The Taxi Driver Signal

by | Oct 1, 2021 | General

Investment advice from the wrong people

Toward the end of every bull market there are signs of speculation—as opposed to investing. Earlier this week Evan McGoff was treated to several minutes of cryptocurrency advice from a gig driver, the modern version of a taxi driver.

Remarkably the driver wasn’t recommending Bitcoin, the first and largest of the cryptos, but several others that he thought had more potential. Keep in mind that there are over 12,000 cryptocurrencies being traded world-wide, so Evan’s Lyft driver has thousands of ways to make a fortune or lose everything. 

We don’t know what the chart above will look like in the next year or five years, but we know a speculation when we see one. And cryptocurrencies aren’t the only ones. Consider the following: 

  • The Robinhood Exchange: This outfit now has the same number of open accounts as Charles Schwab and both operate commission free. But Robinhood is the home of young speculators, particularly day-traders.
  • Meme stocks: Stock ideas communicated over social media and then traded without much regard for the fundamentals of the business. GameStop and the AMC theater chain were the first two to make big news.
  • SPACs: Special Purpose Acquisition Companies are blind pools organized to take private companies public without a lot of the work that goes into a normal public offering. First created by well-known investors such as Peter Thiel and Richard Branson, dozens have been offered by celebrities such as Jay-Z and Alex Rodriguez.

Everyone participating in this stuff is suffering from FOMO—fear of missing out.

It’s too early to conclude that the current bull market is ending, but the activity above is what often happens at market tops. In 2000 a similar taxi driver was talking about the 100 shares he bought of the latest Dot-Com IPO, and in 2007 he was talking about a condo he bought with a no-doc loan.

Speculative cycles can go on for a long time, so trying to time the top precisely is a useless activity. But being mindful that speculation is making investing look stodgy and dull is not something to ignore.

Best regards,

Daniel A. Ogden

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