This is a syndicated repost published with the permission of Slope of Hope. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.
I had an interesting psychological experience I thought I’d share on this cool Thursday evening, as I sit in the night air.
I run a tiny hedge fund which, not surprisingly, focuses on short-selling. In spite of the market running up to lifetime highs this quarter (indeed, just days ago), I had booked a respectable profit, and I was satisfied with my results. And then………..I got scared.
Specifically, I started worrying about losing part – – or even all – – of my profit. With only a few days left in the quarter, I started to rationalize to myself the logic of covering every single position – – all 57 of them!! – – just to have absolutely zero risk and close the books on the quarter.
I was so smitten with this that I talked about it on my tastytrade show on Tuesday. As I said on my show, I literally started walking around, talking out loud to myself, laying out the pros and cons of embracing terror and getting out of everything. I told myself that such a move was not driven by logic or reason, and I should abandon it. So I did nothing.
Yet on Wednesday, with the market rocketing higher on (sigh………..) Trade Talk Optimism, I couldn’t take it anymore. I snapped. And I clicked the button that covered every blessed position. I was out. I was profitable. And there was no more risk.
But I felt like total crap.
I work very, very, very hard doing what I do, and I had basically turned my back on my charts. I turned my back on reason. I turned my back on logic. All for the squishy emotional desire to be safe. I felt pathetic. And, frankly, I hardly slept that night. I kept having visions of waking up to -70 on the ES. I was worried sick.
At 4 in the morning, I braced myself and fired up my iPad, and I was relieved to see the ES was up 5 points. I told myself that I had made the right decision after all. But before the open, the gain melted away, and the ES started falling. I was beginning to kick myself. Remember, I had absolutely no positions. Just cash. I would neither make nor lose a penny.
I decided to placate myself with some scalp trading. That went OK for a while – – but after a lot of buying and selling, I found myself with a profit of like a hundred bucks on many hundreds of thousands of dollars worth of trades. Ridiculous. And not what I do.
Late on Thursday, I finally decided that I was an idiot, and I should look at the 80 stocks in my “Bear Pen” portfolio, pick out the best of them, and get back in. So I went through them, one by one, and selected 35 that I believed were very appealing, and I got back into position. I immediately felt better.
So now I’m 125% committed in 35 positions. It is again possible that I’m going to get a nasty surprise in the two trading days left this quarter. But, I’ve got to say, that fear is absolutely nothing compared to how wretched I felt ditching all my hard work in exchange for some short-lived psychological security. It truly felt wrong, and I don’t think I’m going to pull that kind of stunt again.
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