STOCK MARKET NIHILISM

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___________________________________A “nihilist” believes in a meaningless existence and has a pessimistic outlook.

The widely recognized themes in Nihilism are increasingly common in the present day. Life itself is meaningless. The pursuit of any values or higher ideals is pointless. Accomplishments and chasing success are deemed to be worthless.

In the end, pessimism prevails.

A nihilist is cynical at best and hugely destructive at worst. Philosophers Soren Kierkegard and Friedrich Nietzche discussed Nihilism at great lengths. Each produced insightful commentary and thought on the topic of life's meaning.

Although many believe these two philosophers to be advocates of the pessimistic point of view, both vehemently disagreed with its long-term usefulness and feared how it might affect society as a whole.

Given recent events or even your mindset around money generally, you may feel this way about the stock market and investing. Many people do.

This can lead to broad sweeping judgments about the stock market as a whole or specific sectors within the market.

“I only invest in something I can touch with my own hands - no stock market for me!” or

“I keep my money in the bank - you can’t trust those Wall Street clowns!” and even

“Why invest? The old way works just fine!” (This is the repeated sentiment of Larry David in a recent commercial. He never wants to invest in the new thing/invention despite the great opportunity. The witty commercial provides a reference point for a nihilistic view of investing and life. More on this below.)

You have probably heard these refrains echoed by family, friends, and/or coworkers. Maybe the folks who repeat this type of phrase aren’t even wrong.

Admittedly, there are reasons to be a cynic about the stock market.

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“The Stock Market is Rigged”

It is easy to point to elites from Ivy League schools with an investment bank pedigree who have experienced success and built great wealth from investing.

The friends from the same fraternities and sororities hit the Street straight out of college or business school. They have the same jobs with different firms and start collecting six-figure salaries right off the bat.

The list of savvy entrepreneurs and start-up founders from Silicon Valley or other tech heavy locales is perhaps not as long but equally as successful and rich. We watch the executives of these early stage companies “ring the bell” and instantly 100x (or more) their wealth.

The “old money” and “new money” always win, or at least it seems that way. Wall Street executives and hedge fund partners generate all of the excess return and receive all of the equity for their efforts. The venture capital firms and start-ups have unmatched access to opportunity and innovation which opens the door for generational wealth.

It is easy to look on from a distance and wonder if there will be enough return/wealth leftover for the rest of us. Is the pie big enough for all of us?

There is a unique type of jealousy/envy when we see someone else’s success and the wealth generated from it. This leads us to believe, “It must be rigged.”

The only way to justify the achievement of others from a distance is to believe that the game is fixed in their favor. This is a commonly held belief/mindset.

Unfortunately, it doesn’t provide any benefit to the person who holds the belief. In many cases, it only keeps you from investing in the first place and holds you back from starting your journey to wealth.

“The Stock Market is Fraudulent”

The SEC is always busting people for insider trading and fraudulent activity, but rarely do we see such a grand scale of fraud as seen in recent weeks.

Sam Bankman-Fried or “SBF” is (or really was) the founder of FTX and Alameda Research, a cryptocurrency exchange and a managed fund. His rise to fame was meteoric, appearing on the cover of Forbes and receiving praise from many outlets (even on the show of the stoic and principled David Rubenstein).

SBF had a net worth of approximately $16 billion at the peak of his fame/success. He was one of the youngest billionaires and widely recognized as an “innovator” or “genius” with exceptional potential. His company, FTX, sponsored Super Bowl commercials featuring the likes of Steph Curry, Tom Brady, Gisele Bundchen, and Larry David.

To say the least, things haven’t gone well for SBF and FTX. After a bit of chicanery from cryptocurrency exchange competitors, the fraudulent actions of SBF and FTX as a company were exposed. (For a full explanation of the story, you can read this summary.)

In short, Alameda (the crypto fund firm) was in a tenuous financial condition. FTX (a legally separate company but controlled by the same people) “loaned” billions of its customers’ deposits to cover Alameda’s risky wagers. When the self-dealing/lending was discovered, there was essentially a “run on the bank” as customers attempted to withdraw their funds from FTX. There wasn't any money for these folks.

In the end, the lack of liquidity resulted in FTX’s downfall.

Despite a pathetic Twitter thread apology/explanation, SBF now has a net worth of $0 and is no longer the head of FTX (which filed Chapter 11 bankruptcy). The new head of the company said:

"Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.” - John Ray, Chief Restructuring Officer of FTX

Ray has vast experience restructuring scandalous, bankrupt companies, including his involvement with the infamous Enron.

Although not exactly the stock market, this example of fraud definitely creates an air of pessimism around financial markets generally. When professional investors are deceived so severely and such a large dollar amount is lost to fraud, people take notice.

When it feels like the investment thesis and process can be undermined by fraud, those same people (oftentimes you and me) are hesitant to invest. The hesitancy to invest applies not only to the fraudulent companies, but also to other companies/sectors generally.

“The Stock Market is Nonsense”

It is easy to see markets moving incessantly up and down each day and think, “Why does any of this even matter?”

A company announces fantastic earnings, and the price is down in the after-hours. A company underperforms on the quarter or year, and the price is up the next day. On some days, it feels like a guessing game. There is no telling what the next day, month, or year will hold for the markets.

The expansion and availability of business news and other financial media outlets provides a platform to dissect or justify every single movement of the stock market each day. One day, an analyst/personality is bullish on the market, and another individual on the other side of the Zoom screen or desk is equally as passionate about the bearish outlook.

Some days, even the consensus is nonsense. All the analysts regularly hop on the same narrative while all of the evidence points to the counter narrative. It isn't necessarily the fault of the analyst or commentator. Nobody wants to be left behind, missing the trend or being seen as unimaginative and lacking foresight.

Everyone is obsessed with being the first aboard the next big thing but fails to recognize what may be obvious faults of a stock, business model, or trend.

The nonsense is never-ending. When a few financial media outlets, thousands of firms, and millions of individual investors express their opinions and constantly buy/sell financial assets, nonsense is a natural outcome.

The obscure and often confusing nature of the stock market and its results are reason enough for some folks to be wary of putting dollars to work in the market. Investing in such an environment is simply too high risk.

A Prudent Investor’s Response

Are all of these nihilistic viewpoints valid to some degree? Yeah, I’d say so.

There are people who have natural or situational advantages. A Wall Street executive has better information than the average investor and an early stage start-up has more access to capital than the average business owner.

When looking at the stock market through a broad lens, the fraudulent events witnessed in recent weeks are hardly unique. There are countless other scammers in the current cryptocurrency era. The fraudsters go way back too.

Enron’s accounting scandal and Bernie Madoff’s infamous rug pull cost individual investors countless dollars. It goes all the way back to the “Match King” Ivar Krueger and Charles Ponzi in the Roaring 20’s. When money is involved, there will always be fraud.

The stock market is often ridiculous too. On some days it doesn’t make sense at all, and other days it is outright dumbfounding. There are frequently absurd or unbelievable results.

What does a prudent investor do in the face of these legitimate reasons to be pessimistic?

1 - Control What You Can Control

You can control how much you save/invest and the decisions you make in response to the market. For almost everything else market-related, there is not much we can do.

Be content with the information you have access to and don’t worry about comparing your level of success/wealth to others.

Be aware of who and what you are investing in. There are fraudsters everywhere, and money is one of the greatest temptations. It is okay to be skeptical when your future and wealth are at stake.

You are a small piece of the broad market, and it is just a broad reflection of society’s beliefs about the future. Sometimes people are crazy, and the market will reflect it. Your investment decisions may be crazy at times too. In the long run, the market and the wisdome of crowds will be quite rational.

2 - Stay Focused on Your Future

You are an investor and should be focused on your future, not all of the noise in the present moment.

Again, the success of others is not a relevant parameter in your future. You’ll be better off ignoring (for the most part) and/or celebrating alongside others when they achieve and build wealth.

If you fall prey to fraud, write it off as a sunk cost and a learning experience. It may be painful in the moment, but you will be a better investor because what you have learned because of it.

When the market seems wild and unpredictable, just know that the long-term trend is generally smooth. In the future, you will look back and realize the crazy wasn’t as crazy as it seemed.

Generally speaking, there is great potential in the future and the opportunity you have to build wealth. There are many reasons to be optimistic about investing.

Although optimism doesn't produce wealth, wealthy people tend to be optimistic!

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TL;DR

Being skeptical about the actors in the market and its machinations is prudent. From afar, it does seem like there is a group of insiders who always win, and there are undoubtedly fraudsters looking to take advantage of others for their own benefit.

In spite of these apparent justifications, being a “Stock Market Nihilist” puts you on the fast track to nowhere.

One of the simplest and best ways to generate wealth is through investing in the market. People are better off taking advantage and staying focused on the upside and their future.

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In a time like this, too many folks may feel negatively or pessimistic about the market. It is still a great time to invest and be an owner of the future!