Here’s an academic study at Harvard circa 2001 titled Functional Imaging of Neural Responses to Expectancy and Experience of Monetary Gains and Losses. Roughly 92% of it is unreadable, but I expected that going in. A business school professor once warned my class that Harvard researchers are like bobblehead dolls – huge heads with big ideas but no neck to support them. But I sucked it up, held back the vomit, and grinded through a few pages before throwing in the towel.
In it, the authors explain that what goes on in your brain when watching stock market mania – that buzz you are feeling and euphoria that follows – is very similar to the sensation from a hit of cocaine. From the paper:
“Activations seen in four regions of the brain – the nucleus accumbens, sublenticular extended amygdala, ventral tegmental and orbitofrontal cortex – in response to monetary prospects and outcomes overlap those observed in response to cocaine infusions in research subjects addicted to cocaine.”
The similarities are striking. For example, the paper states that one of the side effects from doing cocaine is the desire to do more cocaine. This is absolutely the case with compulsive day traders. In fact, the worst possible outcome for a day trader is to be right on a trade because it only encourages him/her to trade more.
This is bad because most successful day traders aren’t dipping chicken wings in champagne to toast momentary victory on GameStop. They tend to represent teams of PhDs with $10 million computers trading on data lines that route orders at the speed of light.
The paper also states that coming down off of a cocaine high can cause feelings of depression and despair. I must assume that getting your face ripped off on a big trade and ending up broke has a similar effect.
Within this context, I’m curious how some of the victims of this week’s meme stock reversal are feeling right now. Because if this paper is right, then I envision a bunch of Millennials sitting in their parent’s basement, head in hands, crying “nobody loves me” and “why is this happening to me???” Sort of like what it must look like outside of a South Beach club at 6am after security turned on the lights and kicked everyone out. Partiers walking aimlessly as they come down off their high and depressed that they are all alone in this world because there are no Ubers available.
Moving on… Citadel Securities buys order flow from retail brokers, so they have a pretty good idea of what’s happening in the minds of retail investors and traders. It’s like standing over an ant hill and observing. They published data last week showing what Citadel Securities’ retail flow looked like in GameStop:
Retail investors were net buyers on Monday but net sellers for the rest of the week (through Thursday). For the most part, it was quite balanced. About 49.8% of retail orders were to buy, and 50.2% were to sell.
This sort of supports my theory over the past few weeks that meme stock mania is more than just Millennials maxing out their parents’ credit cards to trade stocks. It seems like the day traders mentioned above, the real ones like high frequency traders (HFT), joined the party quickly.
Lastly, without question the best part of meme stocks are the memes. I mean what an abysmal time to give up Twitter, but I’m sticking with my resolution for now (these were sourced by others and forwarded to me).
Picking my favorite feels a little too much like force ranking my kids. Each is superb in its own unique way, but if I had to pick two, I’d go with these:
Source: https://twitter.com/SilkLifeMedSpa/status/1356665825478864896?s=20 (turn up the volume)
And this one:
Enjoy the weekend…
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