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

 

 

Dock Street Asset Management, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. You should not assume that any discussion or information contained in this letter serves as the receipt of, or as a substitute for, personalized investment advice from Dock Street Asset Management, Inc.

It is published solely for informational purposes and is not to be construed as a solicitation nor does it constitute advice, investment or otherwise.

To the extent that a reader has questions regarding the applicability of any specific issue discussed above to their individual situation, they are encouraged to consult with the professional advisor of their choosing.

A copy of our Form ADV Part II regarding our advisory services and fees is available upon request.

Our comments are an expression of opinion. While we believe our statements to be true, they always depend on the reliability of our own credible sources. Past performance is no guarantee of future returns.