AfterHours Tales: The Power of Conviction
💹 The Interplay Between Markets and Minds 🧠: X-Ray of our unseized opportunities
The Power of Conviction: Insights from Financial Markets and Human Psychology
Imagine standing on the trading floor of a busy trading office. The air is electric, filled with the hum of voices, the clatter of keyboards, and the occasional shout of a trader making a bold call. Amid the chaos, one trader stands out. His eyes are fixed on the screen, his hand poised over the "buy" button. The market is volatile, the risks are high, but he presses forward. Why? Because he has conviction—a deep, unshakable belief in his decision.
Now, step away from the trading office and into your own life. Think about a time when you made a bold decision—quitting a job, starting a business, or even standing up for something you believed in. What gave you the courage to act? That same force—conviction—was at play. It’s a universal human experience that shapes not only financial markets but also the fabric of our lives.
This year taught us that conviction is more than just a belief—it’s a commitment. It’s the ability to endure uncertainty, doubt, and discomfort to pursue something greater. It’s what separates those who succeed from those who give up too soon.
At the end of this article, we’ve shared real experiences of our biggest mistakes in 2024. Because let’s face it—posting gains is easy, but sharing the moments when we lacked conviction takes courage. By reflecting on these mistakes, we hope to remind ourselves to avoid them in the future, and perhaps, help someone else along the way.
This article is a reflection on the importance of having conviction, learning from our mistakes, and understanding how things truly work. By taking note of what went wrong and analyzing the process, we gain deeper knowledge and clarity, which helps us pay closer attention and better understand the root of the problem.
Conviction in Financial Markets: The Stories We Tell Ourselves
Picture this: It’s 2007, and the housing market is booming. Everyone—from Wall Street bankers to your neighbor down the street—believes that real estate is a "sure thing." The narrative is simple: "Housing prices always go up." This story fuels a frenzy of buying, lending, and speculation. But then, cracks begin to appear. The narrative falters, and with it, the conviction that held the market together. By 2008, the global financial system is in freefall.
This is the power—and fragility—of conviction in financial markets. It’s not just about numbers and charts; it’s about the stories we tell ourselves to make sense of uncertainty.
In financial markets, conviction is essential for navigating uncertainty.
Fund managers, traders, and investors often face "radical uncertainty," where outcomes cannot be predicted precisely. Traditional economic theories, which assume rational decision-making, fail to explain how market participants act under such conditions fully.
This is where the Conviction Narrative Theory (CNT) concept becomes relevant.
CNT, developed by David Tuckett and colleagues, posits that financial actors construct narratives to make sense of uncertainty. These narratives combine facts, emotions, and social context to create a coherent story that justifies action. For example, a fund manager might build a narrative around a company's growth potential, using it to justify investment decisions despite market volatility.
Emotional and Cognitive Conflicts: Financial decisions often involve a mix of anxiety about potential losses and excitement about potential gains. Narratives help resolve these conflicts by providing a framework that aligns emotions with rational analysis, enabling action.
Fragility of Conviction: While conviction can drive market stability, it is inherently fragile. When narratives break down—such as during financial crises—confidence erodes, leading to market turmoil.
Imagine you’re a fund manager. You’ve just been handed $100 million to invest, but the market is unpredictable. How do you decide where to put the money? You build a story—a narrative—about why a particular stock or sector will succeed. Maybe it’s a tech company with a visionary CEO, or a renewable energy firm riding the wave of climate awareness. This story isn’t just a collection of facts; it’s infused with emotion, hope, and a touch of fear.
It’s what gives you the confidence to act.
These narratives are powerful because they align logic with emotion, allowing people to act decisively. But they’re also fragile. When the story breaks—when the visionary CEO resigns or the renewable energy firm faces regulatory hurdles—conviction crumbles, and panic sets in.
A Real-Life Example: Tesla
Think about Tesla. For years, it was a polarizing stock. Some investors believed in Elon Musk’s vision of a sustainable future, while others dismissed it as overhyped. Those with conviction in Tesla’s story held on through wild swings in its stock price, and many were rewarded as the company became a leader in electric vehicles. But that conviction wasn’t just about financial analysis; it was about believing in a narrative of innovation and change.
Role of Narratives in Market Behavior:
Narratives are not just individual constructs; they are shared and reinforced within social and professional networks. This collective aspect of conviction can amplify market trends, contributing to phenomena like asset bubbles or crashes. For instance, during the 2008 financial crisis, narratives around the invincibility of housing markets collapsed, triggering widespread panic.Practical Implications:
Building Expertise: Conviction in financial markets is not static; it must be continually renewed through learning and adaptation.
Managing Uncertainty: Investors and fund managers use conviction to navigate uncertainty, but they must remain vigilant to avoid overconfidence or groupthink.
Conviction in Human Psychology
Now, let’s shift gears. Imagine you’re standing at the edge of a cliff, looking down at a deep blue lake. Your friends are cheering you on, urging you to jump. Your heart races. You know it’s safe—others have jumped before you—but fear grips you. Then, something shifts. You take a deep breath, tell yourself, "I can do this," and leap. That moment of belief, that inner story you told yourself, is conviction in action.
Conviction is deeply rooted in human nature. It’s what allows us to make decisions, take risks, and pursue goals despite uncertainty. Psychologists have found that conviction is a blend of cognitive processes, emotions, and social influences.
Cognitive Processes: Our brains are wired to seek patterns and make sense of the world. When faced with uncertainty, we construct narratives to create order out of chaos. These narratives give us the confidence to act, even when the outcome is unclear.
Emotions: Conviction isn’t just logical; it’s emotional. It’s the excitement of possibility, the fear of failure, and the courage to move forward. Think about a time when you felt strongly about something—whether it was a career choice, a relationship, or a personal goal. That emotional energy was the fuel for your conviction.
Social Influences: Conviction is contagious. When we see others acting with confidence, it reinforces our own beliefs. This is why movements—whether in markets or society—gain momentum. It’s also why groupthink can be dangerous, as a shared conviction can sometimes blind us to reality.
Now let’s talk about you.
You’ve done the research, built your thesis, and placed your bets.
The logic is sound, the data supports it, and deep down, you know you’re onto something big. But then, the waiting begins. The market doesn’t move the way you expect—or worse, it moves against you. Doubts creep in. You start questioning yourself. Should you sell? Should you cut your losses? Should you abandon the plan?
If this sounds familiar, you’re not alone. We’ve been there too. This year was a perfect example of how conviction—the belief in our thesis—could have been the most important driver for a stellar year, something that comes rarely.
Our team tends to be early—sometimes too early—on ideas. And that means we often find ourselves battling with our own emotions, fighting the urge to sell before the move we’ve been waiting for finally takes off. This year, we made plenty of mistakes, doubted ourselves more times than we can count, and even made decisions that temporarily set us back, like the ones below.
The Temptation to Be "Right"
One of the hardest parts of conviction is the temptation to be "right" in the short term. When the market moves against you, it feels like a personal failure. You start thinking, If I sell now, at least I won’t lose more. But here’s the thing: Conviction isn’t about being right in the moment. It’s about being right in the long run. And that requires patience, discipline, and a willingness to endure short-term pain for long-term gain.
What We Learned: Conviction means focusing on the long-term outcome, not the short-term fluctuations. It’s about trusting your research and having the patience to see your thesis play out, even when the market tests your resolve.
Overreacting to Noise
Markets are noisy. Headlines, tweets, and analyst opinions—they all create a constant stream of information that can cloud your judgment. This year, there were moments when we let the noise get to us. We made decisions based on short-term market movements instead of sticking to our long-term plan.
What We Learned: Tune out the noise. Focus on the big picture. Conviction isn’t about reacting to every twist and turn; it’s about staying grounded in your research and your thesis.
Doubting Ourselves
Perhaps the hardest part of conviction is the self-doubt. When things aren’t going your way, it’s easy to question everything—your thesis, your strategy, even your abilities. This year, we had moments when we felt like giving up. But we didn’t. And that made all the difference.
What We Learned: Self-doubt is normal, but it doesn’t have to control you. Surround yourself with people who believe in you, revisit your research, and remind yourself why you started in the first place. Conviction is a muscle, and the more you use it, the stronger it gets.
Here are some of our mistakes and most challenging experiences of the year—moments when we missed opportunities that could have turned into significant gains!
Laird Superfood (LSF)
The white circle roughly marks where we initiated our position. As always, everything starts with a technical pattern. Once we identify that, we dig deeper into the company to assess whether it’s a good fit financially, whether it operates in a sector or industry with a compelling narrative, or simply if it offers a favorable risk/reward (R/R) ratio.
For LSF, we made an excellent entry. We identified the weekly level holding strong and saw clear signs of accumulation. Additionally, there was positive chatter online about the company, and we recognized its growth potential. Based on this, we decided to enter a position, placing our stop-loss just below the weekly level. We even wrote an article about the company.
We believed the sector was promising, the company was showing solid growth, the founder was highly committed, and, most importantly, the theme aligned perfectly with current trends: people are increasingly prioritizing their health, taking better care of their bodies, and paying closer attention to what they eat.
We exited the entire position above 5. Why? Because we approached it with too much of a swing trading mentality instead of holding for the long term. The stock never broke below the 20 EMA until it reached 8 and eventually climbed above 10! By locking in a 30% gain, we missed out on over 100% in potential profits.
Aurora Innovation (AUR)
For Aurora Innovation, we first came across the company through a social media post or an article online—we don’t quite remember. What caught our attention was the focus on autonomous vehicles, specifically for commercial trucks rather than private cars. Everyone knows about Tesla, right? However, few people have considered applying the same technology to trucks. We loved the idea!
After that, we dug into the financials to see if the company was a solid investment. It quickly became clear that while the project was exciting, it was still more of a "story" at this stage. The EPS was negative, and the company wasn’t yet profitable.
However, they had strong partnerships, and the company appeared legitimate, so we decided to start a position. The technicals looked great too—a bounce near the 50 EMA and a sort of cup-and-handle formation made for another excellent entry!
Unfortunately, the very next day, the stock hit our stop-loss. Just one week later, it was trading 30% above our entry price! We never attempted to re-enter, missing out on what turned out to be an easy double in a short amount of time.
Aspi Isotopes (ASPI)
With ASPI, we regret being far too early. We bought on what seemed like a great bounce, but just a few days later, we were stopped at breakeven. At first, we thought we were geniuses when the stock tanked another 40% after that.
However, when the weekly $3.00 level was reclaimed just two months later, we didn’t re-enter. Why? Because we had read a lot of chatter about the possibility that the company was a fraud (and, for the record, a short report did come out about it a month later).
Chatter or not, we missed the opportunity to buy a company at $3 that went parabolic to nearly $10 in just one month, fueled by the nuclear energy theme that was dominating the market at the time!
OKLO Inc (OKLO)
OKLO was a story similar to ASPI—both were exciting projects without any meaningful revenue. After the massive success of the AI theme, it became clear that we would need more power to sustain AI’s growth. This brought attention to clean energy, particularly nuclear energy, with its new and exciting technologies—far removed from the outdated and unsafe image of old nuclear plants.
Sam Altman was one of the founders of this project, making OKLO the clear leader in the nuclear energy theme. We entered in July after the stock broke out of a 5-month downtrend line with high volume. It was a perfect setup—we were well-positioned with a large position already in the green after the first day. Everything seemed ideal.
Unfortunately, two days later, during pre-market, OKLO released some news, and the stock started ramping higher. Confident that this would trigger a multi-day push, we added to our position. However, the stock pulled back that same day and continued to decline in the days that followed.
Our average price worsened significantly after the add, and we ultimately closed the position at breakeven.
Once again, just like with ASPI, one month later, the stock had tripled. If we had simply stuck with our initial position instead of trying to hit a home run, we could have made a huge profit. Instead, we were left with nothing but regret.
Barnes & Noble Education Inc (BNED)
BNED was an interesting case. We found the stock through our scanners and were immediately drawn to the big name and low price—it caught our attention right away. The company is well-known in the U.S., and we were already familiar with its presence in the book industry.
Our mistake here was failing to dig deep enough to recognize what a truly interesting situation this was. Financially, the company had refinancing deals with a key investor, and technically, the stock consistently held above the critical $6.00 level.
We entered on the break of a trendline and sold just a couple of days later for a 20-30% gain, thinking it was just a dead cat bounce to profit from. However, if we had done our usual in-depth research, we might have realized the potential and held on longer—perhaps simply moving our stop to breakeven and giving the trade more room to develop.
Once again, we missed out. The stock more than doubled in just 60 days!
Serve Robotics Inc (SERV)
And finally, our biggest regret of 2024—the stock where we did everything right but still missed out on the most life-changing potential profits!
The stock appeared on our scanner for recent IPOs, so we decided to dig in and understand what the company was doing. We found the idea fascinating, but what stood out the most was the backing from major companies. Big names were funding and supporting the project, which made it clear this wasn’t just a pump-and-dump or some sketchy operation. Typically, when you see recent IPOs with such a low price, you assume they’re either worthless or trying to take advantage of investors—but this one was different.
The $1.77 level was a clear key level. We entered on the break of the downtrend line on the daily chart and sold after the initial push. Why? Because the stock reversed hard and scared us out of the position. The very next day, it gapped up and went on to climb 25-fold in just two weeks. Life-changing money—thrown out the window, literally!
Let’s be realistic: we probably wouldn’t have held all the way to 25. But even selling at $5, $8, or $10 would have been a gigantic opportunity. Instead, our lack of conviction cost us dearly.
This stock had everything: a strong new theme (robotics), the explosive potential of a recent IPO, a perfect technical entry at a low price, and the backing of major companies like Uber and Nvidia supporting SERV’s work. It was the perfect setup, and we let it slip through our fingers.
And there you have it—our 2024 "Hall of Regrets." A year filled with perfect entries 🎯, promising setups 📈, and, unfortunately, some truly spectacular exits (and not in a good way) 🚪💸. If there’s one thing we’ve learned, it’s that the market doesn’t just test your strategy—it tests your patience, your conviction, and sometimes your ability to not scream into a pillow at 2 a.m.
But hey, every mistake is a lesson, right? 📚 We’ve learned to dig deeper 🔍, trust our research 🧠, and, most importantly, stop treating every pullback like the end of the world 🌍💥. 2025 is a new year, and with it comes a renewed promise: to hold onto our winners longer, to have more conviction in our picks, and to stop throwing life-changing opportunities out the window like confetti!
So, to anyone reading this: let our missteps inspire you ✨. Learn from our mistakes, trust your process, and remember—sometimes the best trades are the ones you don’t sell too soon 🚀. Here’s to a better, smarter, and more profitable 2025. Let’s make it the year of conviction (and fewer regrets)! 🥂💼💰
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