BitOoda’s Strategic Approach to Managing Risk and Uncertainty: From Our CEO 3.4.20
I thought it would be incumbent on me, as the Founder and CEO of BitOoda, to communicate our ethos and our approach to managing risk and uncertainty. As a firm, we pride ourselves in offering our clients risk management strategies, and I think at this moment of humanitarian crisis and financial uncertainty, it is important for our clients to know how best to work with us in light of the panic currently gripping global markets.
My critical takeaways for you are: (1) my team and I specialize and thrive on managing risk and have decades of experience doing this; (2) things can go bad quickly, and it is critical to have contingency plans in place to avoid unnecessary losses — both losses of assets and losses of opportunities; (3) in times like this, it is critical to work with firms who know what they’re doing. Talk to us about hedging strategies that would work for you in this crisis. To offer the first of several military quotes I think are relevant in this situation: a common saying among military leaders is “train hard, fight easy.” BitOoda has done the hard training over many years of navigating financial crises and the digital asset world — let us apply that expertise to help you “fight easy.”
What do I mean by “risk and uncertainty?” In my view, these terms have very different meanings. Gambling at a casino is risky; the coronavirus outbreak is uncertain. In both situations, outcomes are unknown; with risk, the possible parameters are clear, but an uncertain event is potentially much more disastrous because we are incapable of even defining the possible outcomes. In times of uncertainty, we believe the focus should be on return of capital more than return on capital.
Beyond just financial considerations, what do I think would be the most constructive action the U.S. government could take? American leaders in both parties should implement a 120-hour halt or “truce” to political battling in order to come together and jointly design a containment program using all available resources (similar to the Christmas truce of 1918 during which both sides put down their guns and temporarily ceased hostilities). Donald Rumsfeld stated:
“Reports that say that something hasn’t happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say, we know there are some things we do not know. But there are also unknown unknowns — the ones we don’t know we don’t know. And … it is the latter category that tend to be the difficult ones.”
What should we do with Rumsfeld’s advice? Contingency plan. It is critical for you to have contingency plans worked out in advance to deal with sub-optimal situations. It has been my experience navigating three market panics in my career that these moments are also prone to cascading effects and negative feedback loops… that is where things can get really dangerous. My position is that we are facing that situation right now. All investors should consider implementing a hedging program using options.
How are we at BitOoda approaching this situation? We are using our experience and expertise to exercise sound leadership, remain calm, and apply the lessons we’ve learned over the years to optimize our clients’ positions. The ability to think clearly in a crisis comes from experience in similar situations; there is no doubt that your decision-making capacity impacts your performance in handling the capital under your management. Research suggests that many people during this type of market fluctuation are too confident in their abilities and rely on predictions in a time of unknown unknowns. In contrast, we are relying on our actual experience and our ability to think clearly and calmly to offer crisp, informed commoditized strategies and products.
Why are we offering these words of caution to our clients? Because of the failure of so many financial firms to effectively manage uncertainty. An organization that wants to survive in a highly dynamic world needs to embrace chaos, and novelty adaptation is the important overarching theme. During my career, I have seen countless situations when firms follow theory over practice, despite the words of Yogi Berra who said “In theory there is no difference between theory and practice. In practice there is.” Academics and many inexperienced advisors also exert enormous power — without accountability — over the decision making of thousands of people, even though many have never had actual experience in their supposed areas of expertise.
What are we advising our clients to do? Consider hedging strategies, and be decisive. Many investors and traders either freeze or react impulsively in these types of environments as a result of unwarranted emotions, excitement, or distraction. These are the opposite qualities we exercise when navigating uncertainty, choosing instead to remain focused and calm, following Warren Buffet’s #1 essential rule for running a business: to keep calm in the face of volatility. We combine this approach with conviction, believing that for hedging, a good decision now is better than a great decision 24 hours from now. When I was a young trader, I was still naïve about how irrational markets can become during a crisis and had not yet seen a panicked breakdown of market order. As a result, I suffered the total loss of my trading capital. Please leverage my past mistakes and stupidity — the “tuition” I have paid along the way (both in financial and mental capital) has led me to where I and BitOoda are today as a grounded and humble market leader. The ability to embrace humility and conviction at the appropriate time is a powerful combination that we think will ultimately serve your investors well.
Concluding Thoughts: We feel it is critical to protect our clients from losses and damage as a result of this crisis, particularly when we are positioned to execute assistive strategies. To leave you with one parting thought from Israeli strategist Martin Van Creveld, who I think immensely of: the volume of information does not equate to decision making effectiveness. One needs to be mindful not to be crippled with “paralysis by analysis”. We urge our clients to work with us to ensure you are well-informed and positioned to make high-quality decisions on strategies to navigate this uncertainty.