Coin Toss Experts

TikTok financial advice, MrBeast's strategy, and a canceled recession

What’s up Graham, it’s guys here :-) If it’s your first time here, hit the subscribe button below to join 31,700+ smart investors and never miss an update on the market again. It only takes a second and is completely free.

---

Imagine an experiment where all Americans wake up every morning and toss a coin. They start by wagering just 1 dollar. If they call the coin flip right, they double their money or else they lose everything they have wagered so far. The odds of calling a coin flip right are 50-50. As the days pass, more and more people start falling out while the players who remain get richer. The chances of calling it right say 20 times in a row are very small – less than 1 in a million. But since there are 332 million people in the country, at the end of 20 days, there would be about 332 people who have got every coin flip right.

Now, if you were an alien in a spaceship looking at the coin-flipping game through a dashboard, you would see what was happening, with half the players getting eliminated in every round. You would also know that if the game continued for another 10 rounds, there would probably be no winners left. But for the people who have won 20 rounds in a row, their personal experience so far is of never having lost. They would be convinced that they have superior talent or ESP abilities, and go on to write books titled “How I turned a dollar into a million in twenty days working thirty seconds a morning” and become talk show guests.

If anyone criticized the coin-flippers saying that they were the lucky few who got it right, the instant response would be “If it’s luck, why are there 332 of us?” They don’t realize that if enough people participate, the probability of someone getting something right is much more than nobody getting anything right. Unless you know what the expected chances are, you’ll be impressed by what looks like unexpected returns. This is the base rate fallacy.

Warren Buffett described this experiment in 1984, to set the basis for how to tell apart luck from skill in investing. Since then, human nature hasn’t changed. But the ability to communicate your investing “wins” and share your “unbelievable” strategies has grown exponentially. Every time I open TikTok, there’s some influencer talking about how they flipped a house with a small downpayment or a person who says he’s not a financial advisor and then asks you to “jump in” on a stock with him. The danger is that these might influence you to take action but when things go haywire, you wouldn’t even remember where you got the idea from! There’s no accountability.

That’s why, in this video, I break down some of the worst financial advice (some even illegal), point out the pitfalls in their thinking, and talk about the base expectations you need to have to safeguard yourself from bad advice.

---

24 hours with MrBeast

It’s one thing to read about the habits of successful people and the principles that run their life – but seeing them in action is a totally different experience. I’ve been a big fan of the way MrBeast built his YouTube business empire from scratch. Recently, I got an inside look into his operations and how he runs his day. Seeing how he lives frugally despite running one of the largest media businesses, and how he stays focused on one key goal resonated so much better when I saw how they fit in with his life. I had a lot of fun making this one, and if you’re working on your own business, side-hustle, or project there are a ton of lessons you can take away from this!

One thing that MrBeast does really well is to take feedback and adapt – so here’s a question for you to help me make Graham’s newsletter better: What are you enjoying the most about the weekly roundups and deep-dives? What would you like to see more of? Let me know in the comments – I read every single one!

---

Recession 2023… Canceled?

Things are happening. Layoffs are accelerating in the tech sector, with some of the largest companies like Google, Amazon, and Meta slowing down their pace, while the US economy grew by 2.9% last quarter against all expectations. The housing market is still on rocky terrain, and rental prices are responding to housing affordability regulations. There are talks of the IRS even being eliminated! But the question still remains – are we in a recession, and what role do all these factors have to play in where things go from here? Watch this video to find out.

---

So that’s it for my Sunday round-up. For the new folks here, in this newsletter, I give a quick recap of whatever you may have missed over the week on Sunday, and on Wednesday, I will be doing my deep-dive article on one of these topics.

See you next week with another bunch of exciting videos!

And force of habit – Smash that like button to help others find this newsletter. Hit that subscribe button if you haven’t done so already!