I stumbled upon a particular item I wanted to share, because I think it speaks to a phenomenon going on right now in this Stonks Only Go Up Version 2 we live in. It began with this post from five months ago, in which this person declared he was putting the entirety of his $150,000 account into Carvana (CVNA) calls. At the time, it seemed insane, because CVNA was a company that seem destined for nothing but bankruptcy.
Here is a close-up of the positions the guy purchased:
His account promptly went down by 80%, but he did nothing. Fast forward to the present, and you can see what CVNA has been doing………..
……and how this has made the fellow’s account go up nearly ten-fold.
You can imagine the cries of anguish, envy, jealousy, and regret sweeping through the hearts of everyone who observed this, which is a dream come true to brokerage houses, because everyone on the planet is falling all over themselves to gobble up call options, hoping to replicate this exact kind of success.
There are thousands of stocks out there, and how many of them had the kind of bounce CVNA experienced? What if, the same five months ago, this guy was looking at completely battered stocks which he felt were going to surge higher. Let’s say that, instead, he put his entire $150,000 into call options on WeWork (symbol WE). After all, the brand was known worldwide. That have a huge footprint in the real estate world. They had new funding and clear turnaround plans. They sure seemed a hell of a lot more promising than a flailing used car broker with lawsuits galore being filed against them.
However…………
Yeah, the guy would have pretty much a -100% change in his portfolio, instead of +1,000%.
Is WeWork too extreme an example? OK, let’s just say the guy wasn’t looking to get rich, but he wanted to profit from what he perceived would be a strong bounce in equities. Let’s say he went with a rock-solid company – – Exxon Mobil.
Well, he would have been stone cold right about the stock market’s strength. The stock market did indeed SURGE. And how did Exxon Mobil do?
They. Went. NOWHERE. Which, again, would have produced about a -100% change.
My point is that for every “Roaring Kitty” out there, you’ll find thousands of people who have had their balls kicked in. Don’t get seduced. Whether it’s the lottery, casinos, or wallstreetbets, just remember that the winners get all the visibility, and the losers don’t say a word.
Survivorship Bias
