I’ve been thinking about failure a lot recently.
With markets blowing up, portfolios going south, and the stench of uncertainty in the air, there have been truckloads of action to watch lately. Much of it has not been pretty.
A few recent posts caught my eye and prompted me to share.
- https://medium.com/@remi.tetot/luna-the-fall-of-a-giant-af0244cce8e5
An internet-friend of mine talks openly about losing his 8-figure crypto portfolio in the Luna collapse. This is a very hard thing to share publicly, but he gathered his courage and did it. - https://twitter.com/uvtho/status/1534106179336605697
A popular crypto trader talks about his journey from turning $10k into over $1MM over three years, and then down to zero in just 6 months. This person goes way deeper than just “I lost money”, but digs into the psychological pains associated with it.
Posts like these are unfortunately becoming a regular occurrence.
Just today, another anon shares going from $10MM to $0. Or one of the bigger ones I’ve seen, a trader going from nothing, to over $100m net worth and $250m worth of positions, to negative $20m in the blink of an eye. He hadn’t paid his taxes, and now will lose his house and any meaningful earnings for the next several years.
So what are the takeaways here?
I think some of it is obvious, and I’ll comment on it below. I’ve shared my thoughts on portfolios for staying sane in market downtimes before, but this isn’t really what I’m trying to get across right now.
For me, I’m looking at this as one of the better ways to learn. It is not from studying success.
As Munger says:
“Invert, always invert”
Most online personalities are fast to share their wins, but few actually share failures. This is unfortunate, as failures, specifically financial ones, are some of the best learning tools we have available. I was never a fan of all the r/WallStreetBets shenanigans, but the one thing they did well was share the failures just as much as the wins. You could see what wiped out a full life of work.
“Success” is a tricky thing to teach. The reason it’s so tough is that there are a million and one ways to be financially successful, and the methods are rarely exactly repeatable.
Even looking at my own career, if I personally tried to replicate it all again it would not work. Even knowing all the same stuff, it can’t be replicated. The timing of businesses, ideas, investments, trades, etc were all relevant to that time and that time only. There are a few lessons there, yeah, but it’s not quite the same.
Failure on the other hand is a different beast.
While the foundations of success are infinite, the foundations of failure are few.
A short story of my own
Many years ago when I was maybe 19 or 20 and in college, I, like many others, got caught up in the online poker craze sweeping the nation. Turns out I was fairly good (at the time). In a relatively short amount of time, I turned a negative net worth into something like $20,000. This was a stupidly huge number for me at that time, as a dead-broke college student. It was more money than anyone in my family had ever had AFAIK.
Then it all went south, fast. I got cocky, loose, and thought I was better than I was (this game is easy, right?). I lost half in just a couple of days. Then I stopped playing poker strategy and just took big gambles, just to try and get back to where I was before.
In just another day or two I was not only broke, but negative. I had to turn to my dad for help, at a time when he also did not have any to spare. It felt shameful. I hid this from most of my friends.
Don’t despair though, the above is actually a positive story. In fact, it was one of the better things to ever happen to me. I am actually insanely thankful for my failures earlier in life. I was at least lucky that I had them when I was still young, and while the stakes were smaller, even if at the moment it didn’t feel that way.
What I learned in that short time helped prepare me for the bigger, more important times down the road. Funnily enough, I will forever be thankful that I messed up.
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A few things I learned from failures
I don’t have any really special takeaways here, as you can figure it out just as easily as I. But, I’ll share a few personal takeaways from financial failures of myself and others like in the links above.
- Never anchor a portfolio to its all-time high.
Whatever paper-wealth you may obtain at any one time, don’t anchor yourself to that number. It’s not a real number, it’s a temporary blip. Trying to “just get back to where I was” is almost always a recipe for disaster. It leads to poor decisions.
- Keep the ego in check.
Don’t think you are better, or smarter, than you actually are. And even if you actually are smarter, always expect the unexpected. Let us never forget Long Term Capital Management. Lots of super-geniuses that missed the obvious, brought their dynastic net worths to zero and about collapsed the financial world.
- Making money and keeping money are very different skillsets.
Treat them separately. Just because you are good at one does not make you good at both.
- Leverage, irrational concentration, and debt, are frequently the final nail in the coffin for people who play that game.
It’s just not worth it. For every one that wins (and there are winners) there are 10x as many losers.
- Embrace failures.
Almost all of the successful people I know (who have kept it) have had some sort of large failure in their life. They learn from it. The losers in this are only the ones who make the same mistake twice.
I personally actually love working with people who have had their asses handed to them at some time in the past. Ego and hubris are minimized.
There is a story that I love. I don’t remember the exact details, nor can I find the quote, but you’ll get the gist.
Back when Thomas Watson was the CEO of IBM, some employee made a major mistake. This one mistake cost the company over $600,000 (Millions in today’s Dollars). When being interviewed, they asked Tom if he was going to fire the employee.
“No, I just spent $600,000 training him. Why would I want somebody to hire his experience?”
We all mess up. Learn from the mistakes, or take the preferred route and learn from the mistakes of others. There aren’t too many paths that can take someone to zero. Master avoiding those few pitfalls, and the chances of long-term success are infinitely higher.
Thanks,
-Travis
