The worst two trades I've made this year
A cavalcade of stupidity from yours truly
These are my two dumbest trades of 2022, so far at least. My hope is that by writing about this stupidity I can avoid making similar mistakes in the future.
1 - Taking a big position based on a hedge fund manager’s recommendation
I accept full responsibility for my actions. I’m not blaming someone else for my own financial failings, however, I can’t write the story without mentioning all the characters…
Hedge fund manager Johnny John Smith appeared on a program where he touted the great virtues of PureCycle Technologies (PCT), a SPAC with a dazzling new way to recycle polypropylene plastic. Great leap forward, recycle old shampoo bottles, we’re all going to be space billionaires, etc. etc.
So I said, that sounds really exciting! Let me do a thorough analysis of the company to find out whether it’s a smart investment. If my research indicates that PureCycle is a good buy, I can take a small position since the stock price is rather high at the moment.
lol, nah. Try this on for size…
Zero research, tripping over my coffee table in a mad dash to log into my brokerage account and market buy the shit out of this SPAC till I had 15% of my assets in the company. What’s the CEO’s name? Where’s it headquartered? Has PureCycle ever turned a profit?
Who honestly gives a shit… Max degen mode, activate!
Yesterday I sold my entire position for a loss of 57%. I figured three things…
Tax loss harvesting
With the macro environment it seems like PCT could easily go down another 50% before this is all over
I can use that remaining money to invest in other things on the dip
What did I learn?
As is clear, this trade was 100% amateur hour from start to finish. I’m not proud of what I did, I feel silly even writing about it, but I’m using this embarrassing experience to up my game.
If I want to take someone’s advice, I have to do my own research before taking a position. More to point, I should never have put 15% of my assets into that one company. Idiotic!
The final lesson is a topic on which I plan to write a full post: scaling into a position. If I had scaled into PCT over a few months, I would have had a significantly less-bad outcome.
2 - A nonsensical trade in Bitcoin
About a month ago I made a good trade in Bitcoin. I bought in at $20,300 with a stop-loss at $19,700. I had an upside target of $23,600. The trade worked, I took my profits and all is well. But the money I made isn’t the key point. What matters is that I had a solid plan backed by good reasoning and a defined risk/reward.
Unfortunately, a few days after exiting that trade I caught some fomo that BTC was headed to $30k. I didn’t have a solid trade setup or clear reasoning, but I didn’t let that stop me. I took an over-sized position at $22,800 and spent the next three days staring at the charts and cursing myself for putting on this losing trade (prices crashed as soon as I bought in). Eventually I sold at $22,100 and took the loss.
From start to finish, everything about what I did was 100% amateur hour bullshit. I don’t want to be a gambler or a hail mary hoper. My intention is to create a framework that I can use to generate reasonable returns over the next fifty years.
What did I learn?
Don’t get sucked in by the fomo. It’s so elementary that I feel stupid having to say it. And yet, I made the mistake and here we are. The best thing I can do is learn from it and move on.
Right now I’m experiencing significant fomo regarding the rising price of Ethereum as the merge draws close. Strong feelings of fomo are trying to get me to take a big position and try to get a fast 20% gain on the merge pump. However, I won’t be doing that. I don’t like the setup, I don’t have good levels and the risk reward isn’t that great.
I suppose an important aspect market wizardry is learning to live with fomo, without letting it force you into stupid trades.
Fin
As expensive as these mistakes were, they have not ended me. A few days ago I wrote a post about my number one goal: don’t blow up. Well, I fucked up but I didn’t blow up. At least that’s something.
