Divorce, Denial, Dissonance Reduction
How to lose money and friends
“Wealth: any income that is at least one hundred dollars more a year than the income of one's wife's sister's husband.” H. L. Mencken
I moved to New York in 2010, right after the financial crisis. I was lucky to find an analyst job at a bank. Many of my friends had chosen to postpone job market judgement day by pursuing a graduate degree instead.
A few years later, I met a new friend. It was a chance encounter at some happy hour jam-packed with hedge fund bros (a technical term). Neither one of us really fit in with the crowd. He worked as a credit analyst, was church-going, family oriented. I was already married, the odd one out among my friends. (Also, I can be plain awkward in big groups. Maybe it is because I didn’t grow up in a culture of quick-witted banter. Perhaps it’s just an introvert thing. Doesn’t matter.)
The two of us hit it off over questions such as: was China going to have a credit crisis? Was the market about to peak? What should we short in our personal accounts? There was pervasive skepticism. The crisis had shaped our early careers and was fresh on our minds (he had been let go from a big investment bank in ’08).
Then he read a book that I had mentioned to him but merely skimmed myself: The Big Money by former mutual manager Fred Kobrick. A book about a simple idea: finding great companies and holding them as they prospered.
My friend must have been tired of not making money in the bull market because he quickly started pivoting to these new ideas. He started with the obvious “great companies” like the FANG stocks. Next came emerging players like Shopify. Then Bitcoin. These weren’t unique insights. He just opened his mind to ideas evangelized by others.
He shifted from looking for observable valuation discounts to a focus on quality and growth prospects. And he stopped caring about whether he had an edge. In his mind, he took to Buffett’s advice to heart: there are no brownie points for complexity. "The interesting thing about business, it's not like the Olympics. You don't get any extra points for the fact that something's very hard to do. So, you might as well just step over one-foot bars, instead of trying to jump over seven-foot bars."
“There is nothing more supremely irritating than watching your neighbors get rich.” Jeremy Grantham
Of course, he would share his new insights with me. And every time I pulled up the charts, I had the same stupid thought: “up and to the right! Look at that! Guess I’m late again!” I was instinctively worried of being the last fool to buy into the trend. Worse, I was envious. How was it possible that anything he touched turned out a winner?
I failed to fully and truly grasp that my friend bought stocks as they went up, and because they went up. And mostly they just kept going. When they pulled back, or crashed, as Bitcoin did, he added more.
I got irritated. I wasn’t interested in hearing about his stocks picks anymore. Enough! I had missed out already and it was annoying me. I did not want to investigate or invest in whatever he thought of next because I didn’t want it to be true. I did not want to admit that what he did was working. That I should perhaps seriously consider changing my mind. Or at least be happy for him.
Because it was obvious that he was doing well. And I wasn’t. My envy turned into resentment. First, we stopped talking about stocks. Then we talked less in general. Speaking with him reminded me of all the mistakes I had made. And continued to make. I stopped being in touch with him as a kind of dissonance-reduction strategy. You could say I was more comfortable in my misery, avoiding all reminders that life could be different.
“Whatever you look for in markets, you will find.”1
I am convinced we both found in the market a reflection of our personal lives and beliefs.
By the time my friend changed his mind, he was freshly married and would soon welcome his first child into the world. He was deeply involved in his community. He had accepted his well-paying job as a dead-end that supported his path to financial freedom for as long as he needed it. Why wouldn’t the world be filled with opportunities to make money?
I, on the other hand, was on the warpath with my career. And I was in complete denial about the impact of my recent divorce. I had lost my great love and best friend. I did not like to admit this, but I was miserable and angry. And I felt that the world was terribly unfair.
When I got divorced, I was in a bad state of denial. I pretended it didn’t hurt. That it didn’t affect me. I was okay. Everything was fine. No, I didn’t need help, but thank you for asking.
I was just going to carry on.
But that refusal to feel and process my emotions cost me a lot of time. And lot of money (well, a lot for me). And it cost me friendships. Because I withdrew. I pulled back into a shell, put up walls. Unable to find a happy path myself, I had a hard time watching others succeed. Their achievements seemed like an indictment of my own failures.
“If, on the other hand, you have a scarcity mindset, it's really hard to be happy no matter what you get or how rich you are or how good looking you are, because there's always somebody richer or better looking or whatever.” Ben Horowitz
I swear I didn’t write this essay because of the Gates’s recent divorce announcement. Rather, a few of days ago I tweeted a quote by Paul Tudor Jones about money managers getting divorced:
“… Like, one of my no. 1 rules as an investor is as soon as my manager, if I find out that a manager is going through divorce, I redeem immediately. Because the emotional distraction that comes from divorce is so overwhelming. The idea that you could think straight for 60 seconds and be able to make a rational decision is impossible, particularly when their kids are involved. You can automatically subtract 10 to 20% from any manager if he is going through divorce.”
A few examples came to my mind: Soros’s self-described burn-out and “kind of identity crisis” which came after his first divorce and coincided with his split from his business partner Jim Rogers. Bill Ackman got divorced in 2016, in the wake of the Valeant collapse. Marc Rich blew $170 million trying to corner zinc the year his wife filed for divorce.
These are cherry-picked examples. Others got divorced without performance taking a hit (perhaps Ken Griffin, Chris Hohn). As was pointed out on Twitter, this might be more of an issue for “high intuition low repeatable process investors,” whose setup doesn’t allow for delegating key decisions.
It is also possible to imagine the reverse being true: a big drawdown leading to an emotional crisis and doubling-down of effort at work. Which could be the trigger to break an already brittle relationship.
But one manager in particular reminded me of my own situation: David Einhorn, who has stubbornly shorted a ‘bubble basket.’ As early as 2017, “the bubble basket was particularly frustrating.” (2017) “We have been accused of being stubborn, but one person’s stubbornness is another person’s discipline.” (2018). Einhorn got divorced in 2017.
Because from my perch, I couldn’t see opportunity in markets. I didn’t want to see any of the good stuff. In my resentment I could only see the arrogance, carelessness, and corruption that came with an extended bull market. A never-ending party that I hadn’t attended. Whose joyful melodies I could hear in the distance. While I leaned out the window, staring at the skies, having one last cigarette puff before calling it a night.
I was stuck in a loop, wallowing in secret hope of judgement day. Time had become a flat circle. I was waiting for that cleansing crash to rectify the cosmic injustice.
Because then I could tell myself that I hadn’t been wrong after all. No, I hadn’t been stubborn and boneheaded – I had been patient and strong-willed. Downright noble in my resistance to temptation. The crash would have proven me right, allowed me to rationalize my decisions, protected my ego.
“Time is a flat circle. Everything we have done or will do we will do over and over and over again—forever.” True Detective
“There is nothing new in Wall Street. There can't be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.” Jesse Livermore
I’m back in touch with my friend now. He has a second baby on the way. They moved to a beautiful house. He has done well for himself.
I feel happy for him. No doubt, I wish I had done as well as him. Alas, I am healthy. And there is still time to inject myself into the world. And in the words of Peter Cundill, “there’s always something to do.” Unless you’re in denial of the stubborn facts of reality.
Disclaimer
This is not a recommendation to buy, hold or sell any securities or other financial instruments and does not constitute an investment recommendation or investment advice. I’m merely highlighting people and companies worth learning about. I write purely for entertainment purposes. Always do your own research and consult your investment advisor. I may at any time transact in any of the securities mentioned.
As Ed Seykota said: “Everybody gets what they want out of the market.”
This was awesome and bold! Thank you so much for your clarity and honesty.
This is terrific, Frederik. You write very well, indeed. Warm wishes, William Green