Week 4: Return chasing

The week you act on evidence, and the week you find out what your evidence was. The counterfactual column starts today and it is not optional.

15 March 2027committableyours to commit, and assessableOpen the slides

By now something in your field of view has gone up more than the thing you own. This lecture is about what happens next, and the honest version of the lecture is that many of you will do it this morning and name it this afternoon.

The worked example#

Follow the arithmetic; the instruments are labels, not recommendations.

You opened with 250 units of A at $40.00, which is $10,000, plus $5 to transact. Four weeks later A is at $44.00, so the position is worth

250 × $44.00  =  $11,000

Meanwhile B has gone from $10.00 to $18.00. It has risen 80% while yours rose 10%. You rotate. Sell A at the bid of $43.96:

250 × $43.96   =  $10,990
  less $5 fee  =  $10,985

and buy B at the ask of $18.00:

$10,980 / $18.00  =  610 units
       plus $5 fee

You now hold 610 units of B. Note in passing that you have just paid the week 2 round trip again — about $20 — for the privilege of changing your mind.

What was the evidence#

Write down, in one sentence, why B and not A.

For most people the sentence reduces to: B went up more. Not that B sells more of something, or costs less relative to what it earns, or has customers who cannot easily leave. That it went up. The move is the evidence and the move is the reason.

Recent performance is a real fact about the past and a weak claim about what happens next. Acting on it has a name — this week’s name — and it is the most common way a position is destroyed by its owner rather than by the market.

Fill in the counterfactual, today#

From today your position log carries one more column, and it is filled in on the day of the action:

If I do nothing today, what happens?

For the example above that entry reads: 250 units of A, worth $11,000. That is it. No forecast, no reasoning — the position you would still be holding and its value at a price you can check.

This matters because of what it becomes. Carry the example to week 12, where A is $46.00 and B is $14.00:

chose     610 × $14.00  =   $8,540
refused   250 × $46.00  =  $11,500
                           ────────
gap                          $2,960

A rose 15% over the period. The market was not the problem. The $2,960 is the price of one decision made on one kind of evidence, and it is separable from everything the market did because you wrote the alternative down before you knew how it ended.

Filled in on the day, that column is evidence. Reconstructed in week 11 it is a story about yourself, and nobody writes an unflattering one. This is the single mechanical reason the column exists.

For Assignment 1#

Of the three failure modes Assignment 1 will accept, this is the one that asks most of you, because the diagnosis is not a subtraction you can do at the end — it requires a number you had to have recorded at the time. That is deliberate. Do it today and you have an assignment. Do it in April and you have an anecdote.