Life's biggest investing lesson is to 'be humble': veteran trader

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Life’s biggest investing lesson is to ‘be humble’: veteran trader

Video Transcript

Well, [LAUGHS] I think to be successful in this business, of course, if you survive, you win. But when I talk to most people, one of the best things for me, which is so humbling, is I’ve lost money in every imaginable way. And every time you think you have learned or you what’s going on, it becomes more humbling, and you lose in a different way.

And everything that I’ve said here, whether it’s talking yourself out of a position, making excuses, I’ve done myself. And so I always give this training presentation. And my last slide is If You Survive, You Win. You can only survive by being– learning from your mistakes and trying not to repeat those particular mistakes, you are going to have new mistakes.

So the issue of going back and looking at Reddit and the meme stocks, that’s a really great narrative. But that happens all the time. Like, stocks on the way to zero if they’re going to go bankrupt, often have multiple 100% rallies on the way down– lack of liquidity, buying.

I think what’s different today in a lot of markets too is that you have to look more closely in terms of the options markets. I think that that’s an area that I’ve really focused attention on because that’s the only trading strategy that I’m aware of that actually pushes the market in the direction of the trend. And I think it’s something that people should look at more so from a regulatory point of view, from a position limit point of view.

Why is that? Well, if you’re short a stock and it goes down, you’re a natural buyer. If you’re short futures and it goes down, you’re a natural buyer. The problem is if you’ve sold puts and the stock goes down, you have to sell in the direction of the market to cover them. Or you buy them back, and then the market maker on the other side is selling.

So you’re seeing when I go in the first line when I talk about September expiration, it’s there because there’s a lot more participation. As you get closer to that expiration, not to start talking about all the Greeks, but gamma becomes a larger issue, right? That’s the rate of speed at which the market can go from out of the money to in the money. And the leverage on that is really great.

So if I were really trading and I thought, OK, we’re at 3,900, and I think we’re going to be at 3,600 in 10 days from now, then the best way to do that is not selling futures, right? The best way to do that is to buy cheap deep out-of-the-money puts because they don’t have any time value left in them. And their gamma if you’re right would be extraordinarily large.

Now, the probability is that you’re going to lose everything. But it’s a tremendous risk-reward if you believe in that. So I have to listen, so to go back to your question. Those around me, I try to listen to. And I have the real honor of sort of being on the board of the Robin Hood Foundation here in New York, which is one of the largest not for profits.

And we have this investor’s conference. And there’s always some really brilliant people speaking at it. And if I have the opportunity, I try to listen and learn from all of them because it’s insightful. And the biggest lesson I’ve learned is that I don’t really know that much.

I can do all this work. But the market is right, and I am wrong. And that took a long time to learn because human nature is I want to be right. And that’s why you hold on to losing positions because you want to prove that you’re right and the market is wrong.

But the reality is nobody cares. The market is the market, and it doesn’t care whether you’re right or wrong. And sometimes– and I say this to smaller traders all the time is that you’ve got a bad position on. You know it’s bad. And you’re going to continue to lose money until you get out.

So you’re going to put the low in the marketplace. You can put it in today and have a small loss and put it in the bottom where you can wait and sell it and have a larger loss and put it in the mark– put in the bottom because when they have you, they have you. And you have to be aware of that. That is the most humbling lesson that I’ve learned over all the years is that when you’re wrong, get out and then think about it afterwards.