Five ways you managed to lose money this year

It was hard to f*** up too badly in 2023.

Merry Christmas from the corner of Wall and Broad. Did we make money together this year?

If you’re an investor, pretty much in any asset class, I suppose congratulations are in order. It’s highly likely you did well. Definitely relative to last year. But also, you probably did well relative to most years.

The most widely-held stocks went on a rampage in 2023. Bonds came back, especially in the last six weeks. International stocks rallied. Bitcoin rose from the dead.

Even if you had no idea what you were doing, you’re probably pretty happy with how your portfolio is looking as we close out the year.

It was hard to f*** up too badly in 2023. If you did, you had to go out of your way to do so. I mean, you really had to behave badly.

Here are some of the ways in which you might have blown the year…

One - Over-trading.

This is the single easiest way to blow it every year, but especially a year like this one where the highs are hit at the end and there are two distinct corrections (March, when the banking system wobbled and August-October when we had an echo-panic in bond yields). The more you did this year, the worse off you are.

One interesting thing to try this coming year is to invert (always invert!). The next time you’re faced with the choice between buying or selling a security, ask yourself what if you did neither and just forgot about it entirely? Or, skip a few months into the future - which will make you more mad, selling something that goes up a lot afterward or not selling and watching an asset fall? So many of these decisions can be approached through the lens of regret minimization rather than pure risk versus reward.

Try it sometime.

If you had a rough year, pull up a list of your brokerage account’s activity. If there are dozens of trades, I bet there are more actions you’d have been better off not taking than the converse.

Two - Following “the smart money.”

Smart people who have already made billions of dollars in the market do not have the same risk profile or financial goals that you do. They are playing a different game. They have opinions, but when they share those opinions your takeaway should not be “Okay, that’s advice for me to take.”

No offense, “Dr. Burry” doesn’t give a shit about your kids’ college tuition or your retirement portfolio. When he’s doing his gut instinct, free association, stream-of-consciousness shtick on the internet, your best bet is to enjoy it as entertainment. It’s not advice for you. Burry is entitled to his opinions and he will frequently change his mind. It’s not financial advice meant to help you. I can’t believe I still have to explain this.

Here’s how Burry’s bets against the market were breathlessly documented by hundreds of media outlets this past August:

Michael Burry, the “Big Short” investor who became famous for correctly predicting the epic collapse of the housing market in 2008, has bet more than $1.6 billion on a Wall Street crash.

Burry is making his bearish bets against the S&P 500 and Nasdaq 100, according to Security Exchange Commission filings released Monday. Burry’s fund, Scion Asset Management, bought $866 million in put options (that’s the right to sell an asset at a particular price) against a fund that tracks the S&P 500 and $739 million in put options against a fund that tracks the Nasdaq 100.

Burry is using more than 90% of his portfolio to bet on a market downturn, according to the filings.

You know what happened next, right? One of the greatest six week periods for the stock market of all time and an absolute pancaking of volatility.

Stanley Druckenmiller also doesn’t care if you miss a 50% rally in the Nasdaq. He can miss it and he’ll be fine. As for you, you’re at greater risk of not compounding your money than you are of having to endure volatility.

Druckenmiller is a genius trader but when it comes to the economy he is just making guesses like everyone else. And, honestly, his pronouncements over the last fifteen years that I’ve been chronicling them are nothing special. Consistently negative. Why bother speaking out when you’re feeling positive or neutral? He doesn’t bother. Did you ever consider that? What if we only hear from him when he feels the need to warn us about something? What if he’s positive a lot of the time but it just doesn’t merit a TV segment? Ever think of that?

Here’s Druck at a Bloomberg conference this past June:

“I would actually argue since it’s taken so long, the Fed has actually ended up with a higher terminal rate, and in fact, inflation gets stickier the longer it stays in the system; that it increases, not decreases, the probability of a hard landing…I could see corporate profits down 20-30%... I don’t think a lot of corporations will be caught with their pants down...I'm worried about credit tightening over the next 6-9 months. Obviously, the banks are going into an economic period that if in fact, we get a recession, their balances are already impaired… If we get in a recession, then the real losses come, which is stuff like credit cards, commercial real estate, that kind of stuff. So those would be my worries.”

Stanley Druckenmiller

Okay. Legitimate worries. We all had them, to some degree. But it didn’t work out that way. Sometimes the asteroid misses earth.

He’s still rich, by the way. He's fine, believe me. But if you used his rhetoric to talk yourself into selling, you’re now faced with the dilemma of whether to buy back in at record highs, accept the lower returns of cash forever, “wait for the dip” or turn into a supervillain who wants to get even with the world because things are unfair (we’ll see you on Twitter, you miserable bastard, lol).

Three - Listening to charlatans.

Robert Kiyosaki, who wrote a mildly informative pop finance book in 1997 and then spent the next 25 years shearing the sheep, had a pitch of his own this past June. He told his two million followers to expect a crash (he does this roughly every month) and to dump their investments in favor of cans of tuna.

I wish I was exaggerating but I’m not.

"Best INVESTMENT:  Cans of Tuna Fish…Inflation about to take off.  Best investments are cans of tuna & baked beans. You can't eat gold, silver, or bitcoin."

"Food most important. Starvation next problem. Invest in the solution."

Robert Kiyosaki

Yeah, I don’t know why he uses Cookie Monster syntax either. Maybe we’ll explore that in a subsequent post.

Before you dismiss his advice out of hand, try and remember we’re talking about someone who has written how-to books and co-hosted business seminars with none other than Donald Trump…

My colleague Ben Carlson made this chart of the last fifteen years of the “Rich Dad, Poor Dad” author’s market crash bullshit. It’s helpful for him because he can use your attention to sell you something else. I wish he could go about his business without scaring the wits out of people but it’s so effective that I get it.

Whether you like his books or not, judge for yourself whether or not you want this stuff in your eyes and ears anymore:

Four - Trading the options.

I know it’s fun. I also know there are options strategies that are designed for something other than making bigger bets or speculating. Don’t get upset but in my opinion a great deal of the options activity taking place among retail traders is, at best, pointless and, at worst, a giant manhole to watch your portfolio value fall into.

If you’re doing it for recreation and you have it in the same mental bucket with the sports gambling and the fantasy football and the prop bets, that’s fine. If you’re doing it because you think it’s a ticket for consistently higher returns and a more lavish retirement, I don’t know man.

We all know the volume being traded in zero days to expiration contracts, weekly options, etc. It’s a lot. Off the charts. There’s no way retail punters in the aggregate are doing as well as the market makers like Ken Griffin. It’s just not possible, neither in theory nor in practice.

Let me remind you that I know the guys who are selling you on options trading books and subscriptions and courses and online schools. I have seen them operate up-close. I’m not saying don’t do it, I’m saying think about the likelihood of someone teaching you how to make and keep yourself rich for twenty dollars a month or whatever. If you’re absolutely determined to spend the finite time we have on earth in front of a computer screen, then sure, you can trade options. Just don’t go into it with absurd expectations.

Remember - on these trades, not only do you have to get the direction right, with contracts that expire you also have to nail the timing. How could that be easy?

If you f***ed up royally this year, options probably played a role.

Five - Obsessing over the macro.

I’m obsessed with the intersection of economic data and investment market performance. Obsessed. I read what everyone thinks, every day, and then I formulate my own opinions. I never stop. And even I have no idea what’s going on.

Some days I feel like I have a really strong grasp of the situation and somedays everything seems upside-down. And again, I eat, sleep and breathe this stuff. I have global strategists and chief economists from Fidelity, JPMorgan, Vanguard, BlackRock, etc literally on speed dial. It doesn’t matter. If anything, the proximity to all this intel is probably even worse for most people because of how delusional we can become when we think we know something.

Macro guessing is just not a winnable game for people who are working a real job all week and raising a family on the weekend. There’s nothing casual about trying to play nine-dimensional chess with the entire universe. You’re not going to do that in your spare time between golfing and dropping the kids off at soccer practice. And if someone is telling you otherwise, they are probably in the business of selling you a subscription to something. Don’t be a K-Mart George Soros, it’s embarrassing.

Better to leave this stuff to the pros, let them bang their heads against the wall.

Learn as much as you can about what’s going on and then use it to talk yourself out of being confident, not vice versa. Use it to better live with the decisions you’ve made, not to make all new decisions, all the time.

The big league macro guys largely started the year off bearish and got progressively more bearish through the summer. Not all of them but most. And with good reason. They’re not stupid, they were just wrong. Who among us hasn’t been?

Unfortunately, markets don’t always stick to the script, there are always exceptions and historical data has its limitations in a changing world. The probabilities don’t obey any formula. The lived experience of veteran traders is sometimes a major liability. If it were easy, there would be tens of thousands of thriving, successful global macro funds in the world. There aren’t.

What’s funny about this year is that earnings shrank in the first two quarters of the year for US large caps - but by less than expected - and then in the third quarter they started to grow. This happened at the same time as inflation was coming down. If you just focused on inflation and earnings revisions, you got this year right. If you were doing all this other bullshit with the dollar and credit spreads and Chinese stimulus and the correlation between the length of Taylor Swift’s setlist and rolling 90-day used car loan default data, you f***ing missed it. You played yourself. Too smart for your own good.

There are lots of other ways to lose money in the market but these were the five most likely ways you screwed yourself this year, if that’s what ended up happening.

Hopefully, you’re not in that camp but you read this just to remain vigilant for the future. That’s what this game is all about.

If you’re looking for more help with your portfolio or your financial plan, or you just want to find out more about how we help investors, check out the brand new Ritholtz Wealth Management homepage here. We have a service tier available for you regardless of where you currently stand. Talk us to find out more.