I feel like I am writing way too much in this journal about the stock market, AI, and things I read on Reddit lately. Yet, I am going to do it again because there was a question from a Reddit user yesterday that got me thinking. They asked a question about 2008 and short interest because one of the facts being used to “predict” the next crash is short interest in the index.
Their question was if shorting was as popular in 2008 as it is now. The answer isn’t just no it is absolutely not. Not because people couldn’t short stocks, but because everything was so radically different. I don’t know what year Robinhood started or started adding the ability for people to short stocks but I do know that the iPhone launched in 2007 and that Facebook and even Wikipedia were still somewhat new in 2008.
The conditions for 2008 were all happening under the hood. Everything was so radically different. Our access to information was so much less. We still read newspapers and had water cooler discussions at work. The world wasn’t nearly as digital as it is today.
Even if we forget about the average person’s ability to short stock from their phone it would have been highly unlikely that anyone would have picked up their phone and called their stock broker to short the index, and that doesn’t even get into the fact that index funds weren’t nearly as popular then as they are now. Investing wasn’t for the common person in 2008 and that is why that crisis hit so hard. It wasn’t contained to the stock market like the dot-com bubble. It hit everyone because it started with everyone.
Since 2008 we haven’t had a major crash. Some might argue Covid or 2022, but that is nothing compared to a real crash. Those were minor setbacks and they both got more people invested in investing. I freely admit that I opened my Robinhood account when the Gamestop thing was happening. I’ve learned a lot since then and the more I have learned the more I wish I didn’t. Knowing more doesn’t make you better at investing. It just means you know more.
My timer is up but I want to mention one more change before the next crash. I am not predicting one, but history tells us that these events happen and they happen when you least expect it. The impact of AI is going to be interesting to watch. The current models are what I think of as cautious to the point of being counter-factual when it comes to money and finances. Caution in the time of a crash can often be the worst advice. The best advice is either rotation or do nothing. Who knows exactly what AI will suggest and my AI isn’t going to suggest the same thing as another person’s AI. Maybe this volatility in action ends up stabilizing the entire thing. We can’t know the future, and trying to predict it with the past becomes less useful when you start looking at how different the past was.
David Huzzard Writes 