Play the Stock Market Game Matt Can’t Win
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Hello, and welcome to another episode of the TLDR podcast, a show about the culture, gossip, and business of money. And this week, buried in sludge. My name is Devin Friedman. I am here with my co-hosts. Matt Keres is the director of product for Wealthsimple. Matt, tell us a little bit about your week.

My week was great. We learned that the reason the U.S. prediction markets are moving is because of one French dude betting millions and millions of dollars, which was pretty awesome. Is that real? You're talking about the presidential prediction market that we covered on our show, right? Yeah, it seems like it's small enough to be moved by one French guy. At least that's what the reports suggest. The Finance Bro group chat loved it.

Sarah Rieger is the business and markets correspondent for the Webby Award-winning TLDR newsletter. Sarah, are you just in a tighter window or did you clean up your studio? I'm not home right now. I'm in my mom's basement actually recording in Calgary. Oh, nice. I was meeting TLDR fans here actually. So that was super fun. Like you just organized it yourself? No, Wealthsimple had an event. So a lot of readers and listeners were there and it was really, really nice.

And we have a stand-in host this week, a familiar face to most of us. Jared Sullivan is the lead editor for the TLDR newsletter.

And as of this week, author of the book Valley So Low. Jared, it is very nice to see you. First time on the pod, overdue, I have to say. I don't know. I would say overdue. In my view, I'm overdue. I mean, I run the newsletter week to week with y'all. I mean, why are you guys locking me out? You know, it's just that a lot of people say you don't have a likable voice. My wife tells me that all the time. We have an excellent show for you coming up.

We're going to talk about the stock market and what betting on the stock market can teach us.

We're going to talk about the secret slush fund that is fueling the U.S. presidential election, which is the crypto market. And Jared Sullivan is going to be here to talk about something really important, which is energy production and if it's going to kill all of us. We will start with a question that if you've ever listened to the podcast, you know I'm going to ask.

Sarah Rieger, who is making and losing money that's interesting to you right now? The crypto industry is making just a wild amount of money, and it's spending a lot of that money to try to influence the U.S. election. Okay, there are two things I really want to know about there. One is I didn't realize the crypto industry is actually still making money. In my mind, I'm like,

There were wild days and now it's crypto winter. I think most of the general public doesn't really realize how much money is coming in. So it peaked at $2.7 trillion USD three years ago, and it's currently back up to $2.3 trillion. It has doubled over the past year. And the

And that money is being used in a really particular way right now, which is election spending. So according to this advocacy group, Published Citizen, crypto corporations spent $119 million this year on directly influencing U.S. elections. And just to put that number into context, that's not only half of all of the corporate spending on elections in the U.S. this year. That's second only to oil and gas companies of all time.

So in all of the last 14 years, oil and gas has spent $176 million. Crypto is already at $119 this year alone. But what is it about crypto? Is it just that people have a ton of money and want to influence things? Or is there something special about crypto that people in the industry realize, oh, it actually really matters if...

It's a lot like any industry spending money on an election is they want favorable laws. And the special thing about crypto is it's not really clear what laws are going to govern it yet. Right. But the thing I find interesting about it is the spending hasn't been partisan. Right.

Usually, you know, when you see an industry spend a lot of money, they are like one candidate has a policy that we really agree with. So we're going to kind of put everything behind them. But two of the top 10 corporate donors, crypto firms Coinbase and Ripple, have donated equally to Republican and Democratic political action committees. And that includes this one PAC, Fair Shake, which has been lobbying hard against just any candidate that is seen as anti-crypto, no matter what party.

Did you see that Donald Trump has his own crypto coin? I did see that. Should I have looked at that crypto coin as like a little wink at the industry or is it just pure cash in on your love of Donald Trump?

I'm guessing it's a bit of both. But the fact that we're now seeing Harris put out pro-crypto policy statements just in this last week, too, I think says something more about how much the industry's influence is really starting to grow. And I do think that is in large part due to this PAC fair shake situation.

So they've only been around for a year and they've raised $200 million US and they've spent $130 million so far this cycle. It's interesting because they're not running any ads that mention crypto. What they're doing is they're running these ads that smear the reputation of candidates in these like totally unrelated ways, like suggesting they're a liar or a bully.

Wait, they're making ads for both sides? Just smearing both candidates? Any candidate that looks like they're against cryptocurrency. So they're trying to make candidates feel scared, essentially, to even be seen as anti-crypto because they don't want these negative ads. Right. I learned about Fairshake in this really great article people should read in The New Yorker from Charles Duhigg. So Fairshake brought on this guy called Chris Lehane.

He's a disaster comms guy who's been called the master of the political dark arts. And Duhage spoke with this source who basically said the strategy is to warn anybody running for office that if you are anti-crypto, the crypto industry is going to come after you. Very interesting. Sounds sort of mob-like. It does. It's menacing when it's put that way, right? And...

For like the average voter, like crypto is not an election issue, right? Like only around 7 to 10 percent of North Americans actually own any crypto. I'm one of them, I should say, too. Like, so I don't want to come across as like

an absolute hater. Here, I do invest in crypto. But that's compared to like 20 to 50 percent of the population who own stocks. And most Americans don't really see crypto as a safe investment. So when Lehane like kind of heard this polling that, oh, people don't really care about crypto, what he reportedly said is if there isn't a crypto voter, we will make one. Right. That's the old Steve Jobs thing. You don't ask people what they want, tell them what they want. You know, it's so interesting if you like make something that people want and

then they'll advocate for you even without you having to spend a whole lot of money. But if the thing that you've created is like completely useless to most people and just, you know, completely speculative, then you have to spend a lot of money. A thing that's really interesting to me about all this is what's going to come next. FairShade does still have a lot more money to spend in the few weeks left before the U.S. election, and they could receive more donations before then, too. But Lehane has already picked up his next client after this. He's been hired by OpenAI.

AI is going to be the next big political donor. Or maybe we'll just have an AI president and then we can like cut out the middleman. This is politics at its finest. Matt, you are up. Who is making and losing money right now that is interesting to you?

There's this new stock trading game that has been making a huge splash on the corner of the internet where I live. And it's not only the wordle of the FinTwit world with people posting their results on Twitter and talking to each other about it, but it is also something that's sparked a lot of debate about why is it that everyone who plays this game seems to lose. So normally you would say stock market trading game and I would be out. But...

What is interesting to me is that

This is a game that all your finance bro friends play and are also bad at. That piques my interest. So tell us like really super briefly the premise. The basic like question that this game explores is like, how good could you be at trading stocks and bonds if you knew what tomorrow's headline would be? So if you got like the cover of the Wall Street Journal 36 hours in advance, how good of a stock trader could you be? Yeah.

So if I pull it up, crystal ball trading, it has a super simple little interface here.

On the left, there is a Wall Street Journal front page. And on the right, it looks like it's letting me invest a million dollars. And I could go in the S&P 500 or I could go on treasuries. You can say, you know, I want to go longer short stocks. So I want to bet that stocks are going to go up or down. OK. Or I can go longer short bonds. I'm going to bet that bonds go up or down. I'm opening my...

Random Wall Street Journal front page and the headlines are electricity prices plummet, recession sends demand rates lower, consumers benefit. And then U.S. firms are probed in a Mexico oil scam and something about the president. But the big headline is like energy prices went down a lot.

I mean, the way that I played this, like I zoomed in and I was like, OK, like there's this chart and you can see the X axis on the chart. And it's like, oh, we're in 2009 here. And we got a headline talking about electricity prices plummeting, something about a recession. You know, it seems bad. I'm going to bet that stocks went down and treasury prices went up or treasury yields went down. So I'm going to trade. You want to hit trade, too?

No, you do it because I don't know what to do. Okay, well, yes, in fact, turned out to be that the S&P fell by 1.25% and the Treasury bonds rose by 1.32%. And if you had bet the way I did, you would have pocketed yourself a cool $300,000. Congratulations. You can play like day after day after day with the same pot. Like you sort of went up and that means you have more money the next day or you went down and you have less money the next day. Yes, exactly. And one key element...

element is that you can bet more than the million dollars you have in your pocket. You can borrow 50 times the amount of money you have if you have a lot of conviction. So like you can, you know, bet

Mostly as much as you want is the point. How do we know that people are generally bad at this? So the Wall Street Journal, unsurprisingly, because they're featured in this, also decided to do an article on it. And they interviewed the people who created it and reported that 70% of players lost money. The bottom 20% of players lost everything.

And within that, the bottom 10% lost even more than everything. So because they could borrow, they actually ended up coming out of the game not only down $1 million, but also, you know, owing money to the proverbial bank. But the top 10% of traders did incredibly well and were up around 80%. When you say you and your friends were bad, in like what sense were you bad? Were you bad at just guessing where their stocks went up or down?

Or did you like under bet and were bad at making as much money as possible? Well, an embarrassing percentage of us lost money at the end of the game, even though we had a crystal ball in the future. And...

Some of us tried to bet big. You know, I will not name this person. He may or may not be on the call with you. Decided to bet big and then were wrong. I'll give you a hint. It wasn't me. Yeah, then had to spend the rest of the game like licking their wounds or else they would have gotten blown out and not been able to continue playing. So it's tougher than it looks, I'd say. Okay, so here's my question. Generally speaking, if we think that this game

game reflects something about the way people invest. What's surprising about these results?

And what's your explanation for that surprise? First, the results were much worse than I thought they'd be, particularly because like this is not just like a random sample of people in the world playing this game. Yeah, you got to want to play this game. Yeah. And so, you know, what it tells you is not just that like trading markets is hard for everyone, even with a crystal ball. It's that, you know, even if you give a crystal ball to the like

finance nerdy crazies, even for them, a crystal ball is not good enough to reliably beat markets over time. And then if you actually dig into the results and the firm that built the game actually did a very good job like publishing the results, it's partially that people like

couldn't correctly infer from the headlines which direction markets would go in. But the even bigger problem is that they didn't size their bets well. So is it just like emotion that like there are times when people felt really, really good? So they're like, I'm pushing all my chips on and to the table. Yeah, I think there are days where, you know, that people thought they knew which direction stocks would go in. Instead of just betting a little bit, they like borrowed a lot of money and bet a lot. And if you get that wrong, you're in a hole that you can't get out of.

There was an article in the game's website where they had given the game to like five top traders and asked them their strategy and saw how they performed. And they didn't bet on most days. And then they would only bet when they were super certain. And then they would bet like a ton of money. So they would skip the headlines until they got to a headline that felt really obvious.

And so I was playing the game and I was following their strategy and I was killing it. Like I had like doubled my money and my partner was watching over my shoulder and he was like, what are you doing? I was like, oh, do you want to try? And I'm a really risk averse person. He's not.

And he took over the game and basically bet it all and was so deeply in the negative by turn two. And it seems like I'm, you know, A, I'm glad it's play money, but B, it seems like such a cautionary tale for, you know, why you shouldn't gamble with the real stuff. I think it's called like the Kelly Criterion.

You want to maximize the expected value of your bets, but keep the risk of ruin or the risk of losing everything to zero because there's always some chance, even on your highest conviction bets, that you might be wrong. And in order to maximize your expected outcome over time, you need to be able to keep staying at the table and playing again. Who invented this game?

Oh, it's great. It's great. So the game was created by Elm Capital, which is run by a man named Victor Higani. He's a legend. He founded a firm in the 90s called Long Term Capital Management, which was like the most unbelievably successful firm in the world. And everyone thought these people were gods. And then one day...

The world woke up. And not only had they lost all their money, they lost so much money that they almost took down the entire financial system, the global financial system. They had to get the Fed governors in the U.S. all – they brought them all into a room along with all the banks, and they forced all the banks to bail out these people. And I guess he's made like a second career as a wealth manager for big private individuals and also as, I guess, an educator. Yeah.

educating people about how hard it is to trade stocks and also the importance of being careful with how much leverage you take on. So I guess there's a deep irony, I guess, in this that like the game that taught me in the clearest way how important it was to be careful with how much you're betting and how much you're borrowing was built by a guy who sowed his own downfall by borrowing too much.

I mean, it sounds a little bit like Sarah's story from last week about the carpenter who made hundreds of millions of dollars and lost it all, which is you can make a lot of money by being highly leveraged. But if you keep doing it for long enough, chances are the house is going to win. Even if you have really complex models that tell you otherwise. Are you telling me that you built a time machine out of a DeLorean? Yeah.

Okay, we have a very exciting third, fourth host today. As you know, Jared Sullivan.

Jared, I just want to first of all say thank you for all your hard work on making TLDR Newsletter the most read financial newsletter in all of Canada. You give me great notes each week, so thank you for that. Yeah, I don't want to like get to your promoting your book without first promoting our newsletter. So I'm glad that we got this out of the way. But you have a new book out.

It's called Valley So Low. It's about the energy industry. It's about the relationship between corporations and human beings. And it's about one of the biggest ecological environmental disasters in the history of North America.

First, I want to ask you, what first interested you in this story? I grew up in Tennessee, and I remember when this big disaster happened. Basically, in December of 2008, there was this six-story tall building

84-acre, almost like a mountain of coal ash. And coal ash is like the byproduct of burning coal to produce electricity. It's like a sooty, sandy substance full of arsenic and radium and all this really terrible toxic stuff. And in the middle of the night, it just collapsed, this huge mountain of it. It was a billion gallons. It covered 300 acres of rural countryside. And it was an environmental calamity.

But the economy was in the middle of melting down, right? So all these blue-collar workers from not only in Tennessee but across the whole United States, 900 of them flocked to help clean this stuff up. They really, really, really needed jobs. Many of them had been laid off during the Great Recession. So then they get out there and start cleaning this stuff up.

And weren't given dust masks. They asked for them repeatedly, weren't giving them. And this stuff turned out to be incredibly toxic and made them sick very, very fast. Right. You know, the production of energy often has these byproducts that are pretty toxic, right?

And, you know, your book is essentially about this stuff doesn't go away. You might hide it, but it's still out there. Yeah. TVA, that's the Tennessee Valley Authority, a government-owned power company created as part of the New Deal. They got their PR lackeys in front of the cameras and basically said, don't worry about it. This sludge is like totally innocuous. It's like, don't sweat it. And the media was kind of like, sounds good. We won't sweat it.

Jump ahead to 2018, I see some local news coverage about a lawsuit against a TVA contractor. These workers were accusing this TVA contractor of not giving them dust masks and respirators when they asked for them on the job site, and many of them were sick and dying as a result. Now, more than 50 of these workers have died, hundreds and hundreds are ill. So I flew down shortly after that.

met with many of the workers. I also met with their lawyers. And the book ends up being like a legal thriller. This is a story of like a pretty interesting character, sort of like David and Goliath.

Who is this guy? Yeah, so this personal injury lawyer named Jim Scott. He's a well-meaning guy. He was not like a big hotshot attorney by any means. His office was like in a strip mall in Knoxville. He wears white athletic socks with his dress shoes. He sends typos to opposing counsel, just riddled with typos. He's kind of a mess, but he has a good heart and he's the only one that would listen to these sick workers. And he basically drugged the case forward and

for a decade and wrecked his life, really, to try to get justice for these workers. He went through a horrible, horrible, nasty divorce in the middle of it, basically because he was spending all of his time on this case. You know, it's just how stark it is in the society we live in that it's really...

A guy in a suit that he got at a strip mall against a huge corporation who's, you know, this guy's whole life is a rounding error on one of their balance sheets. Yeah, exactly. This is so dark, but I found this company, this TVA contractor that was involved in the lawsuits. I found their SEC filings and had to disclose lawsuits to his shareholders and basically say in one of these SEC filings, this lawsuit does not matter to us.

It just doesn't affect their business in any material way. But to these workers, there are these hundreds of workers that are sick. I mean, it means the world, right? They're getting sick and dying and their medical bills are piling up. That's one of the reasons I find your book so interesting. Like Canada is working to phase out coal in its power plants by 2030. And there's only three provinces working.

that are still using it. I think Saskatchewan, New Brunswick, Nova Scotia. Alberta just shut down its last coal-fired power plant this summer. But we're actually looking to approve new coal mines for steelmaking coal.

And the environmental concerns about those are just huge. Like from the current steelmaking coal plants that are operating, the rivers below them in BC and in Montana have the highest levels of selenium of anywhere in the world. Or you even look at like some of the health effects that people near the oil sands in northern Alberta are feeling. The high rates of cancer up there are just off the charts. So I feel like the lessons in this book is we're looking at further research

you know, coal and natural resource development are super important. It's really tricky. I mean, we wouldn't like the whole industrial revolution was like made possible because of coal. Like, I mean, coal has been super, super important for the history of mankind. But, you know, in my view, based on my reporting, I think it's a long time we've moved on

You know, we've been covering the nuclear energy industry a lot lately because back in the 70s, Three Mile Island happened in the U.S., freaked people out.

They sort of, no pun intended, cooled on that industry and sort of coal took off for the next, whatever, 40 years before it started to retreat again. And that's a similar story across North America. We've known for a long time that coal does all sorts of horrible things to people and the environment, but we just haven't been able to do nuclear right. I think that's a real tragedy. We've known what the right thing to do is for a long time, and it's a shame we haven't done it right.

Sarah, what did you learn reading Cher's excellent book? I have to say reading because I'm not finished it yet. But I do think it's just a really great story of how this lawyer was able to fight for these workers' rights. It's a little bit of like the Erin Brockovich for Tennessee, if anyone's old enough to have watched Erin Brockovich. And if they haven't, they should watch it. If you are a Hollywood executive out there looking to make

And even better, Aaron Brockovich. Hit Jared up. His DMs are open. Always. Okay, that is it for this week. Sarah Rieger, tell us what we learned. We learned that a crystal ball is not going to make you a better stock trader. We learned that if this U.S. election is being bought by crypto, the next one might be bought by AI. And we learned that Jared's book, Valley So Low, is excellent and you should probably go buy it from your local bookstore.

Thank you for listening. This show is sponsored by Wealthsimple. It is made by me, Devin Friedman, Matt Keres, Sarah Rieger, with Mathilde Erfolino, Leah Fetter, Kat Angus, and Jared Sullivan, with help from Tom Johnson and Allison Hopkins. Fact-checking by Brennan Doherty, theme music by Andy Hockvale, and engineering by Emma Munger.

The TLDR podcast is offered by Wealthsimple Media Incorporated and is for informational purposes only. The content in the TLDR podcast is not investment advice, a recommendation to buy or sell assets or securities, and does not represent the views of Wealthsimple Financial Corporation or any of its other subsidiaries or affiliates. Wealthsimple Media Incorporated does not endorse any third-party views referencing this content. More information at wealthsimple.com slash TLDR.