Chapter 1: The Story of Fernando and Gordita 1 THE STORY OF FERNANDO AND GORDITA INCREDIBLE! I thought. My brother-in-law, Fernando, has got the Midas touch. In reverse! Every investment he touches--every stock, every option, every coin, every token, every bloody NFT--every last one of them turns completely to shit! It was a little after 9 p.m., and I was sitting in the dining room of Fernando''s posh Buenos Aires apartment, going through his brokerage statements, when that sad realization came bubbling up into my brain. Simply put, his portfolio was a disaster . Through a series of bad trades and ill-timed investments, Fernando had lost 97 percent of his equity over the last two months, leaving his current account balance at a paltry $3,000. The rest of his money, just over $97,000, had simply vanished into the air, like a fart in the wind.

Even worse, the losses had occurred during a time of relative peace and stability in the stock and cryptocurrency markets, which were the two main places where the investments had been made. The implications of this were undeniable and obvious: My brother-in-law had no one to blame but himself. After all, it would have been one thing if the markets Fernando had invested in had crashed or had at least gone down substantially right after he''d invested in them. That would have accounted for at least some of his losses. In fact, there''s an old adage popular on Wall Street about this very scenario: "A rising tide lifts all boats." In other words, when the stock market is rising, the price of any stock within the market will tend to rise along with it, and when the stock market is falling , the price of any stock within the market will tend to fall along with it. Of course, the same holds true with every other market as well--the bond market, the commodities market, the cryptocurrency market, the real estate market, the art market, the insurance market, just to name a few. The bottom line is, when any particular market is heavily on the rise, you can basically throw a dart at it and expect to make money.

No innate genius, keen sixth sense, or specialized training is required. The market does 99 percent of the work for you. It''s a simple premise, right? The only problem is that as simple as this might seem in ordinary times, things get far more complicated during a prolonged bull market. It is at these moments of irrational exuberance--as the market is booming, the chat rooms are chattering, the pundits are pumping, and Twitter is tweeting how there''s no end in sight--that human nature takes hold. Suddenly, amateur traders, who know as much about common stock as they do about livestock, start thinking they''re experts and start buying and selling at a ferocious clip. Buoyed by the unshakable belief that their newfound success is a result of their own innate brilliance, their confidence grows stronger with each passing day. Their trading strategies are almost entirely short-term. When they bet right, they quickly book a profit, and get a nice hit of dopamine to reinforce their behavior.

(The fact that the stock kept trading higher is of no consequence to them. "A profit is a profit," they say, "and no one ever went broke taking a profit!") And when they bet wrong, they simply average down--or "buy the dip," as the phrase goes--and let the rising tide bail them out. And why shouldn''t they? That''s what the mob on Twitter is telling them to do! Besides, it''s always worked for them in the past, hasn''t it? The market always comes back. Hmmm. not exactly. In reality, markets rise and markets fall, and when they do fall --and I mean, really fall, like when the dot-com bubble burst in 1999, or when the housing bubble burst in 2008--they fall far quicker and far more violently than they do when they rise. Just ask any professional investor with more than a few years'' experience, and they will undoubtedly tell you that very thing. But for now, let''s get back to the story of Fernando, who could not blame the market for his battered investment portfolio, at least not on the surface.

Let''s go through the specifics: Over the sixty-day period in which the losses occurred--February 8, 2022, to April 8, 2022--the two markets Fernando had invested in had basically been flat, which in Wall Street parlance means they hadn''t moved up or down in a materially significant way. Specifically, the S&P 500, which serves as the benchmark for the broader US stock market, was 4,521.54 on February 8 and 4,488.28 on April 8, for a modest decrease of only 0.7 percent, and Bitcoin, which serves as the benchmark for the broader cryptocurrency market, was $44,340 on February 8 and $42,715 on April 8, for a still-modest decrease of only 3.7 percent, especially when compared to Fernando''s 97 percent loss. However, to be fair to my brother-in-law, looking solely at day 1 and day 60 can be very misleading. I mean, if Fernando had stuck to a long-term, buy-and-hold strategy (where he held each of his purchases until at least day 60), then yes, those two numbers would have told the entire story.

But that was clearly not the case. At even a quick glance, I could see dozens of sell orders littering the account statements, while a buy-and-hold strategy entails holding on to a position for an extended period of time, regardless of price fluctuations, in an effort to capitalize on the long-term growth potential of a well-chosen investment. So, to get a more accurate picture of what really went down, you couldn''t look just at days 1 and 60; you also had to look at what happened in between. After all, the cryptocurrency market is far more volatile than the US stock market--the US stock market also has its moments, especially during times of great fear and uncertainty, or in the face of a black swan event1--so depending on how aggressively Fernando was trading, his losses could have been the result of severe daily price swings combined with really bad timing. In other words, instead of following the age-old trading axiom of "buying low and selling high," my temporally challenged brother-in-law had been buying high and selling low, and he kept on doing that again and again, until almost all of his money was gone. So, with that in mind, let''s take another look at the two benchmarks, except this time through the lens of daily volatility. Perhaps that can explain Fernando''s massive losses, in the face of what otherwise appeared to be a stable time period. Below is a visual representation of the daily volatility of each benchmark, starting on February 8, 2022, and ending on April 8, 2022.

Based on the above chart, Bitcoin hit a low of $37,023 on March 16 and a high of $47,078 on March 30, a variance of 21 percent between the high and the low during the sixty-day period. And the S&P, which is typically far less volatile, had a low of 4,170 on March 8 and a high of 4,631 on March 30, for a variance of only 9 percent between the high and the low. So, given this new data, here was the $97,000 question: Did including daily volatility, as one must in the overall equation, reveal a circumstance that the appearance of a stable market, on day 1 and day 60, had otherwise camouflaged: that Fernando was an innocent victim of a rapidly falling tide, which had sunk every portfolio in the harbor, including his? It was an interesting possibility. But, intuitively, I thought not. I mean, for that to be true, Fernando would''ve had to have been "betting the farm" on every trade and have the worst sense of timing since Napoléon invaded Russia in the dead of winter. Whatever the case, as I scanned through the account statements looking for clues, I felt like a homicide detective going through a crime scene. The only difference was that, instead of wading through a sea of blood and guts, I was wading through a sea of red ink and despair. In fact, with the exception of a handful of winning trades over the first seven days--he bought Bitcoin at $41,000 and sold it four days later at $45,000; he bought Ethereum at $2,900 and sold it one week later at $3,350; he bought Tesla stock and Tesla options and sold both of them a few days later for a combined profit of over $20,000--just about everything he touched had turned immediately to shit.

Even worse, his trading activity had increased each day, to the point where by the end of week three, he seemed to be fancying himself a day trader.2 In typical fashion, Fernando''s early success had swelled his confidence, emboldening him to make larger bets with increased frequency. And just like that , the bloodbath ensued. By the middle of week two, there wasn''t a winner in sight. All I could see was losing trade after losing trade, and the losses were mounting up. By the start of week three, his reverse Midas touch had worked its evil magic, and the handwriting was on the wall. As his equity dipped below $50,000, I could see his desperation in the form of oversized bets on speculative penny stocks and worthless shitcoins (the crypto world''s equivalent of penny stocks). By the end of week six, it was over; he hadn''t made a winning trade in over a full.