My routines—most noticeably, my morning reading and writing habits—are a little messed up as a result of frequent business travel and getting sick after Asia. This is mostly bad for me but the upshot is I have ~400 unread issues of newsletters I’m subscribed to.
Which lets me do things like this:
Where I can read everything someone has published in chronological order all at once. This is my preferred style of reading (as a kid I loved binging entire series of books at once… I did it so often that my local library instituted a cap to the number of books you could check out from a single author at once).
And that’s what I’m doing this Saturday morning. So I’m feeling pretty lucky. Now for some content.
Here’s an interesting passage from Levine on whether trading is good or bad for people:
My vague assumption, ever since Robinhood Markets Inc. appeared on the scene with zero-commission app-based trading, was that commission-free trading was bad for investors. If it costs you $4.95 to do a trade, that is not all that economically material, but it is a little speed bump that might make you think a bit harder about what you’re doing. “I just read a Trump tweet and I think the stock he mentioned will go down, but do I really want to pay $4.95 to make that bet?,” that sort of thing. Once trades are free you can trade all the time with no (immediately apparent) cost, and trading all the time—not the commissions—is what will really cost you.
He goes into this article assuming that people are bad at trading (will on average lose money) so things that make it easier for people to trade (like zero fees) are bad for people. To see what a community of degenerate traders in traditional markets looks like, check out /r/wallstreetbets.
Then he realizes that if minimizing superfluous trading is good, then systems that make money based on number of trades might be bad.
If the trade is a basic unit of profitability for a brokerage, then it will have a lot of incentives to get you to do trades; it will orient its packaging and user interface and advertising around encouraging frequent trading. If it’s not—if the brokerage makes its money from asset-gathering—then it might have better incentives for, like, calm.
So if you’re interested in which system leads to greater wellbeing for everyday people, you think about it like this:
Goal: reduce trading to help people
Robinhood with zero fees: pros, not directly incentivized to generate trades; cons, less friction for the user to trade
Traditional brokerage with trading fees: pros, fees reduce trading; cons, brokerage has incentive to promote trading
Which boils down to your views on whether the individual or the system has a greater effect on the individual’s likelihood to trade. (In practice, comparing these two systems is more difficult than what I’ve outlined above, as Robinhood does profit from trades by selling to dark pools and such, which is in part why they position their product to incentivize traders to trade more, but for the purpose of the thought experiment assume there is this clear material difference.)
The problem with this thought experiment is that if you accept the premise—trading is bad for people—then both zero-fee and fee-taking brokerages are bad deals for the user. A zero-fee brokerage (remember, assuming they are not selling volume to high frequency traders) would make money on convincing people to deposit money on their platform at a lower interest rate than available at their bank. And a fee-taking brokerage wants to induce trades to earn revenues. So a user should just walk away from both of these options.
Which means the premise is probably broken. Yes, users might on average lose money when they trade, but that’s a function of the market—its cycle (number generally goes up), its participants (institutions have more information than you), and its structure. If the market changes (e.g. number goes down), maybe trading is better than buying index funds.
If I think hard about “what’s good for the average person,” disincenting them from trading seems reductive. A more reasonable answer is probably something like trying to get them good information and options. So they have equal opportunities to form opinions about the market and equal opportunities to express those opinions in the market.
Here, like in so many other places, crypto doesn’t necessarily solve anything. If trading actually is bad, crypto in its global, 24/7, viral glory makes things a lot worse. But because we don’t believe trading is bad, maybe the fact that the dominant assets aren’t controlled by anybody—this reduces information asymmetries—and anybody, anywhere can create markets (e.g. fork a DEX)—this increases opportunities to express your views on the market—crypto is actually good.