The Pessimistic Optimist

 It must be all the scars I have from years of being wrong in the market. Or maybe I am just a born pessimist. But sometimes its just exhausting looking over my shoulder as I invest. Years ago over a BBQ at a friends place I had come up with a theory of staying long the market while hedging against it to keep the long positions in place rather than timing and liquidating them. This was circa 2015 and I have to say it has been a painful six years of learning.

Times are a changing and hedging is becoming increasingly frictionless. Enter Robinhood with its free options trading and my journey with Robinhood has been one of learning. When I started a Robinhood account 3 years ago, months after they introduced free options trading, I told myself that this account would be my trading account. The account that will keep me engaged in the market on a daily basis while still keeping my long term investments going steady. 

Three years down and it has been humbling and learning all at the same time. Over these three years I have taught myself the art of keeping more than one idea going in my head at a time. Let me explain. When someone goes bearish on the market, they tend to short it and wait for it to play out. This is the pessimist waiting to be proven right. I was that person couple of years back when I shorted the semis. I was also that person when buying SQQQ and VXX and waiting for the inevitable crash. This did help me hold my longs through my pessimism as my initial theory had proposed, but what I was missing was the optimism part of my pessimistic foretelling. It is very hard to add to your longs when you are actively shorting the market. So in 2018 and 2019 I found it very hard to add to my longs because I was actively hedging and looking for a market correction. The pessimist would not allow any counter idea to enter the brain. 

Thank God for the optimist who finally came along. In 2020 and 2021 I finally taught myself to keep these two opposing ideas active in my head at the same time. So as the market crashed and Covid flared, I short the market but actively added to my long positions. In 2021 while I was actively shorting SPACs and Cloud companies I was still able to add to energy, pharma and consumer staples, both in stock and options. Using options on the long side was the optimist peeking through the sea of my pessimism. This finally started paying dividends in terms of outsized performance. I also learnt the art of riding momentum using market sentiment and rode some of the ridiculous issues in late 2021 as trade countering some of my failed hedges. 

All in all, 2021 was a good year with returns of about 40% I think I finally beat all three major indexes for the first time. Nasdaq has been the one I have found hard to beat last five years. Mostly because of the outsized performance of the technology stocks in the Nasdaq. A diversified portfolio lacks the technology concentration that QQQ gives the investor. DOW and S&P on the other hand is a lighter task to deal with. Most of my outperformance came from my options while most of my long positions tracked market performance.

The key lesson learnt in 2021 is to keep opposing thoughts active in my mind at the same time. Seems like it is a very critical part of active trading. Only 2022 will tell me if the pessimistic optimist is the true winner.

Some of best longs of 2021

- CVX/COP

- BAC/WFC

- MSFT/AAPL

- PFE/DGX

- MT

Worst longs of 2021

- UBER/LYFT

- GE

Best long options

- F/PFE/COP/CVX/HAL/WFC/BAC/UBER/LYFT

Best short options: Nothing really worked out well except an occasional PUT or ARKF or QQQ

Worst long options:

- GE

Worst short options: 

- SQQQ/BITO

Best momentum options : BKKT/RBLX