In the stock market, there is no loyalty except for profit


Colm O’Shea, founder of Elliott Management Fund, says that in April of 2009, months after the global financial crisis, he was still adopting a pessimistic view of the market and the economy, which was reflected in his investment positions.

But the market was telling him that he might be wrong, as China was witnessing a turning point in the performance of its economy, metal prices were turning up, and with them the Australian dollar was more sensitive to the outlook for commodities, it was indicating a recovery in parts of the world.

Indeed, Aushey preferred to admit the error of his first hypothesis about the continuing poor state of the economy around the world, with the fact that sticking to his original forecasts would have threatened the disastrous performance of his portfolio. By shifting the helm of his financial positions based on new cues and abandoning his cognitive and emotional bias, he was able to turn a profit in that year.

In fact, the absence of loyalty to the investment position or the initial expectation of a person automatically means the availability of flexibility, that is, the ability to change opinions quickly and decisively when signs of new inputs appear in the decision-making process.

Flexibility allows the investor to quickly discover the error of his belief or admit that the market has shifted away from the original direction. In both cases, the investor will have the opportunity to make profits and avoid potential losses if he insists on adhering to his blind loyalty to his vision. The feelings of pride that may lead some to keep a losing stock in the hope of recovering in the future, and thus avoid proving the mistake of buying it from the start, looks worse.

Accept the loss sometimes

Perhaps the most striking example of an uncanny ability to admit error and have maximum flexibility and disloyalty is what Stanley Druckmiller did during the 1987 crash.

On Friday the 16th of 1987, Stanley, who runs a number of hedge funds, had short positions in the US stock market, benefiting from a nearly 20 percent drop on Wall Street over the past two months.

But the man looked at the market and saw that the decline may have come to an end and that the stocks may have reached a major support point, and thus he decided not only to cover his selling positions, but also to switch to buying at 130 percent through leverage.

In fact, Stanley’s decision could be considered one of the worst investment decisions in recent history, because Black Monday was waiting just days away.

And in the period between the end of Friday’s session and the beginning of Monday’s trading, which was about to be a shock that history will not forget, Druckmiller thought that he might have made a catastrophic mistake.

This shift offered an important lesson to investors: “You should not stick to loyalty to any investment that you think is a potential loss.” (Science Direct, Devoted Ninja, Figures)


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