in this week’s Animal Spirits video:



Subscribe The connection so you never miss an episode again.

Further reading:
The Railroad Bubble vs. the AI ​​Bubble

Here’s what I’ve been reading lately:

Books:

¹My only hope for the AI ​​boom is that we all get a Scarlett Johansson-esque personal assistant from the movie Her.