It’s Not a Good Feeling

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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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