Climb out of a drawdown by making small money again

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 34:01

   an email that came in this morning for the first time in my career i'm in a slump you know first time in my career i'm in a draw first time i agree i'm not making money i'm so these are the messages i get how do you walk someone out of a draw let's say you're running 500 million dollars and you're down i don't know let's call it you know let's say your limits of 500 million dollars You know, the company is going to fire you, you know, if you're down 20 and you're down 15 and you don't have a lot of room to go.

2. 34:28

   But like you need to put on risk because scared money don't make money. So you need to put on risk. But, you know, if you're wrong again, you're out of a job. The path to getting out of a draw, the step one is to get in the habit of making money again. But like, you don't see where people make mistakes is they look at the size of the draw and they start trying to make it all back in one swing. They just start panicking.

3. 34:55

   And what people do in panic is they lose their rationality. They see threat instead of opportunity, all sorts of characteristics of a PM and a draw. And what I say is, you know, we're not going to make it all back. Let's make $100. Let's make $100 this week. So bring down your risk and let's get in the habit of making money. And then it's like, but I'll never get out of this if I'm, it's like, no, I understand that.

4. 35:19

   But what happens is, you know, as Vince Lombardi famously said, winning is a habit and so unfortunately is losing. Well, so is making money. So is doing well in golf. A confident investor, when he looks out in the world, sees the world as a place of abundance, sees opportunity, sees the market as a place of abundance, sees opportunity everywhere. I don't have enough time to get to all the opportunity.

5. 35:40

   I don't have enough capital. I need more money because there's so much money to be made in this market. When we lose our confidence, we see the market as a place of threat. Everything is dangerous. Landmines everywhere. And so you come off your ability to take any risk because all you see is danger. And so that's why you have to protect your confidence. Why is that? because fear distorts our ability to see the world accurately. Fear is distortive. Fear means danger is everywhere. At least we perceive danger everywhere. So the first thing I have to do with a PM is get them in a habit of making small dollars. Why? Because the biggest source of confidence is success. So if you get in the habit of making $100, well, next we make $1,000. Now you're confident again. Now you see opportunity. You see opportunity, you start deploying capital

6. 36:30

   into better opportunities. You're more patient when a move. So one of the characteristics of confidence versus fear is, let's say you deploy money into an idea and that idea moves against you. Do you cut the position or do you put more money into it? Well, if you love the thesis and you love the work and you love the idea, you double down. You invest in an idea that's going against you. When you're scared, you see threat and danger. You pull out at the wrong time. You over-trade an idea. So you have to protect your confidence at all costs, confidence and motivation.

7. 36:59

   But when you're scared, you never see that path. And so step one for anybody in crisis, honestly, whether it's a golfer, PM, people in private markets, venture capital firms, and it's what you said, alluded to earlier, runners, it's like, let's start finding small wins, things that we know we can, and then celebrate them because it changes the emotional profile. And you start stacking incremental small wins, and that leads to greatness. So yeah.

8. 37:31

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