STREET DOGS

FWhen I was 27 I paid great attention to the news and what people were saying about the direction of the market. I watched as the markets roiled on Friday, October 16 1987, with the Dow losing more than 4.6% of its value. I then made what at the time looked like the biggest mistake of my trading career: about half an hour before the markets’ close on that Friday, reacting to assertions that the market’s drop was way overdone and that we would see a huge snapback on Monday, I sold my entire put position.

Just so it really sinks in, I repeat, on the day before the biggest crash in history, I let my emotional reactions to what I was reading and hearing drive my behaviour, and I sold every single put option that I had carefully accumulated over the previous several weeks.

Had I held, I would have made a not-so-small fortune. But I didn’t. Indeed, I barely broke even on the entire trade. But I think that turned out to be the greatest trade in my life.

For that trade sent me down the road that led to where I am today. I concluded that my emotions were my worst enemy in the market and that listening to predictions from gurus and other prominent market forecasters was worse than useless, it was destructive. It also opened my eyes to how early reactions by the media to such momentous events are almost always spectacularly wrong.

I resolved to begin searching for empirically supported investment strategies that withstood the test of time. Most importantly, it cemented in me that while in many areas of life emotions were great, in the world of investing they were your worst enemy. And that only an unwavering discipline, devoid of any emotional override, would win in the end.