In response to the Trump tariff initial rollout chaos, I opened a degenerate gambler position on a Friday. A short time later I realized what I was doing was dumb, just plain dumb. By that time the markets were closed, so I couldn’t take any action on it. I was sitting on a $2,000 unrealized loss. The total risk on the trade was ~$10,000.
Making this trade was a dumb decision. I cursed up a storm and was quite angry with myself for a while.
Finally it occurred to me that’s it’s a better use of time to identify why I made this decision. I was in degenerate gambler mode, yes. But why?
I was upset that I basically missed all the downside potential from the tariff announcements. Ok, that’s in the past, I can’t change that.
I suspected there was going to be a lot of short term volatility. A reasonable view, but there are less boneheaded ways to express that view.
I was frustrated with the speed of my fixing-my-finances journey. I wanted a lottery outcome to skip ahead a whole bunch.
Ah.
There it is.
I was frustrated, afraid of missing an opportunity, and greedy. Emotionally charged. And I allowed my emotions to make the decision for me. So much so that I ignored the little voice in my head screaming “You know better!”
How do I avoid repeating this mistake in the future?
I remembered something a former boss told me about feeling the pain of my mistakes. The idea is if you feel the pain, feel the consequences, you’ll remember that pain and start to avoid the behavior. I did it at work for software development estimates. It was highly unpleasant, but I had some success. I decided to try it here.
Feeling the pain here meant realizing the loss. The whole loss. It could be $10,000.
That’s real money for me. I steeled myself emotionally. I expected to check the markets on Monday, see a $10,000 loss, and close it. Making this decision hurt. I knew it would set me back financially. I internalized that. I felt the hurt. I accepted it. I made a stupid, dumb, very bad, no good decision. I deserved to feel the pain of that decision. In this case, lose money.
Monday when I checked markets, the unrealized loss was about $5,000, half of what I had prepared for. SPY was up a bit, so I lost directionally. Time had passed, so I lost from theta decay. And implied volatility had dropped, so I lost from that as well. I closed the position. I took the loss.
It still hurt, but I wasn’t an emotional wreck. And importantly I remembered what emotions drove me to that initial decision in the first place. The frustration. The fear. The greed.
Will I ever make an emotional financial decision again? Maybe. But I’ll absolutely have the pain from this choice etched in my mind to help me pause and make a more mindful and reasoned choice instead.