Cannabis, Crypto, And The Psychology Of Gambling

For some, investing isnt about grinding out a rate of return. They crave stories

- Pat Regnier

The economist John Maynard Keynes wrote that “the game of professional investment is intolerably boring and over-exacting to anyone who is entirely exempt from the gambling instinct; whilst he who has it must pay to this propensity the appropriate toll.” Ever since the financial crisis, the message to investors has been to embrace the “intolerably boring”: Index. Rebalance. Diversify. Rebalance again. Investors who internalized this message have done well in a long, steady—even dull—bull market.

But the gambling instinct can be repressed for only so long. Lately we’ve seen the emergence of strange bubbles. And, yes, I’m talking about crypto and cannabis. The wild trading in shares of Canadian marijuana company Tilray Inc. in September—in which its market value briefly exceeded that of American Airlines Group Inc.— felt a lot like last year’s Bitcoin frenzy. Spend a few minutes on Reddit pages devoted to Bitcoin, cannabis, or trading, and you can see the overlap and similarities of the communities. According to TD Ameritrade Inc., trading in pot stocks is overwhelmingly done by millennial-aged males. The stats for crypto look the same.

To understand these bubbles, it helps to compare and contrast them to what we saw in the late 1990s. It’s called the dot-com bubble, but it was really an optimism bubble. Everything seemed to be going right in those days. People believed peace was about to break out in the Middle East and that China’s entry into the World Trade Organization would begin an inevitable transition toward freedom and democracy. They didn’t just pile into tech stocks. They piled into everything. Another hot area was fuel cell companies, with speculators betting on an era of zero-pollution vehicles. (I know this, because I was one of them.)