Investing in Outcomes

Sunday was a terrible day – and Monday was even worse.

Going into Super Bowl LII I knew exactly what I wanted to happen.

You see, I don’t like the Philadelphia Eagles. In fact, I hate the Eagles. The Patriots are my favorite team and Tom Brady is my hero, so I wanted nothing less than to see him pick up another Super Bowl win – and maybe an MVP award to boot.

As the game went on and the Patriots struggled to keep up with the Eagles – let alone pull ahead of them – I began to get agitated. Pacing around the room, I continuously yelled at the TV. By the time the fourth quarter began my whole body was tight and I had a tension headache.

My mood soured as well. I had a project to work on and if the Patriots lost there was no way I’d be able to focus on it. And Monday morning would suck, marking the start of endless celebrations for my most hated team.

Then it happened. With two minutes remaining in the game, the Eagles forced a fumble, recovered, and sealed the Patriots’ fate.

I thought to myself, “There’s no way this can be happening? I can’t believe this is happening. This sucks. This really, really sucks. This is the worst. I HATE this.”

Then I remembered something.

I didn’t care who won.

I know the Patriots have a lot of Super Bowl wins and Tom Brady seems like a good guy, but I don’t have any attachment to either of them. And the Eagles? I don’t even know enough about the team to hate them.

In fact, I don’t even like football. I haven’t followed it since I had NFL bed sheets. If you asked me at any point during the season, right up to the Super Bowl, who played on what team, or which teams were the best or worst, I would have no idea.

But sometimes, when watching an event – even one we’re not really interested in – we’ll make an imperceptible, even subconscious decision about what we think will happen. And sometimes, without even realizing it, we’ll make an emotional investment in that outcome.

That’s what I did.

I made an emotional investment in the Patriots winning – and though it made no material difference in my life if they won or lost – the emotional hangover I was left with made it feel like it did.

The next day, after a massive two-session drop in the markets, I decided to go long the Nasdaq futures shortly after the close. I reasoned that the market was overextended and that the immediate downside risk was far outweighed by the reward of a bounce that was sure to come.

However, as I began to read recaps of the day’s events, I came upon the reason for the market crash. The XIV – a leveraged ETN that inversely tracks volatility – had in essence blown-up, and in doing so, disrupted the mechanics of the market, causing heavy selling.

In my experience, these types of blowups can sometimes lead to systemic risk and to further indiscriminate selling – something I lived through in the late 90’s and during the Financial Crisis. I decided right then to sell my position for a scratch.

As the futures fell 150 points further overnight, I felt like a genius, worthy enough to enter the Valhalla of great traders. At 180 points down, I thought like it might be time to enter long again, but hesitated, still emotionally invested in the downside thesis and my god-like trading infallibility.

When the futures rallied 100 points, I felt bad because I missed an opportunity. And when they rallied hard Tuesday – in the exact way I had originally anticipated – I was beside myself with anger for not sticking to my original plan.

It felt like I was on an emotional rollercoaster because I invested myself in the outcomes.

There are a lot of “what ifs” and “who knows” in this story. Would I have held the whole 180 points down, rode all 100 points up, or held for the 250 points higher after that? Yes. No. Maybe? It doesn’t really matter.

The truth is, I missed opportunities, but I neither lost nor made money and was not materially affected by the combined outcomes – as if they hadn’t happened. It was just my emotional hangover trying to convince me otherwise.

I’ve been a trader for a long time, and a human being for even longer, yet I still have to remind myself from time to time that investing too heavily in outcome instead of process is an unhealthy, and ultimately, unproductive trait.

And once I remembered that, I realized that Sunday was actually a pretty good day – and Monday wasn’t too bad either.

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