hey tech light here and welcome to
another episode today we're going to be
talking about how I lost $350,000 and it
was actually even more than that and
what that felt like it is coffee time
now this is a story that I've never
shared until now not because it's so
deeply personal and painful but really
because there's just never been any good
opportunities at dinner time where I can
just come up and say hey guys I lost
$350,000 you know it's just not good
dinner table conversation material one
of the worst things about this loss I
would say is that there's not much to
learn from it it was through stocks day
trading and it's not like if I were to
build a business put a bunch of money
into it have a bunch of learnings the
business fails I lose a bunch of money
but still I come out of that with a
bunch of good lessons some things like a
rat on my resume some nice stories I can
tell future employers no this was
essentially skill this right I just went
in there thought I could make some money
I didn't don't really know why read a
bunch of news tried to figure out what
was going on I have a few theories here
and there this was especially painful to
me because I has been actually like a
year trying to get good idea trading I
have learned all about technical
analysis I have been reading up on news
staying up to date with the Economist
reading that every week and yet I still
managed to lose so much money that it
just made me wonder like what am I even
doing here this video by the way is
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that org slash tech lead I can spend the
whole month stressing out over stocks
checking every single price move reading
all the news making a ton of different
trades or I can spend a whole month on
the long term buy and hold strategy and
there's no telling which method is going
to really come out ahead
so I'll keep this story short but what
happened was I have bought a bunch of
commodities you can see my tax return I
have bought some RJ irj a DP ad BC some
precious metals like gold silver these
are mostly stocks that represent
underlying commodities and commodities
are like agriculture grain rice corn
base raw materials industrial metals
copper things like that and the reason I
bought a lot of this stuff was because
commodities had had a good run-up in the
first half of 2014 and also because I
felt that the dollar was weak and I just
thought it was good diversification and
I thought commodities were relatively
stable perhaps because they represented
real physical materials underneath but
what happened was that in the later half
of 2014 commodities dropped 40% and this
was known as a commodity price shock of
2014 if you look at that people don't
really know what happened according to
Wikipedia the commodity price shock
cannot be attributed to any single
factor or defining event it was caused
by a host of Industry specific
macroeconomic and financial factors
which came together to cause this huge
simultaneous large drop and so despite
all the news as reading the technical
analysis that I was doing messing around
with Bollinger Bands simple moving
averages Fibonacci lines none of that
really worked and I just lost my shirt
in that whole game and there would be
days I would be losing twenty thirty
forty thousand dollars in the day and
meanwhile my job was paying me like a
few hundred bucks that day and I think
it was that around that time that I had
been quitting a lot of my jobs because I
just didn't see the meaning of that and
I really wanted to get more focused on
day trading because I felt that I had
more fun
your impact but for me despite how much
I tried I don't know if any of my
efforts in stocks really had any impact
right some of it could have just been
imaginary maybe I was making money just
because I was lucky sometimes but I
think I can attribute my losses to a few
factors and these may be good takeaways
one is that I had been new to the game
and I felt a little overconfident and I
was starting to make money right off the
bat and I thought that this whole thing
could continue but you can only be lucky
for so long so during this time I would
do a lot of leveraged investing where I
would take out loans from the brokerage
at the lower interest rate and then I
would invest that into the stock market
believing that I could beat the interest
rate at least and for a while this
actually worked out ok to me the
reasoning was that number one I did not
intend to buy a house right most people
they'll go buy a house that's like 30x
leverage and so I felt that if I was
going to invest into the markets I need
to also have some leverage so that I
could keep pace with all the other
people who may be buying homes and you
can see that based on this chart you
know after I had had a good run up it
just started dropping and they would
just drop every single day and go down
and down and I kept believing that maybe
it would go up and it wasn't a steep
drop it was just a gradual decline the
type that really catches you by surprise
over a long period of time and you just
keep thinking well maybe it's gonna go
up maybe it's just gonna go up starting
now maybe next week it never really
recovered after that you can see that it
just went down all the way 40% drop and
it just kind of hovered down there you
know I think that one problem for me was
that I had also thought I was pretty
clever I started reading the site called
the Zero Hedge which is popular among
traders but it's also very biased in the
news right they would have all this doom
and gloom sort of news where they would
say that you know the US dollar is gonna
tank you have to buy commodities you
have to diversify your assets Goethe and
silver they're gonna go up and I
actually believe some of this stuff
every now and then you would find that
some of their advice came in useful but
the timing is everything in my head I
was so confident because I was only
reading the news that I wanted to read
after this whole experience I actually
started putting more mainstream news
like Yahoo Finance onto the bookmarks
that I would check just because I wanted
some more balanced by the end of the
year I logged in and came to the heart
conclusion to just cut my losses you
know I didn't believe in commodities or
gold anymore at that point I have seen
that the SMP stocks were all going up or
at least neutral and I felt that I had
been jaded and brainwashed by the new
sights that I had been reading these
days you also see that high-frequency
trading accounts for like 90% or more of
daily stock trades you know you're not
trading against normal people anymore
you're trading against robots and what I
realized in my trading was that as soon
as news hit like CNN front-page or
market watch front-page it's already old
news by then all the trades have already
been done by the robots who are trading
at milliseconds of news simply using
machine learning algorithms no one's
actually reading any of the news anymore
right which is silly because normal
people like you and me we're trying to
read the news we're trying to read that
to try to understand what direction the
stock is going to move but machines
aren't actually reading it and yet
they're making 90 percent of the daily
trades I also realized that as an
individual I would be trading up against
whole teams of people over at like say
Goldman Sachs who are all focus on say
the oil industry or all focused on tech
or commodities or precious metals or
whatever and they're sharing information
and reports with each other and yet here
I was a single person I have no team
nobody's telling me if there's a
macroeconomic move or if there's some
other news on the other side of the
world that may be affecting my trade and
commodities
it's just way too much news for a single
person to keep up on so for me one of my
big takeaways from that experience where
I lost a lot of money was it doesn't
matter if you're right
you know maybe you'll read a bunch of
news maybe you'll get a hot tip and yeah
maybe you're going to make some money
there but what really matters is your
system what is your system for limiting
your losses right because even if you
trade successfully 99% of the time that
1% of the time can wipe you out if
you're highly leveraged in and you don't
have proper stop losses and there you
don't have a way to limit your losses
and just read the trend line all the way
down like I did I wrote it down 40
percent you know I'm not sure if there's
a really great system right like for a
while I thought okay everything needs to
have stopped losses right as soon as the
stock drops 2% I would just sell that
and cut it off but I would let there
Rhys if it's at all possible right
trailing stop loss it's really hard to
time that trailing stop level amount
correctly because more often than not
your stop losses were just getting hit
and you just lock in losses everywhere
you go what I did after that was I
looked into using algorithmic trading so
I use this platform quanto pian comm
which I'm not sponsored by and there's a
few other platforms like this where you
can actually write Python scripts to do
trading for you and so I would try a few
different algorithms you know I would
trade based on earnings reports and if
the earnings report beat the forecast
then I would have to algorithm
automatically buy that stock hold it for
three days and then sell it I also
stopped shorting stocks which I used to
do a lot of but I realized that the
natural movement of the stocks is to go
upwards it's not like a stock has a
50/50 chance of going up or down it
actually has a higher chance I would say
of going up
so using quanto peon I was able to come
up with an algorithm back test against
historical dates see how the algorithm
would have performed and then I actually
ran the algorithm and tried it out and
it made me like 2,000 bucks here and
there it wasn't much though and what
happened is it would actually generate a
bunch of fees and brokerages I
eventually just stopped that and decided
I'm gonna go towards more asset
allocation so I might say I want 10% go
to 20% bonds 20% commodities 20% tech
stocks or something like that the
analogy I like to think about is imagine
if I were just like a sailor right
without any country and I'm going around
doing work and wherever I go people pay
me so I might go somewhere and someone
just says they don't really have any US
dollars but they have a bunch of corn so
they pay me corn or someone else may
come and say they only have Microsoft
stock they pay me some Microsoft stock
someone else may have only Japanese yen
some people have oil some people have
only bonds so that's really the theory
behind asset allocation you know it's
just like well what type of currency
would you like to accept and keep your
assets held in so let's talk about what
this felt like to me and I often equate
it in my mind to losing a Lamborghini
and you know maybe that's why I don't
drive a Lamborghini because in my mind
I've already lost one and other than
that is sent me back a number of years
in terms of income
and I can imagine that you know if I was
the type of person to be struggling
really hard every single year in the job
that I hated then it would totally not
be worth it right I would feel pretty
bad I would feel despair that I had just
given up years of my life for this and
struggled and it was painful and I
thought I would get money but then I
just lost it all in the blink of an eye
then I would have to redo all of that
all over again
but it's not really quite like that for
me because I've been enjoying life as it
came and especially after this
experience it made me realize that money
can be gained and money can be lost and
to never really just focus only on that
aspect right if you're picking up a job
it should be I think for like lifestyle
right don't bet on being able to keep
that money forever because you might
just lose it you might lose it in a
number of ways and to make sure that
you're having a good time having fun as
you're earning that because that's going
to end up being your life as well it's
not just simply a trade of your time
your effort for money you're giving away
your lifestyle as well which is kind of
why I enjoy personally working in really
nice companies right like nice offices
that's one of the top things I actually
look for when I apply for jobs I look
for just a good clean comfortable
working environment you know personally
for me I would not be working in office
like a really crummy hot stuffy startup
environment in which people treat me
like garbage I will not do something
like that because it's not worth it even
if there's money to be made because
money can be lost as well and actually
the sort of experience would happen over
and over for me you know I'm not sure if
I learned anything from it because even
after that I continue to lose money in
the stock market even today so these
days I tend to stay away from playing
too many games with the stock market and
then spend my efforts on other more
interesting more fulfilling things that
you know I can actually build skills
from learn from so that for me let me
know what your investment strategy is if
you liked the video give it a like and
subscribe I'll see you next time bye