It’s hard to keep your emotions out of your portfolio decisions. Throughout evolution, the way we are built is to be horrible investors because we’re hard-wired to make the exact opposite decision to what is right simply if our emotions are running high. That’s just science. I’ve read a lot about this and discussed it with Doctors. It’s a fascinating subject, particularly for someone who is interested in the behavior of markets. The first step to recovery is understanding that we have a problem right? We’re designed to be terrible investors. After recognizing this flaw of ours, it is now our duty as savers and investors to either be able to put those emotions aside somehow or, in our case, try to take advantage of the majority of people around us who do not recognize this flaw and continue to make the same mistakes. Computers or not, Algos or not, there is a tremendous arbitrage there.
I remember throughout 2008 I would wake up every day hoping for horrible things to occur because I was short Banks and S&Ps. It made me feel sick to my stomach. I was early too. We starting getting really short in the first couple of weeks of January ’08. Imagine every day wishing for America’s largest financial institutions to go bankrupt resulting in everyone losing their jobs, including friends of mine. This is just so I can make a buck (or a lot of bucks in this case). Every single day I would hope it was the beginning of a complete global financial meltdown.
My parents thought I was crazy. They’re like, “I don’t understand, why do you want the world to end?”.
“Because I’m irresponsibly long the double short Financials ETF”
The triples didn’t exist yet back then. $SKF was our vehicle. Kids these days don’t understand the struggle.
Anyway, we all know what happened after that. It was an incredible experience for me as a market participant. I got a PHD on not giving a F%&K about what is going around the world while making portfolio decisions. I couldn’t let the horrible implications of me being right steer me away from thinking clearly.
Does that make me a bad person? It sure felt like it did. I felt terrible. I still feel pretty shitty about it to be honest. But I had the best year of my career, until recently, and I was right. Very right. A lot of people lost their jobs. People I know lost their house, or houses in some cases (but that’s another story). 401ks got cut in half. The world almost did come to an end, or so the story goes. And I profited from the whole thing. Not to the extent of some others of course, nowhere near it unfortunately, but for a kid in mid-20s, it wasn’t bad.
What could I do about it? Call Dick Fuld at Lehman and say, “Yo Dicky boy, it don’t look good bro. You gotta start deleveraging stat”. No one is going to take my calls. No one cared what JC thought. To this day no one cares what I think 😉
All I could do is tell my friends and family to get short, stop flipping houses, deleverage, buy gold, all that. And I did. I wish there was more I could have done. But I was 26 years old trading through the biggest financial crisis that anyone alive had ever been through. The goal of being a market participant is to make money. It is a very selfish endeavor. I don’t think anyone would argue with that. Why else are you in the market if it’s not for the sole purpose of trying to make money?
Are there more important things than money? Yes! Of course. But in the market, NO, there are NOT more important things. In fact, there are NO other things. The only reason to be invested in any market is for the sole purpose of profiting. Period. If there is any other reason at all why you’re in the market, I think you’re very very confused.
So are we necessarily being insensitive by executing that plan and achieving those goals? By keeping the social and political environment out of the portfolio decision-making process, does it mean we don’t care? Does it make us bad people?
Fast forward to August of 2017. A lot has happened since then. But let’s just pretend you’ve been stuck on an island somewhere for a year without any communication with the outside world. The coast guard finally finds you and brings you home. As the paramedics are hydrating you and helping you recover, you pick up the newspaper to see what’s going on.
How do you think you’d feel? You loading up on stocks up here?
I think the lessons I learned in 2008 have helped me tremendously throughout my career. More recently, since last Summer, I’ve had to be really bullish while all people do around us is complain about how terrible things are. While the world was obsessing over U.S. elections, Transportation stocks, Technology and Financials were breaking out of monster bases. It was a no-brainer to be extremely bullish. Just by looking at the behavior of the market, it would have been irrepressible to not err on the long side of stocks since July 2016. My reasons have been purely technical, of course. But keeping my own personal emotions out of my approach to the market has been less of a challenge as it was when I was 26. I think I’m almost numb to it now. I’m telling you guys, 2008 was hard. Every single day I would hope for horrible things to happen, and I would feel joy when they did. It wasn’t easy. But man has that experience helped me.
What about today? How can I apply my experiences to what is going on in today’s environment? Am I happy about the current social and political environment? No. But am I going to allow that to cloud my judgment about what I’m seeing in the market? This is a cake walk in comparison to what I went through a decade ago. And the best part is that I don’t even have to hope for terrible things to happen. I can actually wake up every morning hoping for wonderful and incredible things to occur. It’s an amazing feeling to want the best for everyone and every thing. But when I look around me, it’s almost like if people want the opposite. There is so much anger and pessimism out there.
Are all these people right? Am I the crazy one? Should I be looking for a historic market crash? Do I need to be warning family and friends about what is coming? Buy gold and hide in a corner? Is this 2008 all over again?
I really don’t think so. I don’t see any evidence of that at all. I see the exact opposite actually.
When we start to see deterioration and we need to start to err on the short side or heavy cash levels, our members will be the first to know.