The last newsletter was about central bankers creating a wealth divide. This week, a decentralized hedge fund (r/wallstreetbets) exploited a mistake from multi-billion dollar hedge funds.
We witnessed a transfer of wealth between rich hedgefund managers to regular retail investors. Making it a historic week for Wall Street, Reddit, GameStop, AMC, Twitter, Dogecoin, and Bitcoin.
Going against my investment ideas, I bought AMC stock to:
- Exploit the mistake
- Join the rebellion
- Take it to the moooon
- Make money along the way (hopefully)
I lost half the money put in.
After a week of questioning what I knew about investing, here's what I've concluded:
It's not about the money...
Play Stupid Games, Win Stupid Prizes
My pal invested (much more than me) in GameStop, AMC, and Dogecoin.
Here's how he justified the risk:
"You can only lose 100% of the money you put in"
After thinking about it more, he’s right.
Benefitting from volatility means to profit more when you’re right -- than it would hurt when you’re wrong.
Going back to the barbell theory, you want favourable asymmetry. When the upside is greater than the downside. More to gain than to lose.
Granted, I was wrong and lost 50%. But it was an amount I was comfortable losing. You win big (or lose small) with asymmetric bets. And I made back what I lost after Elon pulled this stunt:
My message is to seek favourable asymmetric bets, be fine with losing if you're wrong, and benefit from volatility if you're right.
That's what r/wallstreetbets did with billionaire hedge funds. More on that in the next section.