High Conviction Bets

A note to myself on bet-sizing

First Published 9 months ago

There have been times in my life where I have known with high conviction that a certain scenario will play out. They don’t happen often (once every couple of years?), but when the broader market doesn’t reflect this sentiment, I need to bet the house.

Below are personal notes on scenarios where I had high-conviction, and what I did and should have done differently.

Coronavirus

By virtue of the people I follow on Twitter, I was aware of COVID-19 in January 2020. Several of the Complexity Science professors / writers that I follow had written articles on how the transmission would play out, and so I had no doubt that it would spread out of China and to the US rapidly. Looking back, this sounds like a no-brainer, but at the time I was very early on this opinion.

Around late-January 2020, I also read on Twitter that surgical mask stocks ($APT) had surged during previous airborne epidemics. The market was not reflecting what I saw as a reality, and so I had two advantages:

  1. N95 Mask Companies were trading near their 30 day trailing average
  2. I had high conviction that COVID-19 would impact the stock market drastically in the coming months

At the time, I had a Robinhood account, so I bought 5 and sold on the way up, selling some shares at a high of $36 in late February. That’s pretty good, but what could I have done better?

  1. At the time, I didn’t understand or really know about options. Looking back, I could have bout call options. I don’t have the ability to look at their historic prices, but I am assuming that like the stock, they didn’t have the upcoming volatility priced in.
  2. I also should have invested more APT. I was in my first semester of grad school, so not flush with cash by any means, but I was very conservative with my bet sizing.
  3. Nearly all gains that I made from UVXY. The lesson here is that is okay to sit on the sidelines. I had made 100+% return on my knowledge advantage with $APT in less than a month. I should have taken my earnings and stayed out of the highly uncertain market in March.

Spotify

I first used Spotify in 2012 or 2013? I think it was still a relatively small Swedish startup at that time. I knew from the beginning that it was worlds better than any other streaming service. At the time I was 15 years old, and didn’t have access to invest.

There’s not much I could have done differently at the time, but looking towards the future, when I come across a startup that I feel with high-conviction that is transformative, I need to figure out how to invest.