Don't fall in love with ideology

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• 0:00Speaker 00

  So picking up from yesterday, I want to talk about, you know, the relationship thing and not falling in love. It's very difficult when your P and L is going berserk and you're, you're, you're cranking and you're like, I'm on to this. I'm doing it. It feels good. Now we're a couple, right? We're, we're, we're smashing our, our trading rules. We feel self-actualized. And at the end of the day, though, you have to understand that not everything goes up. If you even look at something like extreme examples, like look at QQQ from March of 2000, it was full of all the names that everybody loved, right?

• 0:43Speaker 00

  You gotta have these, all those names, maybe some of you might not have been trading by then, but there wasn't a magazine, even the magazines are out of business. Where's Red Herring? Like from 95 to 2000, especially towards the end, magazines were going berserk with, you know, because the internet was still kind of new for many people. But they'd all have like, here are the 10 names that you gotta have for the new economy. And a lot of them aren't even around anymore, you know? And it's criminal to, to, to, to think about it. And I have a sense that that's what's happening now with AI and with crypto. So you have to be super careful. Like, once you start losing money, you have to get out. You can be madly in love with like the,

• 1:25Speaker 00

  the idea of what you're seeing, like with Bitcoin or, or any other type of crypto, type of thing, certainly with AI. But you have to understand that

• 1:37Speaker 00

  what's happening now might not be representative of what you're going to see in the future. And, and so, so your, your job always, despite how you feel about the theme or how much you get it, like you might be a coder, so you really get and understand how important Claude could be. Or that Bitcoin has only, or will only have of a set amount of, of tokens. And you might deal with and, and love all that ideologically. But as a risk manager, you can't lose your objectivity. And only the price is going to actually tell you the truth, you see? So be careful. You don't want to be in, in an instrument

• 2:20Speaker 00

  and have it look like March of 2000 for the QQQ.

• 2:27Speaker 00

  Right, so know where you're getting out. You can't let your ideology blind you. It's just like politics, right? And it's important to understand that you need to have a predetermined exit. First, you need to know how much you're gonna put up. That's the diversification part. Then the risk management part is like, "Okay, here's where I say uncle." All right, because you with the QQQ, and I know it's an extreme example, but you saw an 80-plus percent drawdown and it didn't come back and break even for 16 years. And what happens is, and this is why I wanted to talk about this today, because, you know, if you took a 40-year-old person who had a 20% stake in the QQQs back in 2000 versus a 70-year-old person

• 3:12Speaker 00

  who also had a 20% stake in QQQ the same year, say they had the same cost basis, the losses that they suffered are not symmetric. Just because they're both down 20%, you see, might fool you into thinking like, "It's not that big of a deal." But if you look at what I said about the break even, the 40-year-old was now 56 after being in a 16-plus percent drawdown to their account. You can't afford those types of losses because the compounding effects of the drawdown are real. Right? And even though like trend followers are getting demolished right now, the one thing that they have going for them pretty much all the time

• 3:57Speaker 00

  is they have predetermined stop placement of where they're getting out if they're wrong. The 70-year-old, right, who might be a grandparent, he might have, if we're talking about a man or a woman, there could be two sets of, two sets, I'm Uma Thurman now. You can have his parents, her parents, right? Or if it's same-sex, right? Still, you get it. There's two sets of in-laws. There could be children.

• 4:25Speaker 00

  Adopted or not, and then there could be grandkids. So you're talking about this massive kind of sandwich generation where you cannot let the ideology blind you from your risk management. You need to have a predetermined spot. And shame on the investment advisor who says, oh yeah, we just sell when the fundamentals change. Fuck that. That's a bunch of bullshit if I've ever heard about it. By the time the fundamentals change, the price could be off 50%. You know, right now, I know about CFAs because I've coached them at CFA Institute at NISA. You know, it wasn't part one, two, or three. It was an elective class on commodities and how commodities work for hedging and this next, all of these places are working at, these people are working at big corporations

• 5:10Speaker 00

  that deal with physical commodities. But you can't, first of all, yes, you can time the market. And two, you can use technical analysis to play superior defense. That's the name of the game. Because what you don't lose, you don't have to earn back. So when I say don't fall in love, what I'm really saying is you can appreciate the ideology or the thesis of the investment, but that doesn't mean it's a fuck all now and you can just let things go. You need to have a defined exit strategy. I don't care if you're investing for 20 or 30 years. Because you could have watched the Q, sold the QQQ, paid your taxes, or tried to offset it, let the thing come down, then watched it base. There were other opportunities to buy it back in cheaper.

• 5:55Speaker 00

  Cash has time value. Don't lose sight of that. And I don't think you need to constantly keep your money in, I don't think you constantly need to keep your money in motion, but you absolutely have to keep your losses small. And you should be able with or without your investment advisor, if you're not working with one, you should be able to define what we call your portfolio heat. And that is across all of your positions, when you look at where your protective stops are, how much of your capital is actually at risk before you would get stopped out? You can't afford a 25% drawdown. That's getting into no man's land. And I don't predict the future, but I see that there's a lot of folks who have turned blind eyes to, you know, crypto, semis, AI.

• 6:42Speaker 00

  And just like back in the late 90s, they thought this stuff was gonna go on forever, and very well may, but not in the form that you see it. So that's my message for today. Protect your cash, cuz no one's gonna care about it. When I say cash, I mean your account balance. Protect your account balance, because no one's gonna care more about your money than you. Um, thanks for being here. Keep your questions, leave some comments. Um, yeah, and I'll see you tomorrow.