How to get out of a losing streak, one thing at a time
By Mirco Neri
In the summer I lost six hundred and forty seven thousand dollars in a short run of days on a European diesel position. I have written about the rule I made afterwards. This is about something that came before the rule: the hole itself, and the way out of it.
The loop
Anyone who has traded knows it. You take a loss. The loss makes you want it back. Wanting it back makes you take a position you would not normally take, and that position loses, and now you want it back more. Somewhere around the third turn you stop being a trader and become a person trying to make a bad feeling go away with a market that does not know you exist.
I think the loop is not a trading thing. I have seen it in a friend who runs a steel business and had a bad quarter, and in another who was going through a divorce. The shape is the same. Something goes wrong, the wrongness feels total, you look at the full size of the hole, and the size of the hole makes any single action feel pointless. So you either freeze or you swing, and both make the hole deeper.
What Ackman and an admiral agree on
Bill Ackman lost about four billion dollars on Valeant and is still around. He describes his way out in a sentence I have kept: make a little progress every day. Looking at the ultimate goal, he says, is what makes people quit, because from the bottom of the hole the goal is absurd. So you do not look at it. You look at the next step, and only the next step.
There is a book by Admiral William McRaven, built around a commencement speech, and the title is the whole argument: Make Your Bed. If you want to change the world, start by making your bed. A completed task, however small, is a thing that happened today that was a success, and the person who did it is slightly different from the person who did not.
I resisted that kind of advice for years because it sounds like a poster. It stopped sounding like a poster the week after the diesel loss.
What I actually did
I stopped trying to fix the month and asked a much smaller question: what is the one thing that, if I did it today, would make tomorrow slightly less bad?
The first day the answer was "close the position properly and write down why." The second day it was a call I had been avoiding with my partners about the loss. The third day it was going back to the morning window with half size and no view, just to be in the market without the fog. None of these were impressive. All of them got done.
The loop runs on the feeling that everything is wrong at once. One completed thing breaks that, because it proves the "everything" was a feeling. The hole has edges. One of the edges is the thing you just did.
How I use Athena for this
The hard part is choosing the one thing, because from inside the loop every candidate looks equally urgent or equally pointless. This is where I let the tool choose. Four steps, and I do nothing else with it on bad weeks.
First, I tell Athena about the hole once, in plain words, the evening it happens. "Lost 647k on the diesel spread. Position still open. Partners don't know the size yet." One note. I do not analyse it.
Second, the next morning I read only the first line of the briefing: the one thing not to drop today. On that first morning it was closing the position. I do not read the rest.
Third, I do the thing, and I tell Athena it is done. That matters more than it sounds, because tomorrow's first line is built from what is actually finished, so a done thing stops coming back and the next one moves up.
Fourth, in the evening Athena asks me one question about the day. I answer in two sentences, usually about how the thing went. That answer is what tomorrow's first line is made of.
The loop needs you to look at the whole hole. The briefing refuses to show it to me. It shows me one step, and the next day another one.
What the list looks like later
Some weeks later I looked up and the month was still bad but the loop had stopped, and in Athena there was a list of small things that had happened, each of which was true. That list is what Ackman means by progress, I think. Evidence that you are the kind of person who does the next thing.
If you are in the loop right now, in a market or a business or a life, I would not tell you to think positively or to zoom out. Zoom in until the thing in front of you is small enough to finish before lunch, finish it, and let tomorrow's version of you decide what the next one is. The bed first. The world later.
Why I stopped journaling and started answering one question a night