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Made in au
The Dread Evil Lord Varlak





There's a lot of people giving a lot of reasons why stocks have taken a sudden correction in the last couple of days. There's loads of pundits, market experts, macro experts, all giving some pet theory about why the sell off has happened.

But here's a funny thing. Bitcoin and stocks bottomed out at almost the exact same moment. And then the dead cat bounce for each was almost identical. It shows, I think, that the price of each asset is driven fundamentally by mood and group psychology, not the actual value of the underlying asset. I mean that's a big claim from one comparison of data sets, but I'm gonna make it anyway.



My theory would also mean that much of the previous rise in each asset was also unrelated to the underlying fundamentals of the asset.


Or maybe its just a weird thing that happened.

“We may observe that the government in a civilized country is much more expensive than in a barbarous one; and when we say that one government is more expensive than another, it is the same as if we said that that one country is farther advanced in improvement than another. To say that the government is expensive and the people not oppressed is to say that the people are rich.”

Adam Smith, who must have been some kind of leftie or something. 
   
Made in us
Member of a Lodge? I Can't Say





Philadelphia PA

Well yeah, the stock market stopped being about actual investment in terms of money being used to purchase new assets, grow business, etc (you know, the stuff they still repeat in econ classes) a long time ago. Now it's just hype and legalized gambling.

I prefer to buy from miniature manufacturers that *don't* support the overthrow of democracy. 
   
Made in au
The Dread Evil Lord Varlak





 ScarletRose wrote:
Well yeah, the stock market stopped being about actual investment in terms of money being used to purchase new assets, grow business, etc (you know, the stuff they still repeat in econ classes) a long time ago. Now it's just hype and legalized gambling.


The markets always had big climbs and plunges. You are right to an extent, in that the market is somewhat different in its purpose - it is now used much less to raise capital for expanding companies (that's done mostly through VC and internal funding), but is used by owners to cash out, make good on their gains by selling a share of their company to the public. But that doesn't mean its just a vehicle for gambling. Yes, there is number of people with very speculative approaches to the market, but claiming that's what the market is for is like seeing that sports betting exist and therefore the only purpose of sport is so people can gamble.

Just as most people just like watching sport for its own sake and don't gamble, most people buy stocks with no interest in making quick gains on short term volatility. They buy and they hold, getting those bi-annual dividends, and maybe cashing out in retirement. In 2008 when the market plunged, 97% of investors... did nothing. They just held on to their stocks, watched the paper price plummet and then recover, because they're invested long term.

But that's not really the point I was making. The point I was making was about what drives the short term volatility. And it is very interesting that two unrelated assets dropped at almost the same time, then recovered at exactly the same time, and bounced up an almost idenitical %. That's a signal that maybe the pattern behind this short term sell offs may have no real fundamental cause, but still be in some way predictable.

“We may observe that the government in a civilized country is much more expensive than in a barbarous one; and when we say that one government is more expensive than another, it is the same as if we said that that one country is farther advanced in improvement than another. To say that the government is expensive and the people not oppressed is to say that the people are rich.”

Adam Smith, who must have been some kind of leftie or something. 
   
Made in us
Member of a Lodge? I Can't Say





Philadelphia PA

But that's not really the point I was making.


I'm going to be contradictory here and say no, I was exactly on the point you're making, that it's just psychology and specifically the psychology of hype that everything seems to be running on these days.

It shows, I think, that the price of each asset is driven fundamentally by mood and group psychology, not the actual value of the underlying asset


My point was that there is no "actual value of each asset", that it's all smoke and mirrors to just keep the growth going. To just keep posting ever bigger numbers without any real world connection (hence why I said investing has almost nothing to do with 'investing' in the econ 101 sense).

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Made in au
The Dread Evil Lord Varlak





 ScarletRose wrote:
I'm going to be contradictory here and say no, I was exactly on the point you're making, that it's just psychology and specifically the psychology of hype that everything seems to be running on these days.


Sure, my post is about market psychology impacting short term market movements, but you've gone from there and run with it to argue, it seems to me, that there is nothing in the market at all but psychology. Which is taking things way too far.

My point was that there is no "actual value of each asset", that it's all smoke and mirrors to just keep the growth going. To just keep posting ever bigger numbers without any real world connection (hence why I said investing has almost nothing to do with 'investing' in the econ 101 sense).


Of course there is. Well bitcoin arguably has no underlying value, but shares have a clear underlying value - they pay dividends, which is a future cashflow that it is good to get. So obviously people will pay money for that future cashflow, and the only question is how much they are willing to pay. That's the basis for discounted cashflow, ie CAPM, which you refer to with Econ 101*. That's still real (well as real as it ever was, the model is much too subjective to ever prove in any useful way).

The issue is that while that value underpins an asset, over the top of that there's a whole lot of complex factors, institutional and especially psychological. And that's what we're seeing here, and likely what we saw for much of the last few years of this very long bull run.



*Actually I think it'd be more like 201 as part of teaching EMH, or through a finance unit.

“We may observe that the government in a civilized country is much more expensive than in a barbarous one; and when we say that one government is more expensive than another, it is the same as if we said that that one country is farther advanced in improvement than another. To say that the government is expensive and the people not oppressed is to say that the people are rich.”

Adam Smith, who must have been some kind of leftie or something. 
   
Made in gb
Keeper of the Holy Orb of Antioch





avoiding the lorax on Crion

Bit coin is kinda like high stakes shared as it has not real perceived or legal limits on how or high and low it can be graded. It's not regulated and is basically a commodity investment minus the physical products that at least give it a base value as a asset.

They do share some values. However id say commodity trading vs the stock market as it has no dividers, can be used as a currency, traded for assets and so.


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Anti-piracy Officer






Somewhere in south-central England.

Commodities have an inherent value because people need them for real purposes.

"Real" money has a commodity value because it is needed to make transactions. That is why there is a foreign exchange market, among other things.

Bitcoin is useless as a regular currency now, so I don't think it has any inherent value. The crazy swings in valuation over the past month show that it is being traded as a pure asset in a bubble.

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Made in gb
Ridin' on a Snotling Pump Wagon






I will never understand why people invest in Bitcoin.

I mean, it's electronic. What's to stop the people that invented it just awarding themselves Fifty Squillion Bitcoins at any point in time?

And interestly, Lloyds Banking Group have now banned their credit cards from being used to purchase Bitcoin. Saving many from themselves.

   
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Decrepit Dakkanaut




UK

 Mad Doc Grotsnik wrote:
I will never understand why people invest in Bitcoin.


Because if you do it right you can make a lot of money doing not very much actual work. Meanwhile those building "mining machines" can just leave the computer working at making bitcoins rather than doing work.

In short its the new "get rich quick scheme". It's the same reason a lot of other online currencies are seeing a surge in popularity; everyone investing is betting on which one will increase in value and then gambling on when to pull out to get the most profit.

Some will win and some will lose; some of those that win (and some that lose but hide it well) will go on to give seminars and write books on how they got rich quick in order to turn a bit more profit out of their activities. So that in itself can generate continued interest in the system by encouraging others to take part.




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I have a slightly different interpretation of the matter. In my eyes there is fundamental value to stocks, as they are a share of a real company, yet the perception of that value is affected by group psychology, etc. Same page there. What I see is that since bitcoin (and the like) has no fundamental value the overall valuation of the stock market is used as one by proxy. So bitcoin essentially piggybacks on the same mood of the market without as much of a psychological 'identity' of it's own, while the latter operates independently.

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 Overread wrote:
 Mad Doc Grotsnik wrote:
I will never understand why people invest in Bitcoin.


Because if you do it right you can make a lot of money doing not very much actual work. Meanwhile those building "mining machines" can just leave the computer working at making bitcoins rather than doing work.

In short its the new "get rich quick scheme". It's the same reason a lot of other online currencies are seeing a surge in popularity; everyone investing is betting on which one will increase in value and then gambling on when to pull out to get the most profit.

Some will win and some will lose; some of those that win (and some that lose but hide it well) will go on to give seminars and write books on how they got rich quick in order to turn a bit more profit out of their activities. So that in itself can generate continued interest in the system by encouraging others to take part.





Fools and their money!

   
Made in pl
Wicked Warp Spider





I don't follow US stock market, but I was following BTC (without any investing in it) and other cryptocurrencies for the last three months on a daily basis and all I can say is that charts for those are pretty much "big data" charts on human psychology and nothing else.

In a long timescale, BTC chart is 1:1 a textbook bubble chart, to an astonishing extent. In a daily or weekly timescale one can see all those "magical" "psychological barriers" that market commentary so often invokes - BTC always drowns or bumps up around "round numbers". There are some more characteristic behaviors involving derivatives (in mathematical, not economical meaning) to be clearly seen from BTC charts. And for anyone still believing, that there is any significant "fundamental value" within stockmarket, read this: http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis and see for yourself how much of "proffesional stock trend analysis" is based solely on "chart numberology", not far removed from depiction in Aronofsky's "Pi" movie (great film BTW).

And answering OPs question - in days of interwebz stockmarket analysis follows the same pattern of mass behaviour as "netlisting" in 40K. "Serious investors" follow same "serious" webpages (there is huge homogenisation of content between different sites dedicated to the same, limited area of interest) and base their knowledge of "chart analysis" on same tutorials/schools/tools. Those tools show results based not on fundamental condition of a company/currency/country, but on a previous chart flow itself. It's pure psychology and numberology, so things like Blue Monday, Christmas, even a full moon or weather changes (metheopathy is a thing) influence stocks, even more nowadays than in pre-internet era, because of one additional mechanism:
nowadays you can spread your emotions instantly to the masses - one single Tweet or FB post, that can be written and sent during momentarily upset can reach and upset thousands of people - like avalanche. In pre- social media times it was a lot, lot harder to "synchronise" emotional reactions this way, as you don't usually stay upset over trivia long enough to write and send a paper letter and you can phonecall only one person in such state. So only deeper upset/unease got spread far enough to get magnified to entire countries, unless it has been "catched" by mass media coverage. This mechanism got more and more pronounced during the last decade or so and is till not recognised widely, but is widely influential (in stock behaviour, in political behaviour, in "shocking news" attention, etc). It has been forseen by various sci-fi writers as early as late '90 (one great Polish writer, Jacek Dukaj depicted it ideally in a book "Czarne oceany", but unfortunately it is available only in Polish...) and is emergent property of "global village", so there is pretty much nothing that can be done to revert or prevent such synchronisations. Our psychology evolved to living in a small tribes of dozens of individuals and has hard times adapting to "tribes" counting millions...
   
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Pragmatic Primus Commanding Cult Forces






Southeastern PA, USA

I think the subject that the OP is looking for is behavioral finance.

There's plenty out there. I did some writing about it at a past employer.


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Made in ca
Fireknife Shas'el






Bitcoin has an inherent value, it's just different from a normal currency. The blockchain makes it difficult (impossible?) to counterfeit. Every transaction requires a computation that verifies the bitcoin. So someone accepting a bitcoin can't be handed a 'fake' bitcoin that might turn out to be worthless - a risk most retail stores take when accepting hard currencies.

Essentially, bitcoin can be trusted to be bitcoin, which makes it IDEAL for currency transfers between people who don't trust one another and can't use banks as a trusted go-between. Which basically means criminals, and part of the bitcoin bubble was companies buying bitcoin to pay criminals in the event hackers managed to encrypt their company's data.

You can, of course, use bitcoin for legitimate purposes - for example, international currency transfers without having to employ a banking institution (bitcoin transfers still involve a fee, however), but it's value is to cut police and government out of the transfer of wealth.

The vast majority of investors are using it as a get rich quick scheme. It's highly likely that governments will ban the use of blockchain for anonymous currency once the market for it falls apart and the wealthy can't make money off it, though you can expect the banking sector to adopt blockchain as an additional layer of security.

That's why I never invested in crypto - eventually it's going to be illegal, or the market will be so fragmented any individual currency will be worthless.


   
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Longtime Dakkanaut





For the record I just added to my position big this morning. I think the worse is over.

A lot of stop trades were triggered yesterday, and people are going to have to buy back in before things rally if they dont want to lose money. Plus, interest rates ARE still low, so people are going to quickly realize there isn't anywhere else to put their money.

These corrections happen. Its why you also invest in bonds and keep some cash on hand.

Edit: Just noticed Bitcoin was brought up and I want to point out I am talking about equities. Especially ETFs. Wouldn't touch Bitcoin and don't recommend others do either.

This message was edited 1 time. Last update was at 2018/02/06 15:27:18


 
   
Made in us
Did Fulgrim Just Behead Ferrus?





Fort Worth, TX

 Mad Doc Grotsnik wrote:
I will never understand why people invest in Bitcoin.


It's like investing in gold. It's valuable because everyone wants it, and everyone wants it because it's valuable. It feeds into itself.

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One chants out between two worlds: Fire, walk with me."
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Made in pl
Wicked Warp Spider





 Tannhauser42 wrote:
 Mad Doc Grotsnik wrote:
I will never understand why people invest in Bitcoin.


It's like investing in gold. It's valuable because everyone wants it, and everyone wants it because it's valuable. It feeds into itself.


You should really dig deeper into history, chemisty and physics behind gold to understand why it was a metal of choice in pretty much every culture throughout history. There are plenty of solid reasons why it was and still is a basic wealth storage medium that nothing else really compares to. In modern days it is not used for day-to-day transactional reasons anymore because because it would be cumbersome and slow, but it is still a "safe harbour" for investors after each major bubble bursts.
   
Made in gb
Ridin' on a Snotling Pump Wagon






 Tannhauser42 wrote:
 Mad Doc Grotsnik wrote:
I will never understand why people invest in Bitcoin.


It's like investing in gold. It's valuable because everyone wants it, and everyone wants it because it's valuable. It feeds into itself.


Being an element, it's also a strictly finite resource, and far from being a particularly common one. Large scale mining is expensive in itself.

Bitcoin? Doesn't actually properly exist - and was just invented by A.N.Other with absolutely nothing in place to prevent said creator/s just giving themselves more and more and more.

   
Made in us
Longtime Dakkanaut





 Tannhauser42 wrote:
 Mad Doc Grotsnik wrote:
I will never understand why people invest in Bitcoin.


It's like investing in gold. It's valuable because everyone wants it, and everyone wants it because it's valuable. It feeds into itself.


I wouldn't say this. Gold had a far longer history. Very very few businesses accept bitcoin.

Bitcoin fails as a currency because it is too volatile. It fails as an investment because it doesn't it itself doesn't generate any wealth. The only reason to 'invest' in it is speculation. You might as well go to a casino.

And when countries and governments start restricting it, it and all the others are done. And you can't talk about bitcoin without talking about all of the others.

https://coinmarketcap.com/

Basically creating cryptos is easy to do, and everyone is scrambling to create their own and cash in on the madness. And don't think that by the end of today, someone else will have created a new one. Meanwhile, you can't spend the vast majorities of these anywhere. Fine when the economy is good. But when it crashes and you can't pay your rent or buy gas with any pf them, whatever wealth they have generated will evaporate.

And keep this in mind, if the US stock market dropped the same in value as Bitcoin just did, or the US dollar did the same, there would be a worldwide crisis. And at that point, even gold wouldn't hold much value. The only thing of any real value would be cigarettes and bullets.

This message was edited 2 times. Last update was at 2018/02/06 16:00:37


 
   
Made in pl
Wicked Warp Spider





KTG17 wrote:
 Tannhauser42 wrote:
 Mad Doc Grotsnik wrote:
I will never understand why people invest in Bitcoin.


It's like investing in gold. It's valuable because everyone wants it, and everyone wants it because it's valuable. It feeds into itself.


I wouldn't say this. Gold had a far longer history. Very very few businesses accept bitcoin.

Bitcoin fails as a currency because it is too volatile. It fails as an investment because it doesn't it itself doesn't generate any wealth. The only reason to 'invest' in it is speculation. You might as well go to a casino.

And when countries and governments start restricting it, it and all the others are done. And you can't talk about bitcoin without talking about all of the others.

https://coinmarketcap.com/

Basically creating cryptos is easy to do, and everyone is scrambling to create their own and cash in on the madness. And don't think that by the end of today, someone else will have created a new one. Meanwhile, you can't spend the vast majorities of these anywhere. Fine when the economy is good. But when it crashes and you can't pay your rent or buy gas with any pf them, whatever wealth they have generated will evaporate.

And keep this in mind, if the US stock market dropped the same in value as Bitcoin just did, or the US dollar did the same, there would be a worldwide crisis. And at that point, even gold wouldn't hold much value. The only thing of any real value would be cigarettes and bullets.


And lighters People who survived Balkan war often mentioned lighters as a practical currency during war times - those are small enough and have so fundamental usefullness, that became "coins", while gas and other combustibles became larger nominals equivalents.
   
Made in ca
Fireknife Shas'el






Look at any piece of electronics and tell me gold has no inherent value. Our computer chips depend on gold (and tin), at least for now.

It's conductive, ductile, doesn't oxidize and shields against radiation. It's also pretty, has a low melting point and easily alloys with several other metals. Gold is pretty awesome.

   
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[MOD]
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Somewhere in south-central England.

 John Prins wrote:
Bitcoin has an inherent value, it's just different from a normal currency. The blockchain makes it difficult (impossible?) to counterfeit. Every transaction requires a computation that verifies the bitcoin. So someone accepting a bitcoin can't be handed a 'fake' bitcoin that might turn out to be worthless - a risk most retail stores take when accepting hard currencies.

Essentially, bitcoin can be trusted to be bitcoin, which makes it IDEAL for currency transfers between people who don't trust one another and can't use banks as a trusted go-between. Which basically means criminals, and part of the bitcoin bubble was companies buying bitcoin to pay criminals in the event hackers managed to encrypt their company's data.

You can, of course, use bitcoin for legitimate purposes - for example, international currency transfers without having to employ a banking institution (bitcoin transfers still involve a fee, however), but it's value is to cut police and government out of the transfer of wealth.

The vast majority of investors are using it as a get rich quick scheme. It's highly likely that governments will ban the use of blockchain for anonymous currency once the market for it falls apart and the wealthy can't make money off it, though you can expect the banking sector to adopt blockchain as an additional layer of security.

That's why I never invested in crypto - eventually it's going to be illegal, or the market will be so fragmented any individual currency will be worthless.



Yes, Bitcoin has value as a currency within criminal circles mainly because it is untraceable rather than because it is trustable. There is a currency value, of course. I meant that Bitcoin is no longer operating in the general economy as a currency.

I'm writing a load of fiction. My latest story starts here... This is the index of all the stories...

We're not very big on official rules. Rules lead to people looking for loopholes. What's here is about it. 
   
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Longtime Dakkanaut





The main reason investors own gold is a hedge against other investments. Thats fine for a stock market crash or correction. I am saying if the US Stock Market dropped 60-70%, no one would be thinking about their gold investments. There would be worldwide pandemonium. In the example above regarding lighters, they had real value. Survival depended on it. Gold is a nice to have. And in conditions that bad, you arent going to be bargining with a nugget to someone who's got some food you want, and sealing the deal by arguing that "they can build chips and be protected against radiation."

I am not saying Gold doesn't have value. I am say there is a point that as an investment there will be other things far more important.


Automatically Appended Next Post:
 Kilkrazy wrote:

Yes, Bitcoin has value as a currency within criminal circles mainly because it is untraceable rather than because it is trustable. There is a currency value, of course. I meant that Bitcoin is no longer operating in the general economy as a currency.


It can be traced. Thats the point of blockchain and the ledger. Its why criminals are abandoning it for cryptos that aren't easy to trace.

So think about that for a moment and where the technology is heading. Its all very shady.

This message was edited 1 time. Last update was at 2018/02/06 16:23:36


 
   
Made in ca
Fireknife Shas'el






KTG17 wrote:

I am not saying Gold doesn't have value. I am say there is a point that as an investment there will be other things far more important.


Of course! Land would be the most valuable investment - arable land. People need to eat and if the crap really hits the fan, it's the people who can farm that survive.

Gold (and silver) only becomes important once an economy grows to the point where barter becomes cumbersome. I don't think the world economy can collapse below that point anymore, barring a extinction level event, so gold will remain valuable.


   
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Longtime Dakkanaut





Mostly probably true. But I was using the example (comparing it to Bitcoin as an investment) if the US Stock Market dropped 60-70% over the span of a few weeks That kind of drop in Bitcoin is nothing to the world market because it's total market cap is only $118 billion dollars. The NYSE alone is $21.3 trillion. If it went from that to $13 trillion (following the same percentage drop as bitcoin) in the same time frame, the world would flip on its axis. And what is worse is the crisis would spread to other exchanges around the world that would probably be hit even harder, and worse, effect the bond markets, which is far larger than the equity markets.

If the US Dollar dropped like Bitcoin (as a currency), that too would not only effect the stock and bond markets, but it would also directly effect those invested in neither. We wouldn't have to wait for the depression to kick in before people would be unable to pay for groceries or gas and so on.

So the absolute last thing you want is something as volatile as Bitcoin becoming powerful enough to trigger events in other investments or currencies. Especially when these can be created in a garage and aren't backed by a country.

This message was edited 2 times. Last update was at 2018/02/06 17:36:51


 
   
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Vigo. Spain.

People that think Bitcoin is used by criminals should read about Monero.

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The stock market performs relative to the difference between the market's expectations a given companies performance will be and what its actual performance was. With a dose of mob mentality.

Bitcoin, and indeed any cryptocurrency, is a little different. It behaves like a cross between a stock, currency, and commodity.


Automatically Appended Next Post:
nou wrote:
 Tannhauser42 wrote:
 Mad Doc Grotsnik wrote:
I will never understand why people invest in Bitcoin.


It's like investing in gold. It's valuable because everyone wants it, and everyone wants it because it's valuable. It feeds into itself.


You should really dig deeper into history, chemisty and physics behind gold to understand why it was a metal of choice in pretty much every culture throughout history. There are plenty of solid reasons why it was and still is a basic wealth storage medium that nothing else really compares to. In modern days it is not used for day-to-day transactional reasons anymore because because it would be cumbersome and slow, but it is still a "safe harbour" for investors after each major bubble bursts.


Indeed. Gold, and a handful of other precious metals, has some fundamental properties that make it an eternal measure of wealth. Not to mention its value as a raw material.

And because it has a hard finite cap on how much there is its value can always increase. Bitcoin, and any fiat currency, are infinite in potential future amounts.

This message was edited 1 time. Last update was at 2018/02/06 19:22:10


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 Galas wrote:
People that think Bitcoin is used by criminals should read about Monero.


Why so cryptic?

Why not just bottom line it for us?

Or do you need a payment in cryptocurrency first?!?

   
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[MOD]
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Somewhere in south-central England.

I have Ethereums.

There is a finite amount of Bitcoin available, actually, because eventually it becomes too difficult to perform the computations necessary to mine them. This is one of Bitcoin's flaws as a working currency.

I'm writing a load of fiction. My latest story starts here... This is the index of all the stories...

We're not very big on official rules. Rules lead to people looking for loopholes. What's here is about it. 
   
 
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