A friend of The Grasshopper recently posted an opinion on social media – for this narrative, neither the content nor the platform matter – to which some bright spark commented, ‘Get some help’. My friend replied ’Get some education’.
In the derivatives market, a tradeable instrument is derived from some underlying asset. The derivative may be: a future – the price of wheat come harvest-time, for example; an option – perhaps an agreed price for optionally buying crude oil in December; a swap – an agreement for future exchange of assets; or any number of more ‘exotic’ instruments.
When they work, say, for hedging investments, they work well. But the problem often comes when derivatives are created from other derivatives. Read the Big Short (or, if you’re lazy, watch the movie) and you’ll see how that can pan out.
It’s the same with the derivatives market for opinions. Mostly, the underlying assets are factuals: an action by group or person; a happening; a catastrophe; a pandemic. And then the opinions start flowing. The problems then proliferate when opinions are cast on the opinions themselves. And just like the derivatives market, if the values of the derivatives don’t track the values of the underlying assets – the so-called variance/co-variance effect – then the opinions become exposed and, ultimately, become worthless.
Opinions become diluted the further down the value chain they come. And today’s problem – in the Grasshopper’s humble opinion – is that social media puts opinions (and opinions of opinions, and opinions of opinions of opinions…) into the eyes of people who really are not equipped to understand the underlying facts. Through laziness, lack of ability, or lack of education, complex factuals presented to people as buzz eventually come out as ‘Get some help’.
The solution? Not sure. Social media – in fact the whole of the media – are the pandemic of our time. But in my experience, a good derivatives trader always maintains a close watch on, and intimate knowledge of, the underlying asset. That’s the (self)-education that we mostly need.
Now then, before social media people shared their opinions with friends and family, others who didn't want to hear walked away, now an opinion of any quality is instantly spread like a disease, hence " going viral". But people are also emboldened by finding like minded opinions out there,which may also be of doubtful quality. I have lost count of how many Facebook debates I've seen start by an off the cuff opinion, people get competitive with winning the debate, using the biggest words they can think of. It's a form of display behaviour and people think their rubbish actually counts for something, the point is that there is no way they would do this in person as the chance of actual humiliation is very real, social media offers anonymity for the rubbish that spills out of people's minds, that's why it's so easy to bully on media because you can't get thumped for being a twat