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1. This may come across as a surprise but I am actually naturally a very bearish and skeptical person. I traded with a bearish mentality for many years and always questioned every single piece of information and spent hundreds of hours researching on why things were overvalued.
2. Why? Well it all comes down to personal experiences. I lost my entire year in my first year as a junior trader in the space of one day, after a company I was randomly balls deep long almost defaulted.
3. It was a blessing in disguise, because it was a crash course in understanding distressed credit, what makes companies tick over and how to identify for warning signs and red flags for companies heading into stress.
4. But then I became obsessed with finding companies that were houses on stilts and were going to file, and shorting them. Given how levered the European high-yield market was, I found quite a few of them, and successfully shorted 6 different companies through to default.
5. This was basically my trading strategy from 2013-2017...I didn't make amazing money but I made pretty decent money and it felt like an achievement identifying companies that were spoofing the market, calling them out, and being right.
6. It came at a big cost though, I'd spend hours..evenings and weekends of my own time obsessing over these companies and researching the finest of details to find anything that was FUDable.
7. The cost of carry of shorting was brutal too. I must have spent tens of millions of dollars in borrow over the years from shorting things just so I could prove that I was right and have the position on for when I was right.
8. I actually got all of them right, but I was only able to hold onto half of the positions to actually realise the PnL. In 2017, I lost most of my year's PnL on shorting two companies because I was so stubborn and adamant that they were going to default.
9. But I basically ended up getting stopped out, and then in 2018 I moved from London to NYC to trade a new book. Low and behold, both of these companies defaulted later that year but I had nothing to show for it. I would have made >$100m for the bank if I'd held my risk.
10. Feeling the cope, I continued on my quest to find the next thing to short in the US and it wasn't long before I found it and ended up shorting huge size of the next company that I was betting on filing, and generally traded my overall book extremely short.
11. It ended up being a good trade because in December 2018 markets crashed and all my positions were up massively. I reduced my overall shorts but kept my one conviction short despite being up a lot, because I was so convinced it was worth zero.
12. BTW despite this massive crash in Dec 18, I didn't even kill it PnL-wise because I'd blown millions again in borrow costs of shorting. In 2019, I got my arse handed to me. The entire market ripped for the whole year, nothing defaulted, and I got stopped out, a few times.
13. 2019 was my only down year, and I learnt a lot from it. My boss sat me down and told me my faults. "Don't be so fucking stubborn and stop shorting shit", he told me. Even if I was right, timing these shorts was like threading a needle, and look at the huge carry costs wasted.
14. I felt like I was doing 5x more research than any other trader on the desk, and I had the worst PnL, because ultimately I was trading emotionally and searching for this huge win just to prove a point...prove that I was smart and could be a correct contrarian.
15. Anyone who bought the dip in Dec 2018 crushed it in 2019, and I was always fighting an uphill battle that year because not only did I not buy the dip, but I hadn't covered all my shorts. I realised I could have made more money and put in less effort form just being long.
16. So finally I learnt from my mistakes; stop shorting random shit, run a book that's long and make sure to buy the dip next time, because things always figure themselves out. My boss was good at doing this and always made consistent money...I should just do the same.
17. 2020 started out great, I'd cleaned up all the shit positions in my book, dropped my ego, and kept it simple...and I had a great start to the year, fighting for #1 PnL on the desk by Feb 2020. I was like...fuck, why haven't I just been doing this the whole time.
18. Of course, fucking COVID hit and I did my bollocks and lost obscene amounts of money in the space of a few days. We're in March 2020 now, and I'm sitting there thinking...fuck all of these companies are gonna default...the economy is shut down...it's over. It's all going to 0
19. 20th March was our last day on the trading floor before we were sent home, and I went for some martinis with my boss and some of the other traders. We were the only people in the bar; this ended up being the last time I went to a bar before COVID.
20. I'll never forget this moment, as my boss bit into the blue cheese olive garnishing the martini and yelled "this is going to be one of the biggest buying opportunities of all time"...and in that moment I knew he was right. I was NOT gonna fuck it up this time and buy the dip!
21. But as I researched into my sectors and companies more I could see no hope...and ended up shorting things again..at what were all-time lows on many of them...against the guidance of my boss and we did get into a fight about it once actually.
22. One of them was Hertz, which did end up defaulting...and I thought I was a hero. I finally managed to actually have the position on at the right time and have some PnL to show for it (which actually got me back into black for the year). I thought I'd one-upped my boss.
23. But my God how fucking stupid I was. I'd done it again without realising it. While I made good money on shorting Hertz, I missed the unreal buying opportunities across the rest of the market (which my boss was sweeping up for weeks btw).
24. By the end of 2020, I had my best year ever, but honestly I could have made 2-3x that amount (with much less effort) from just buying that dip in size. How did I fuck it up!? I TOLD myself I wasn't going to miss the next one! But dips occur because people get bearish...
25...it consumes human mentality, emotion and morale, and once again it had consumed me. March 2020 felt like the WORST time ever in many of our lifetimes, but in reality it was actually the BEST time ever to buy risk and go max long. Somehow, I'd fucked it up AGAIN.
26. So in 2021, I was like, OK FFS next time there is a dip, FORCE YOURSELF TO BUY NO MATTER WHAT. It literally was a case of "no matter what", because there's always gonna be a billion reasons as to why the market cld go lower and why people are scared...that's why pxs are low!
27. I got involved in crypto (PA) in 2021 but again, feeling the cope of my previous misses, I basically went all-in into NFTs by April 2021. Of course in May 2021 we had a horrific crypto crash with prices down 60-90% (kind of what we're seeing now).
28. This time, I wasn't gonna fuck it up, and I just focused on buying as much ETH as possible at the lows. It felt horrific at times...I'm not someone who gets phased by losses but I really did feel like at times "am I literally just burning cash here".
29. Of course, it ended up being the right thing to do..I didn't even really do that much research on anything..it was just pretty basic..buy ETH. My only regret was that I didn't have more capital to buy the dip in bigger size, because I hadn't been disciplined earlier.
30. So I told myself, take some profits, and save some powder dry for the next one. That was the next stage in my development, not only recognising that I had to buy the dip, but also having ample capital to do it in size.
31. I took profits in November 2021 and sold my entire $APE coin airdrop in April 2022 (which was dumb because I left a fuck tonne of money on the table), but I was sticking to my plan. I wasn't that bullish on the market and wanted powder to add if we got a drop.
32. I stayed disciplined, didn't add in any fiat, gave myself a $2500 target for ETH which I felt we'd never hit and just waited and waited, felt cope from $APE rallying but I didn't get sucked into it..just stuck to my plan and waited patiently.
33. Fast forward to last week, the crash inevitably came but this time I had the cleanest mentality I'd ever had. I'd been patiently waiting for this, and I'd made sure I had capital to deploy and enough liquidity to be able to hold positions for as long as I want.
34. Now I see everyone around me freaking out, fudding the market, fudding crypto, fudding NFTs...and tbh I udnerstand it, because that used to be me. I was the guy who would fud things and short things at the low because I got bearish at lower prices.
35. But that's not where the money is made. Not the real money anyway. It's made from getting yourself into a position to take the other side of it all, getting into positions at low cost prices and being able to hold through the vol.
36. So yeah..a lot of shit is wrong in the world atm, but a lot of shit was wrong in March 2020 too. At the end of the day, humans figure it out man...there's always a solution. You are meant to BUY in the hight of FUD, not sell it.
37. I'm not calling a bottom here by any means and I think DCAing is the best way forward, but this is the first time in my life I've really set myself up well to buy the dip and lower prices actually excite me because I can average my cost bases even lower.
38. There isn't really a point to this thread, other than it's taken me almost 10 years of working as a professional trader to get myself into this position and stop chasing the FOMO/FUD or momentum. Surprisingly it's not actually an easy thing to do as humans ain't wired tht way
39. We'll see how it goes...IDK how long I have to hold, but I am confident that I will be in a position in the not too distant future where everyone will be FOMOing crypto at ATHs and I'll have built up a delicious position with a low cost base, while everyone was too scared.
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Insight @NFT1nsight
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May 16, 2022
Super interesting thread fren!
