Pandemic stimulus cheques created a new class of investors behind bars

By Tomas Keen with Nick Hacheney

It’s Monday evening and Nick walks in with the latest issue of Barron’s – a ritual at the start of our investing week. With a giddy smile, he opens the magazine in front of me and we dig in, hunting for potential buys.

Around us, guys are shuffling cards on circular steel tables between games of pinochle, rolling ramen noodles into burritos in front of a communal microwave and chatting about what life’s gonna be like, someday. We barely notice all the noise as we scour the paper for numbers in bold print indicating which companies have set fresh 52-week lows.

Gradually others gather around and offer their own views on market trends and analyst predictions. After we are done, the magazine gets snatched up quickly and passed around until the pages are dog-eared and smudged by greasy fingers.

At the end of the night, the copy of Barron’s ends up stacked neatly with the other periodicals Nick keeps next to his bed – which happens to be bolted to the wall of an 80-square-foot cell in an American prison not far from Seattle.

When Nick first heard prisoners might be eligible to get stimulus cheques, he laughed in disbelief

Since the crash of stocks in March 2020 at the beginning of the coronavirus pandemic and the storm of media attention that ensued, our prison has seen a boom in speculation – and in financial literacy. There are two factors behind this. First, the initial crash gave us the opportunity to exploit the dip. What had been a game for rich folks seemed within reach for the rest of us.

Then, crucially, the government stepped in with covid-relief funds, which were somehow granted to prisoners. (Congress did not bar us from getting stimulus cheques, though the Internal Revenue Service tried to.) That windfall came as a total shock. When Nick first heard prisoners might be eligible to get the money, he laughed in disbelief. “After 20 years of listening to rumour after rumour in prison, one thing I know is that the ones with good news are almost never true. This time I was wrong,” Nick said. (Nick was convicted of murder in 2002 and has been fighting his conviction for 20 years; I was convicted in 2010 of first-degree assault, possession of a firearm and two counts of possession of a stolen vehicle.)

Stimulus payments meant people habituated to scarcity suddenly had $1,200 in their hands (then $2,000 more as the government approved two additional payouts). And rather than splurge on items we usually go without – honey buns ($1.10 each), king-size chocolate bars ($2.40) or high-end toothpaste ($5.28) – more than a few of us chose to invest. Ordinarily many of us never had the luxury of thinking about the future. Prisoners are short-termists: survival means thinking about the day ahead, for years and decades on end. But some of us will be as old as 60 when we get out. This was a chance to build a nest egg for our free years.

We needed help to invest, though. Prisoners don’t have iPhones, much less apps like Robinhood, which allow users to trade stocks online with ease and without broker fees. Nick sent his stimulus cheque to his brother, asking him to open a brokerage account and trade on his behalf. But trading was a new phenomenon to many on the outside too; some 20m Americans took up trading during the pandemic. So, talking on pay-phones at appointed hours (a 20-minute call costs $2.50), we helped our proxies navigate trading platforms we could not see. It was like playing chess blindfolded: slow and arduous.

We needed help to invest. Prisoners don’t have iPhones, much less apps like Robinhood

Buying and selling stocks is challenging enough for long-term investors. It can be excruciating for day-traders, who aim to turn a quick profit. Nick reckoned he could make money on snappy trades. He fancied himself an expert after borrowing one of my books on investing. That ended predictably. He spent some days watching cnbc, a business-news channel, looking for stocks in relatively small companies that seemed primed to make a big move. “By the time I got to a phone, called my brother and placed an order, the move up had largely run its course.” When the stock suddenly plummeted, Nick learned the hard way what they mean by “catching a falling knife”.

Plenty on the inside lost money on cryptocurrencies too. Prisoners, just like normies on the outside, gambled on faddish coins. I wasn’t immune to the crypto fad, though I thought I was being clever about it. I invested in publicly traded cryptocurrency companies, such as Bitcoin miners. After being up briefly, I’m down more than 50% on those bets.

The underlying lesson was one that many of us had to learn: no one really knows what drives the market, but that is especially true for a retail investor. And even if a stock tip proves right, it’s probably worthless by the time it becomes common knowledge in prisons.

Making money would require investment approaches more suitable to our circumstances, ones that play out over weeks, months or even years. “I tried different books,” Nick said, “from ‘Get Rich Carefully’ to ‘Understanding Options’.” Other prisoners did the same. Before long we were all talking the lingo: invest in blue chips, be sure you’re diversified, buy on the dips. Investing decisions became more sensible, less impulsive. It became a point of pride among some of our block-mates to demonstrate their newfound fluency in market terminology and techniques.

Most prisoners don’t know much about money, much less stocks. We are far more likely to have been raised on food stamps and free lunch than to have a college fund. Many among us never had a job, never paid a bill, never opened a bank account. Some became adults still thinking “withdrawal from savings” was a ritual involving a clay pig and a hammer.

Prisons compound this illiteracy. One recent night, after a game of Scrabble, Nick and I talked about money with our cellmates (or “cellies”), Juan and Steve. Juan, 32, has been in prison for 13 years. He recently started putting his construction training to work in a new job, which, being prison work, pays “less than a child’s allowance”, as he put it. Most prison jobs, even trades requiring specialised knowledge like electricians or plumbers, earn under 50 cents an hour; monthly wages are capped at $55, or $660 a year. Juan noted with a smirk that outside prison he could earn a six-figure annual salary. “But until then I’ll perform the same labour and get paid only three.” That pitiful return makes it tough to learn the value of a dollar or of making an effort.

Investing through proxies was like playing chess blindfolded: slow and arduous

The perverse incentive structure of prisoner accounts makes things worse. The prison does not touch account balances below $25, the threshold at which a prisoner is considered indigent. But for those with more than $25, the prison deducts onerous fees totalling 55% of incoming transfers. “Every week I have to max out my commissary order and zero out my account,” Steve said. Prisoners are being conditioned to live pay cheque to pay cheque.

Nick has done the most time out of everyone and has spent many hours thinking about life after prison. “I see the problem with prison as structural. We’re just not provided opportunities to set ourselves up for success.” Reading to our cellmates findings from a report by the Brookings Institution he brought specifically for this discussion, he intoned, “Almost half of ex-prisoners will have no reported earnings in the first several years after their release.” Of those who find work, many will earn paltry sums in minimum-wage jobs. And within three years, more than half will be reincarcerated.

Заключение чаще всего приводит к пожизненной бедности, что, в свою очередь, может привести многих обратно в тюрьму. Практические знания в области финансов дают надежду разорвать этот порочный круг. Если вы собираетесь посетить нашу тюрьму, сесть за стальной стол в нашей комнате отдыха и предложить нам компанию для инвестирования, вы должны быть уверены в своих цифрах. Нам нужно знать основные принципы, такие как отношение цены к прибыли, цена к продажам, цена к балансовой стоимости и так далее. Вам нужно будет иметь представление о технических деталях, таких как уровни поддержки и сопротивления (цены, которые акции исторически оставались выше или ниже), золотые кресты (индикаторы, указывающие на бычий рынок), кресты смерти (индикаторы, указывающие на медвежий рынок), и macdпрогнозы (линии тренда, которые указывают инвесторам, когда покупать акции или делать ставки против них). И если на мгновение вам покажется, что вы не знакомы с шатко звучащими терминами, тогда идите и поищите другую таблицу.

Конечно, владение инвестиционной терминологией не изолирует заключенных, когда рынок портится. Наоборот, это может породить опасную ложную уверенность. Розничная торговля по своей сути рискованна даже для осторожных и предусмотрительных. В результате спада на рынке в этом году большинство из нас потеряли деньги. Акции, которые в понедельник «кричали вверх», к среде оказались «в свободном падении».

«Я потерял почти 40%, и я понятия не имею, где дно!» Ник сказал не так давно, с паническим смехом. Я тоже потерял примерно треть. Мы напомнили друг другу, что с самого начала — или, по крайней мере, после жестокого урока Ника по внутридневной торговле — этот опыт был больше направлен на самообразование, чем на быстрое обогащение.

Мы сели за стальной стол в комнате отдыха, достали свои книги и заметки и приступили к разработке стратегии для волатильных рынков: накапливать пакеты упавших акций, продавая опционы «пут» — право продавать акции по определенной цене, — а затем записывая покрытые коллы, что является способом покупки акций, когда они падают в цене, и зарабатывания денег, когда они немного растут. В краткосрочной перспективе это, кажется, работает. Эти сделки за последние два месяца приносят более высокую доходность — сейчас мы с Ником потеряли всего 20-30%. Не то, чтобы мы были в заблуждении, что мы выяснили рынки. Это тяжелые уроки, но заключенные привыкли учиться на горьком опыте.■

Томас Кин и Ник Хачени находятся в заключении в Вашингтонском исправительном центре в штате Вашингтон. Их тексты были опубликованы в Crime Report , Appeal and Filter .

иллюстрации майкл гленвуд


Источник:https://www.economist.com/1843/2022/08/04/inside-trading-how-prisoners-in-america-got-into-stocks