Yes, Ukraine Is a Real Country

I’m writing this eight hours after the shocking headlines that left so many of us feeling anguished and helpless. Whatever the eventual scope of Vladimir Putin’s “special military operation” by the time you read this, it’s a good moment to consider the question of what is and isn’t a real country and how worried we should be when parts of one are lopped off by invaders.

In Putin’s view, Ukraine is just part of the same Slavic, Russo-centric motherland. Once upon a time I shared his opinion, though not for the same cynical reasons. While my lifelong interest in the region and certificate from Columbia’s Central and East European (now Harriman) Institute hardly makes me an expert in the region–there are thousands of people with the language skills and specialization you should listen to before me–allow me to share my early impressions of the country now being sliced apart and of its people.

I had been living in Budapest, Hungary in the summer of 1992 between my two years of graduate school and the highlight of my summer was going to be a late August train trip through the former Soviet Union. With Hungary’s rickety telephones and Russia’s even worse ones, it would take 30 attempts to get through on a static-filled line on a call that could cost me half my then-meager weekly pay. But I finally got a visa, a plane ticket and a few hundred dollars and I flew to St. Petersburg on a Tupolev 134, my first of many journeys on scary Soviet passenger jets.

I stayed with Yuri, a Russian man a few years older than me whom I had befriended that year at International House in New York. The city was poor but stunning. Walking through the archway to the Hermitage where the October Revolution had started 75 years earlier, strolling along the canals during the long summer nights, and visiting the Summer Palace were magical experiences.

My friend Caryn and I had some trouble securing sleeper train tickets to Moscow because local mafiosi had bought them all up and were selling them at a 1,000% markup. That made them a whopping $5 or so. After an exciting night of drunken brawls outside the locked door to our compartment (the train had to stop briefly to evacuate an injured passenger by ambulance), we continued to Moscow. It was the first of several trips I would take to Russia’s capital over the next 10 years. The highlight was touring the Kremlin, which felt like (and recently had been) the fading center of an empire spanning 11 time zones. The lowlight was being attacked outside the Lenin Museum by a nationalist demonstrator whom I had photographed because he had the one sign not in Cyrillic: “Death to USA Fascist Israel.” He yelled американский еврейский шпион! (American Jewish spy!) at me as he tried, unsuccessfully, to take my 35 millimeter camera. I still have a snapshot of him somewhere.

After buying more tickets from mafiosi, we departed a couple of days later for Kyiv. Ukraine had only officially been a country for eight months with 92% of its people voting in a referendum to leave the Soviet Union. Functionally, though, it was somewhere in-between. There were no border or passport checks. There wasn’t even a national currency yet. I exchanged a very small number of dollars for “karbovanets” – coupons that looked like Monopoly money and were hardly worth more. I remember paying about a dollar for 600 rides on the Kyiv metro despite the fact that we would be there for just a couple of days. I didn’t have a smaller bill. Despite being rich by local standards, there was hardly anything good to buy. The only proper meal we had was at the home of our hosts, friends of Caryn’s boss in St. Petersburg. She spoke Russian with them and, in typically Russian fashion, their generosity to guests was humbling. As with Yuri and his family in Moscow, we were given the best of what they had to eat and drink when they had very little and allowed to take up the best spot in a tiny, cramped apartment.

Other than being poorer and more chaotic than Russia’s two major cities, I had a hard time feeling that I was in the capital of a different country. Everyone we encountered spoke Russian, and not as a second language–they all spoke Russian to one another as well. A monument to the fort that was the original site of the Kievan Rus, the seed of what would later become Russia, centered around “Muscovy” to the northeast, had a recently-installed plaque in Ukrainian and Russian. I spent a long time comparing the two inscriptions in their own forms of Cyrillic and searching for the handful of differences. It seemed like a stretch to turn what was a dialect into a full-fledged language.

Our next stop after another overnight train, Lviv in western Ukraine, was definitely no longer Russian. Caryn had to use her knowledge of Czech to fill in some of the linguistic blanks. The feel and the architecture were different. But were they Ukrainian? This was once Lvov and before that Lemberg–a Polish and before that a Hapsburg city populated by Jews, Germans, and Poles. The people living there had mostly moved into a depopulated city from the countryside. It was even poorer than Kyiv. We met a young man who spoke good English and asked what the very best place was to eat in the city. Blowing the rest of our soon-to-be-worthless banknotes, we feasted and asked him about life there.

Boarding the train to Hungary, we saw an older man shake the hands of two military officers on the platform still wearing their Soviet uniforms with the peaked caps. He then got into our compartment and it turns out he was a Hungarian doing some kind of business with the locals. He didn’t know English so I spoke Hungarian with him and Caryn spoke Russian with him for the trip to the border. Each of us would translate back to English in the three-way conversation.

When we got to the border, the train had to stop for about two hours because the Soviet Union had a different track gauge than the rest of Europe, ostensibly for security reasons. The train had to be lifted by a crane to have its wheels changed and, while that was happening, two Ukrainian guards got on to shake down the passengers. I had read in a Hungarian paper that summer that anyone not buying a through ticket would be thrown off and forced to bribe their way across the border, potentially waiting for days. The chaotic crowd outside the train window at the station confirmed it. I had sprung most of the rest of my dollars for a far more expensive “international ticket,” but I had lost a small paper customs certificate given to me in St. Petersburg that declared how much “valuta” (foreign currency) I had brought in with me. This was a Soviet form with a hammer and sickle and from what supposedly was a different country, but the guards wanted it and I was afraid that we would be thrown off the train too.

This was happening in the town of Чоп, Ukraine, which is where my father was born. It was Čop when he was born (part of Czechoslovakia) and Csap when my grandfather was born (part of the Austro-Hungarian Empire). All of the Hungarian and Yiddish-speaking local Jewish population had been taken away to Auschwitz almost 50 years earlier and my dad’s family (who by then had moved to nearby Ungvár and then forcibly to its Jewish ghetto) were among the small number of survivors. After the war, the sliver of territory became the Soviet Union and by that time the new nation of Ukraine. So here was another town, like Lviv, populated by “Ukrainians” living in houses built by dead or departed people.

Knowing well that antisemitism remains rife in Ukraine, I was in no mood to delve into family history with the agitated guards, but I wanted to stay on the train. I switched to Hungarian and the two of them did immediately and flawlessly, becoming much more friendly when I told them my father was born in the town. They asked what life was like in America, when he had left, and I kept the details sparse. Then I raised the delicate subject of the missing Soviet form and they looked at each other and told me not to worry about it. I guess I was like a combination hometown boy and celebrity to them. 

As the train started rolling again for the four hour journey to Budapest, I left Ukraine impressed with the warm, resilient people, but not with their claim to being a country with an especially strong historical legacy. First of all, the linguistic and religious differences were more of a spectrum, becoming more Ukrainian (and Polish and Ruthenian) as we headed west, with a little sliver of Hungarian as we reached the Carpathians. The borders of this new country were a Soviet bureaucratic construct.

Thirty years later, my opinion has changed. I’ve been back to the former Soviet Union many times, though never to Ukraine again. What has made the difference has been the bloody, senseless wars and ethnic cleansing I’ve seen in the region and beyond in the name of nationalism and religion. This is the 21st century. We have nuclear weapons and we have weaponized social media that can cause far more harm far more quickly than ethno-religious wars in the past. 

What I’ve heard from friends is that Kyiv, which seemed like such a Russian city back then, is far more Ukrainian today. Even if that weren’t the case, though, it’s a recognized country with borders. If we live in a world where might makes right and maps can be constantly redrawn then we live in a far scarier world. For all of our sakes, we need to stop and say “no more.” A speech in the United Nations by Kenya’s Martin Kimani about Ukraine using the example of his own continent, where borders are even more arbitrary, put it beautifully:

Today, across the border of every single African country, live our countrymen with whom we share deep historical, cultural and linguistic bonds. At independence, had we chosen to pursue states on the basis of ethnic, racial or religious homogeneity, we would still be waging bloody wars these many decades later. Instead, we agreed that we would settle for the borders that we inherited, but we would still pursue continental political, economic and legal integration. Rather than form nations that looked ever backward into history with a dangerous nostalgia, we chose to look forward to a greatness none of our many nations and peoples had ever known.

Martin Kimani

For all of our sakes, let’s forget the historical back-and-forth and just focus on the map. You can see it there in clear black lines–Ukraine is a real country.

investing · The book

The Psychology of the Meme Stock “Revolution”

A year ago, the concentrated financial power and frustration of millions of novice stock traders rocked Wall Street, alarmed Washington and turned journalists into armchair sociologists. The stranger-than-fiction story sent both publishers and Hollywood studios scrambling to tell it. I’m one of the lucky people who got paid to delve into GameStop mania in the form of a book and I was surprised by much of what I learned.

“The Revolution That Wasn’t” might sound like a “nothing to see here folks” type take, but that couldn’t be further from the truth. Sure the efforts of millions of mostly young speculators to stick it to the man and make a fortune in the process didn’t live up to the breathless headlines of late January 2021. They actually delivered Wall Street and already rich corporate insiders a massive payday. Yet they also showed the awesome power that apps we carry on our smartphones can have over markets.

 I get asked frequently whether another stock will rise from obscurity to become a national obsession again. Probably not quite the way that GameStop did: The crowd’s energy has surged again and again into fruitless attempts to recreate last January’s magic that require “diamond hands” – holding onto crumbling meme stocks no matter what to effect the “mother of all short squeezes,” but professional investors are no longer asleep at the wheel. The more interesting question is why GameStop mania happened in the first place.  I often think of this quote to put things into context:

“We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first.”

Charles Mackay wrote that passage decades before anybody could describe themselves as a psychologist. He was a journalist, like me, and his classic, “Extraordinary Popular Delusions and the Madness of Crowds,” was published in the midst of Britain’s 1840s Railway Mania. His description of that and other episodes like the South Sea and Mississippi bubbles and Tulip-mania in the preceding centuries are rich with insight into human nature. We have been through numerous manias since then as well – most recently dot-coms and housing. History doesn’t repeat, but it certainly rhymes.

As a long-time investing columnist for The Wall Street Journal and a student of financial history, I still was surprised at some of the new twists to this age-old pattern in the GameStop story. The human psyche hasn’t changed, but Wall Street and Silicon Valley’s understanding of it certainly has. Nobody working at stock brokerages like Robinhood or social media firms like Twitter, TikTok, or Reddit predicted that an informal army of amateurs would blow multi-billion dollar holes in major investment firms for fun and profit. They surely understood, though, that they were pushing psychological buttons that could enrich them at the public’s expense.

Take reinforcement. Since behaviorist B.F. Skinner’s experiments on the variable reward ratio in the 1950s, games of chance such as slot machines and their digital equivalents have been designed to provide stimuli that, for far too many people, lead to addiction. While the stock market isn’t really “a casino,” as some critics contend, the newest generation of smartphone based trading apps borrow heavily from the gambling world to create engagement. Robinhood, which has captured about half of all new brokerage accounts opened in the past five years, has been sued for using animated confetti and giving away free shares of widely ranging value–a lottery-like prize– for opening accounts and referring new customers.

Today it is nearly free and effortless to be an investor by buying and holding diversified index funds and it is becoming common knowledge that even the pros can’t beat those plain vanilla products 80 percent of the time. But index funds are far less profitable for the industry. Instead of having them “set it and forget it,” checking their portfolios occasionally, online brokers have convinced some customers to trade thousands of times a year. Robinhood’s active users check their accounts several times a day.

“You were born an investor,” claim its ads targeted at young people. Their costly level of hyperactivity is in part due to the “illusion of control” described by Ellen Langer’s experiments in which people put an irrational value on personal agency. That is why lottery sales are far higher when people can pick their own numbers despite identical odds. 

Meanwhile, the Dunning-Kruger Effect–the behavioral bias that makes novices overconfident in their abilities–was put on steroids by the pandemic. The wave of new account openings coincided with both the arrival of pandemic stimulus checks and the quickest rebound ever from a bear market in 2020. In a trend never seen before, 96 percent of stocks would rise in the ensuing year, making investing look easy. Dave “Day Trader” Portnoy, himself a newbie who boasted that he was better than 91 year-old legend Warren Buffett, would livestream himself picking tiles out of a Scrabble bag to choose stocks to his huge social media audience. Success, as they say, is the worst teacher.

And when they opened the app, Robinhood and its many imitators showed them the day’s most active stocks for a reason–to stoke the fear of missing out. Studies have tied acting on FOMO to feelings of regret. When the newest speculators buy too late or sell too early to make a score, they are encouraged to keep trying, as exploited by gambling establishments through the near miss effect (like when a slot machine displays two of three cherries or the ball in roulette falls one slot away from giving you that big payoff).

Of course so many people with so little money turning themselves into a major force in the market wouldn’t have been possible a generation ago. Trading stocks has become progressively cheaper. Robinhood was the first successful broker to charge nothing for a trade, though.

Trading isn’t really free–huge market makers gladly pay brokers to fill their customers’ orders–but the fact that small investors who have never paid a commission in their lives perceive it as costing nothing has triggered the “zero-price effect” described by behavioral finance experts. Demand normally rises when prices fall. The formula goes haywire, though, once prices hit nothing for something that also entertains us. Trading stocks for “free” has been made so much like a game that retail activity has exploded. 

This shift to zero at every major broker happened just in time for the pandemic, which supercharged locked-down and bored young people’s speculative tendencies. And because they got “house money” via stimulus checks, investors’ sometimes crippling fear of financial loss as described by Prospect Theory was short-circuited at a critical time. Millions opened accounts, many of whom had already dabbled in recently-legalized sports betting, and they found they liked stocks even more. The sharp market rebound from the initial pandemic plunge created unprecedented volatility and excitement. And brokerages’ irresponsibility in allowing newbies to trade complex stock options, with their asymmetric payoffs and finite time horizon, made investing resemble sports betting.

But what to buy? Young Americans’ love of social media meant that it was “finfluencers” like Portnoy rather than Mom and Dad’s broker at Morgan Stanley who provided ideas. The most influential voices were the most confident and often the wildest. And it was those stocks that did best for a while, reinforcing the wisdom of following the crowd. The top 100 stocks highlighted by Robinhood on its app rose by 102 percent in 2020 according to an index created by newsletter writer Noah Weidner–some six times as much as the benchmark S&P 500. Baskets of companies with no profits or those heavily shorted by skeptics also had a great year.

And, because Millennials and Gen Z share private information online so readily, those bragging about big scores on those stocks often backed it up with screenshots of their brokerage accounts. This triggered a phenomenon called social proof in which apparently successful people, even if they were just lucky, gained undue influence.

Virality was instrumental in the runaway popularity of small, money-losing companies. On Reddit’s r/wallstreetbets in particular, which would become the epicenter of the GameStop squeeze, reckless wagers in crowd favorites were the most likely to become “upvoted” and hence visible to somebody logging on. The wave of buying would become self-reinforcing and the support of certain stocks has become tribal and almost cult-like for some who dub themselves “apes” and who subscribe to conspiracy theories involving nefarious hedge funds and even journalists like me.

As of this writing, the thrill of overnight fortunes made and lost last year hasn’t faded for many trading novices. With the exception of those who are turning meme stocks into an obsession, though, the spell will break eventually. As Mackay sagely wrote 180 years ago: 

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.”

(This post originally appeared on LinkedIn)

Book reviews · The book

LA Times and The Economist Reviews!

My first impression of a person who reviews others’ work for a living came at age 12 from watching the Mel Brooks film History of the World Part One where we’re introduced to Ugg, the world’s first artist, and then the world’s first art critic. He delivers a scathing verdict on Ugg’s cave painting without saying or writing a word.

I am very happy to report that neither of the two fine publications, The Los Angeles Times nor The Economist, that have so far reviewed my book peed on it. This is what the LA Times had to say:

Jakab is a former investment banker who currently writes the Wall Street Journal’s “Heard on the Street” column; he knows what he’s talking about. He’s skilled at translating concepts like puts and calls and short sales and gamma squeezes into language most anyone can understand — a true gift.

LA Times

And later in the review:

Like so much reporting in recent years, Jakab’s book is both depressing and necessary … Anybody who buys and sells stocks, and anyone who “invests” in anything old or new, should read this book.

LA Times

Now that’s nice. And The Economist, which I have been reading for 30 years now, came through with a really flattering take too.

Spencer Jakab, a columnist at the Wall Street Journal, unknots the threads of this complex financial tale. His is a pacey and comprehensive account that takes in the structural changes in finance and the media that made the turmoil possible. 

The Economist

And lower down

…Mr Jakab’s knowledge of Wall Street shines in the historical context he provides and the industry aphorisms he relays (the retail investors who can lose out when hedge funds prosper are typecast as “a lot of dentists”). Despite the density of the subject matter, which includes “rehypothecation” and “gamma squeezes”, the story is deftly told. If the first draft of history was not quite on the money, as Mr Jakab contends, his second go has set the record straight.

The Economist

Please check out the book.

Book reviews · The book

Be Like Ron Weasley

And recognize a troll when you see one.

If you know me at all then you’ve been bombarded with messages about the book. I hate to be annoying, but I also hate to see a year of hard work go unacknowledged. If too few people buy a book then it turns into a vicious cycle – next stop pulp mill, and no more publishing contracts for yours truly either.

What does that have to do with trolls? Quite a bit this time, unfortunately. My book points out how ordinary investors were taken advantage of by companies that got rich off of hyperactive stock trading, among other things. The victims in my story really do believe they are victims, but because they weren’t allowed to KEEP buying meme stocks for a few days a year ago. It’s evidence that the system is rigged. Well it is, but not by an illegal conspiracy.

Pointing this out makes them angry. I’m a hack and I work for the Wall Street Journal, which is owned by Ken Griffin (no, it isn’t). I am a paid shill for hedge funds (I wish) and I didn’t even read the WallStreetBets message board (oh boy did I read it). I don’t want to insult anyone, and I’m sympathetic to the newest generation of investors, but there are some unpleasant aspects to the online army that made GameStop the most traded security in the world.

They haven’t read my book, but they would prefer you didn’t either. So if you go onto the UK Amazon page, where it went on sale a few days ago, this is what you’ll see:

I personally avoid things on Amazon with poor reviews and many potential readers have doubtless done the same. When the book goes on sale tomorrow in the U.S. and elsewhere then you’ll probably see the same phenomenon from “MoxPlatinum” and others.

My ego isn’t so fragile, but this is injurious in other ways. It’s a prime example of how some people behave toward strangers these days online – ironically a phenomenon I discuss in the book in the part dealing with the horrifying online harassment campaigns against some of the main characters. If I saw, say, a local baker wearing a shirt touting a political candidate who offended me, it just might make me upset enough to shop elsewhere. Or it might not if she’s really good. But I would never threaten her livelihood by saying her stuff tastes bad without actually sampling it.

So whether you know me or not, can I ask a favor? I spent a year of hard work baking this cake. If you don’t like it then please feel free to say so, but only after you’ve had a bite. And if you did then please consider writing something nice and maybe clicking on some legitimate negative feedback as helpful, not that it’s “utter Dribble” (the word is “drivel,” by the way). And please extend the same courtesy to other writers you know whose online reviews are suspiciously negative. I do and I will even more now.

Thank you!

Columns · investing · The book

Wall Street Journal book excerpt

(L-R) Bill Gross, Ken Griffin, Jason Mudrick, Vlad Tenev and Baiju Bhatt SIUNG TJIA/WSJ

Today’s Wall Street Journal has a 1,500 word excerpt of one of the chapters in my book. The article’s title is “Who Really Got Rich from the GameStop Revolution?” One helpful reader has already written to complain that they had to read too far into the article to find out. When I answer a WSJ subscriber (and I always do, unless they’re menacing or insulting), I try to be courteous. Still, the huge photo of five billionaires behind the article’s title was a pretty good hint, I think.

Anyway, the excerpt is an interesting part of the story but one of the less-surprising things you’ll learn if you read the book. Far more interesting to me was how trading and social media apps are so effective at getting people to act recklessly. The human psyche changes very slowly, but companies’ understanding of how to push our psychological buttons has evolved as quickly as the technology they can bring to bear. I’ve been working in or writing about financial markets for 29 years and I learned a lot while doing my research. You don’t have to be especially interested in finance for this to change the way you see things.

The book’s U.S. release is Tuesday, February 1st, available for pre-order now!

investing · The book

Podcast Mania!!!!

Not me

I’ve been invited on A LOT of podcasts recently-like losing my voice a lot. I’m profoundly grateful to all the hosts helping me to get the message out about the book on small investors and GameStop mania. The great thing is that they’re all different because the audiences and hosts differ. Here’s a wrap – so far.

New Books Network interviewer Daniel Peris, who is a fund manager, dissected the whole crazy story without getting too technical. His questions were sharp and it looks like he has some great episodes on politics and history. He’s a Russian politics buff and we had a great chat about that after the podcast ended.

Personal finance specialist Rick Ferri had me on the Bogleheads on Investing podcast. The Bogleheads are acolytes of the late Jack Bogle, a pioneer of passive investing and the founder of Vanguard. Bogle has literally saved Americans, and cost Wall Street, tens of billions of dollars. If you want a methodical explanation of what happened and who’s who in this story then this is your best listen.

The multitalented James Altucher, who used to be both a day trader and hedge fund manager, has a great podcast that I’ve listened to for years on and off. It was a thrill to be a guest. His questions were rapid fire and they kept me on my feet. If you’re not into hearing me drone on too long then this is the one you want.

Veteran financial journalist Roben Farzad had me on Full-Disclosure Radio, which also runs on some NPR stations. He understands this stuff inside and out and it was a very relaxing talk for me – so relaxing that I made a Freudian slip and called GameStop “Blockbuster.” Oops. As an extra bonus, he also interviewed The Mulligan Brothers, the filmmakers behind the upcoming documentary “Apes Together Strong.”

investing · journalism

On CNBC for GameStop Mania Anniversary

I spoke about the book (out in a week!!!!) with CNBC this morning. I’m no natural on TV and always a bit nervous about condensing the insights of a whole column, much less a 320 page book, into a series of soundbites. But I think Andrew Ross Sorkin’s questions were sharp and my answers were acceptably concise. Check it out:

Columns · The book

Robinhood Traders Robbed Themselves

You might have noticed that the stock market is a tad wobbly these days. Your own portfolio might be significantly wobblier than the headline numbers suggest if you piled into some of the most popular stocks on social media, so I hope you didn’t.

A lot of those same stocks happen to be in the top 20 or top 100 on Robinhood which, for anybody who reads my book (out on February 1st), won’t come as a surprise. This herd-following behavior was in fact pretty profitable for a while. I wrote about the downside of that today.

A clever young man, Noah Weidner, kept track of an index of the most popular stocks owned by investors at the broker. More recently, even after the data feed was curtailed by the broker, he kept up a list of which stocks entered and exited the top 100. For the most part those rejected like energy ETFs, Berkshire Hathaway and Wells Fargo went on to do well. Meanwhile, most of those added have been among the biggest losers recently, including shares of Robinhood itself. I link to an academic study that does a nifty job of explaining why that happened.

Stay safe out there.