I Lost Over $500k in 2 Years: My Worst Trading Mistake Ever

Years ago, I sold my second business to trade full-time.

I have over $500k in the bank and another $225k due to me over the next two years.

I am a great entrepreneur, I thought. What could go wrong?

How about everything…

I spent two years burning through cash that I worked TWENTY years to build.

And don’t get me started on how much I had to give up during that time to make the business work.

Eighty hour work-weeks? That would feel like vacation.

I pretty much spent my twenties sleeping on a couch pulling all nighters growing my company and answering support calls.

A decade and a half later, I noticed that more and more of my attention was focused on the markets.

Like many of you watching this, the market just had some type of pull over me.

Something I couldn’t shake.

And one day, I woke up, stared at myself in the mirror, and realized – I don’t want to be here doing this.

That was the day I made up my mind to sell my company and explore the markets full time.

It was the worst financial decision of my life. I was miserable for two years straight. And this suffering extended to my health, relationships, and most of all — my ego.

And if things couldn’t get any worse, I suffered an unexpected financial loss when I was near my breaking point, further compounding the pressure. 

It felt like my brain and life were about to explode.

And climbing out of the hole was almost as grueling as falling down it.

So why am I telling you this? 

I don’t ever want anyone to experience this type of pain, especially since it was unnecessary.

If I could start over, here’s how I would do it.

First, be extremely open-minded.

At my first business, one of my employees was mining Bitcoin when it was roughly $20 dollars. I’m a technologist and if I would have just opened my eyes, I would have seen what’s right in front of me.

Instead, I clung on to everything Warren Buffett said and believed that valuation was the only way to make money.

After all, I managed my own books and graduated with honors from Aswath Damodaran’s valuation class, so I knew my stuff.

And while I knew valuation, I didn’t know myself.

I hated waiting to see if I was right, and I was tired of hearing traders hitting triple digit annual earnings while I’m hoping to compound at 20%.

So be open-minded, and always be on the lookout for great investment opportunities.

Second, you need to try everything, to see what fits you and your personality.

I’ve tried:

1. Valuation
2. Trend following
3. Global macro
4. Day trading
5. Swing trading
6. Quantitative trading
7. Algorithmic trading

And while I’m not turning $5,000 into hundreds of millions of dollars like Kristjan Kullamagi, you would be hard pressed to find someone with the same breadth of market knowledge.

This is where most of my edges have come from – combining one style with another.

So my advice to all new traders and investors who are thinking about going full time:

Don’t…

Instead, double up

Start with valuation, swing trading, or a style that allows you to keep your job so you can:

1. Pay for your losses when you’re learning
2. Have time to understand how you react to the market and the styles and setups you resonate with.
3. Compound your gains faster when you’re profitable.

And for those of you who want to be algorithmic traders, I suggest starting with discretionary trading first.

You miss a lot of nuance if you don’t trade and experience everything first hand.

And lastly, here’s how I would start:

1. Trade breakouts using the following strategy when the market is in an uptrend:
   • Go long/short and trade the highest momentum stocks to the upside and downside.
   • Hold for a few days to up to two weeks. Use range breaks to enter and trail with a moving average.
2. Trade episodic pivots when the market when breakouts aren’t working.

Hopefully, this helps someone thinking about making the leap.

Don’t do it like me.

Put your toes in first.

And if you’re looking for how I combine styles, in the next issue you’ll hear how I combine valuation and trading in tax advantaged accounts. 

There’s one stock that I’m itching to buy en masse in a tax-advantaged account.

• Old Leo would have purchased it based on valuation.
• New Leo realizes that timing is everything.

Here’s a hint:

Speaking of timing, that’s it for this one.

Feel free to ask a question & I’ll respond to as many as I can.