"Lower is Better"

This article is Lu Canwei's 94th original piece.

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Recently, I came across a knowledge point: if you want to understand what is happening in the world, then turn off your ad-blocking plugin.

Zha Zha Hui's ads have returned again, which reminds me of a classmate who wanted to do something on his own but ended up joining this company because they offered too much...

Are you low?

Before discussing whether something is low or not, let's first look at the undergraduate rate in China. China's undergraduate rate is less than 4%, while Russia's is 54%, Japan's is 41%, and the United States' is 40%. This means that 1.344 billion people in China are below the undergraduate level. Another piece of information is that 600 million people in China earn less than 1,000 yuan.

Now you understand why Pinduoduo's users can surpass Alibaba.

"Low" is actually a strange word. In Chinese, we might say "土" (tu, meaning earthy or unsophisticated), yet many people still aspire to be "土豪" (tuhao, meaning wealthy or nouveau riche). It seems humanity is truly schizophrenic. Whether something is low or not depends on how we compare ourselves to others. For instance, I often encounter people who like to speak Chinese while mixing in some English words (of course, let's not make it hard for ABCs; it's already respectful that they can speak Chinese to you), and in the end, everyone feels the other is quite low.

Take the recent recruitment advertisement from Yeshou Group as an example. Many people think this ad is too vulgar and too low, but the boss doesn't think so at all. This shows that whether something is low or not seems to have little to do with money. As a niche group in society, we might present content as particularly high-end, but the result is just self-indulgence in our small circle, with very few people actually paying attention.

Is being low necessarily bad? For example, if there were no seemingly low advertisers, then these high-end traffic providers couldn't survive, leading to a lack of content, and everyone would be forced into an even lower world. The ads that seem particularly low to you are actually very profitable.

Like many micro-businesses, you see them constantly flooding your social media, which feels low, right? But they allow mothers to earn money through fragmented time or save money while shopping, supporting their families. Of course, I'm not talking about those micro-businesses that can balance family and career, allowing everyone to have a seat at the table...

Some things just appear low.

I wonder how many people still remember the recent battle between retail investors and Wall Street, where a group of seemingly low retail investors managed to hammer the Wall Street elites. Initially, I wasn't very interested; it felt like a black swan event, just following along to watch. But! It wasn't until I saw a Bilibili influencer analyze this event that I realized I was still too naive.

The reason retail investors could act so uniformly was that someone posted a plan for this century battle on a forum in September 2020, explaining in simple terms how to cut the Wall Street elites' leeks. You read that right; they used the word "idiots." They made it understandable even for someone with no financial knowledge on how to operate. This post will probably be included in business school textbooks. By the way, Netflix is reportedly turning this event into a movie.

The poster discovered that a stock called Gamestop was shorted by 130%. If this company had 100 shares, institutions sold 130 shares. Short selling means institutions borrow some stocks from brokers, sell them, wait for the price to drop, buy them back, and return them to the brokers. For example, if I borrowed 1 share and sold it for 100 yuan, then when the stock price drops to 20 yuan, I buy it back and return it, I would make 80 yuan.

So you might ask, what if the price goes up? If the stock rises to 150 yuan, when they come to return it, I would have to spend 150 yuan to buy it back, resulting in a loss of 50 yuan.

But what if everyone is optimistic about this company and holds onto the stock, while I still think the company is not good and want to short it? At this point, the intermediary comes in; you give them money, and they note in their little book that you borrowed one share. Then when the stock price drops, you buy it back, and they note that you returned one share. Notice that the entire process happens in the little book, meaning no actual stock trading occurs; your trading behavior is just an additional number in the app.

It's like withdrawing cash; in some places, you have to wait a day for withdrawal, while real stock trading takes three days to write your name. If you borrowed 1 share of stock from an institution at 100 yuan and sold it, the institution doesn't have that stock at that moment, so they can wait for the right price to buy during those three days. If the stock price drops to 60 yuan during those three days, the institution can make 40 yuan. As for how much you buy it back and sell it for, that's your business. If it goes up, the institution naturally loses money...

Thus, we can see that 100 shares can be shorted to create an illusion of 30 shares because these are trading volumes created out of thin air using time differences, theoretically with no upper limit. It's like you borrowed 100 yuan from a platform, and your wallet shows 100 yuan. At this point, the 100 yuan in your wallet is just a data point; the platform has no money, meaning the platform owes you 100 yuan, and you owe the platform 100 yuan. This creates two entries of 100 yuan in liabilities out of thin air. When you want to withdraw money, the platform must find 100 yuan to give you; otherwise, you can't withdraw...

There's also a concept called options, which you can understand as a contract that allows you to buy stocks at a certain price at a certain time. For example, you can buy stocks at 30 yuan at a certain time, and by then, the stock might be worth 100 yuan, meaning you would earn 70 yuan. You can also bet on a price drop, like allowing you to sell stocks at 100 yuan when they might only be worth 30 yuan at that time.

If you think the stock will rise from 30 yuan to 100 yuan in two years, you buy this contract. What if you guessed right? Wouldn't the broker lose money? So they would buy a certain amount of stocks. For instance, if you bought an option to purchase at 30 yuan in two years, the broker would buy one share of stock. Two years later, if it rises to 100 yuan, you earn 70 yuan. The additional stock the broker bought also rises from 30 yuan to 100 yuan, so your profits and losses balance out.

So the operation is as follows:

Find a broker to buy call options, and the broker will buy stocks to hedge risks, leading to further stock price increases, attracting more retail investors and institutions to buy stocks or call options, prompting the broker to buy more stocks to hedge risks, further driving up the stock price...

Do you remember earlier when I mentioned Gamestop being shorted to 130%? This means there aren't that many circulating stocks, leading to further squeezes and driving up the stock price, which is how we witnessed this story of retail investors cutting the Wall Street elites...

Only things that bring real gains are truly good things.

Of course, I've omitted many details, such as market makers. In this event, brokers and market makers are two different companies. I might not have clarified some points, but you can reply with 【Gamestop】 to get a more professional analysis video from the Bilibili influencer. This also made me understand that knowledge is power. The reason we don't understand is that no one explains it to us in a low-key way, so I will also try to write articles in plain language in the future, making them less dry...

Recommendations:

Discuss the recent public statements of three big figures.

Only by embracing reality can you become better.

A 1999-born girl said: Sometimes life is more important than a job.

How to understand your strengths and weaknesses?

How to make fewer but correct decisions.

You should be responsible for your own life.

You may need to plan for your own obsolescence.

How does the economic machine operate?

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