🎙️ Thinking Fast And Slow

🗣️ The judge has spoken: Sam Bankman-Fried was sentenced to 25 years in prison for running a massive fraudulent scheme.

The judge said there was a risk that SBF “will be in a position to do something very bad in the future, and it’s not a trivial risk.” SBF said he was sorry but never said “a word of remorse for the commission of terrible crimes. He knew it was wrong,” the judge added.

The sentencing caps the rapid rise and fall for the former 32-year-old crypto billionaire, who was once soaking up Caribbean views from his $30 million penthouse.

(Programming note: U.S. markets are closed tomorrow for Good Friday, so we’ll take off. We’ll be back in your inbox on Saturday.)

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• The new meme stock in town

• Remembering Daniel Kahneman

This, and more, in just 5 minutes to read.

Chart of the Day

In The News

💫 A New Meme Stock Is Born

In a passing of the torch, one generation of meme stock has given way to the next. Despite once “mooning” to a nearly $25 billion valuation, Gamestop’s stock has fallen almost 50% in the past year and is a fraction of its peak valuation (about 1/6th, to be exact).

After reporting poor financial results, the stock plunged 19% on Wednesday — in many ways, a sign to investors that the company’s promised turnaround has largely failed to manifest.

But the momentum-driven, hype-loving, meme-stock crowd has hardly learned its lesson. Instead, a new sparkle has caught their eye: Trump Media, ticker: DJT, home to Truth Social.

• As of Thursday afternoon, Truth Social has almost the same market capitalization as Reddit (just over $8 billion). Whether Reddit is worth that valuation is a separate discussion, but DJT is almost unequivocally not worth that much.

A quick comparison of Reddit & Truth Social:

Don’t take our word for it, though. A December investor presentation from the company valued the firm at just $1 billion. Meaning, traders are pricing the company roughly 8x what the company itself thinks it’s worth.

• As the FT tongue-in-cheekly puts it, “To some commentators, a valuation of 1,000 times trailing revenue looks optically challenging. We consider it a reflection of the quality within the shareholder base.”

Why it matters:

So, who is buying into Trump Media’s stock? Enthusiastic individual investors, of course.

Reports the FT, “small investors” powered the stock’s valuation “above $13 billion” at one point this week, becoming the most-discussed stock on the popular Reddit trading forum, WallStreetBets.

New meme stock: The stock’s furious rally, largely due only to its association with former President Trump, has kickstarted a new wave of “meme stock mania.”

• As the chief strategist at Interactive Brokers commented, “The one thing to me that separates a ‘meme stock’ from just any hot stock is a passion of fervor. I think that certainly applies in the case of DJT.”
  

• Individual investors reportedly poured $6.5 million (in net inflows) into Trump Media’s stock on Tuesday, its first day of trading.

Read more

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🙏 Remembering An Econ Icon: Daniel Kahneman

Rest in peace to an economics icon: Dr. Daniel Kahneman, the Nobel Prize winner who wrote Thinking Fast and Slow and upended economics, died this week at 90. 

A former Princeton professor and trailblazing figure in psychology and economics, Kahneman's groundbreaking work in behavioral economics reshaped our understanding of human decision-making. It bridged the gap between psychology and economics in unprecedented ways. He believed we take mental shortcuts, leading to bad decisions that contradict our best interests. 

• These misguided decisions occur because humans “are much too influenced by recent events,” he once said (aka recency bias).

Challenging convention: His seminal 2011, Thinking, Fast and Slow, was a revelation for millions of readers. Kahneman dissected the intricate processes of the human mind, distinguishing between the intuitive, quick-thinking system and the deliberative, slow-thinking system. 

• His insights into cognitive biases, prospect theory, and the complexities of human judgment challenged conventional economic theories that had long assumed humans to be perfectly rational agents.
  

• He also pioneered the framing effect, proving that people were more willing to drive 20 minutes to save $5 on a $15 calculator than to make the same drive to save the same amount ($5) on a $125 calculator. 

Collaborative & aware of bias: Beyond his intellectual contributions, Kahneman's humility and curiosity were truly inspiring. Despite winning the Nobel Prize in Economic Sciences in 2002, he remained approachable and continued to engage with a wide range of disciplines, from psychology to philosophy to neuroscience. 

• His work has enriched our academic understanding and had real-world applications in finance, public policy, and healthcare, among other fields — including how baseball teams scout players and doctors make diagnoses.
  

• More importantly, Kahneman taught us to embrace the complexities and imperfections of human decision-making, reminding us that understanding our cognitive biases is the first step toward making better choices.

The big picture: His ideas will continue to shape our thinking about economics, psychology, and the human condition. 

Why it matters:

Here are a few of our favorite quotes from Kahneman:

• "It's a wonderful thing to be optimistic. It keeps you healthy, and it keeps you resilient."
  

• “We're blind to our blindness. We have very little idea of how little we know. We're not designed to know how little we know.”
  

• “There's a lot of randomness in the decisions that people make.”
  

• “If you care about being thought credible and intelligent, do not use complex language where simpler language will do.”
  

• “Nothing in life is as important as you think it is, while you are thinking about it.”
  

• “Intelligence is not only the ability to reason; it is also the ability to find relevant material in memory and to deploy attention when needed.”
  

• “We are prone to overestimate how much we understand about the world and to underestimate the role of chance in events.”

Read more

More Headlines

👶🏼 Japan’s aging population means diaper sales for adults outpace those for babies

🌊 Ray Dalio on the “100 year storm” on the horizon

🍫 Skyrocketing cocoa prices impact Easter candy

💰 The income a family of 4 needs to live comfortably in 20 U.S. cities

💬 Who ends up holding the bag in the Baltimore bridge collapse?

Quick Poll

Yesterday, we asked: Will small-cap stocks reverse their underperformance against large-cap stocks this year?

— On team No, “Small caps are very sensitive to interest rates & there would need to be a substantial fall in interest rates for them to reverse underperformance. No sign yet of a meaningful short term fall in interest rates.”

— Said another, “Interest rate cuts will be later in the year and hence profitability will still be impacted through until 2025.”

— And, “The Age of Consolidation. Anyone with a smaller business knows the forces are against you.”

— For team Yes, “Mean reversion is, of course, a well-established rule of financial markets. If small cap performance doesn’t mean revert this year, then I suspect it will next year at the latest.”

See you next time!

That's it for today on We Study Markets!

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