Progress Fueled By Failure

Progress Fueled By Failure

Neal Goyal, an ex-fund manager shares how his mismanagement of failure led him to rock-bottom.Neal Goyal Failure and Success

What makes Michael Jordan so great?  What solidifies Warren Buffet’s status as a stock market legend?  What defines the most successful companies like Amazon and Microsoft?  It’s Simple – the way they managed frequent failure while keeping their eye on the long term goal.  For as long as I can remember back to my childhood days, I considered myself to be highly ambitious.  Rebelliously determined to achieve what I set my mind to, I often ignored anything that deterred me from my goal.  If someone doubted my ability to achieve it, I disregarded them.  If naysayers commented on how my dreams were too big, I distanced myself from them.  When I fell in love with something, I fell hard.  I was “high” on ambition for most of my adolescent and young adult life.  Recipe for success, right?  Not really.  Today, as I sit in federal prison, I realize that ambition alone does not lead to achievement.  Achievement also requires failure, and the ability to bounce back from it.
Failure itself is NOT the reason why I am here.  I am here because of the way I HANDLED failure.  As a kid, I fell in love with the stock market.  Where other 19 year olds were worried about how they were going to save money to buy a new pair of shoes, I became polarized by the financial markets.  With no real teacher, I educated myself on principles of trading through online resources, the Wall Street Journal, and books on investing legends.  Through trial and error, I refined my trading strategy, and learned how to manage multiple market environments.  During that time, it was the go-go days of the dot-come era, where every investor, whether they were a taxi driver, grandma, or kid like me, looked like an investing genius.  It was not until March 2000, when I experienced my first major setback in the market with the collapse of the technology bubble.  As a freshman at the time, studying finance at Indiana University, I saw my semester spending stipend take a 50% hit in a matter of days.  I questioned how I was going to eat the next day.  But while it hurt, it taught me so much.  I learned  for the very first time, the reality of what could happen in the stock market.  It represented my very first failure as an investor.  And what did I do?  I bounced back, and in a big way.  It triggered my learning of hedging techniques, and led me to introduce short selling into my strategy, which would profit from a downside move in a stock.  Even though the top of the bubble had already been put in place months prior, adding Yahoo as the one stock I bet against, proved to be a wise one.  I still took a bath in the market that year, down nearly 45% overall.  But learning from that first failure upon the bubble’s prick, I saw how the Yahoo short position was that one thing that saved me from being down 90% instead.  That one lesson from failure saved half the value of my small account.  I failed, but I learned from it.  Then I applied those lessons to become a better, more astute investor.
Fast forward a few years to law school, I launched my own hedge fund and investment firm amidst being neck deep in academics.  I had joined the big game.  I was a no-name rookie playing on the same turf as the professionals of Wall Street.  I went from being a student day trader to a professional money manager overnight.  There was so much to prove.  With my huge dreams, I sought to validate my place in the industry.  While my prospects were promising, there came a time in my firm’s early years, where I experienced a quarterly loss.  This was not the first loss I experienced personally, but the first loss  while managing other people’s money.  By virtue of that small loss, I believed that I had failed.  But instead of accepting failure as a part of the learning process like I had done in my personal trading so many times before, I refused to admit it, preserving my ego at all costs.  Rather than soaking up lessons from an unsuccessful quarter, I viewed it as a self-hating zero-sum game, where I was the loser.  Where I could have used failure as a source of fuel, it served as an excuse to take shortcuts.  And most significantly, when faced with the possibility that the world would come to know of my missteps, I took deceitful measures to ensure that would not happen.  Everything about the way I handled failure is why I am in prison today.
So what now? Today, I reflect upon this mismanagement of failure.  The initial trading error, was hardly a failure in the grand scheme of things. Rather, refusing to acknowledge that error, was a much greater failure.  Avoiding disclosure magnified that failure even further. I had multiple unaddressed botches that compounded over the course of time, resulting in a growing catastrophe.
From all that I have learned, I have come up with 4 Reasons why one should “invite” failure:
1. Success Cannot Come without Failure – If you look at every great success story in existence, failure was an integral part of that story. Failure should be viewed as a learning experience.  Those who learned from their instance of letdown, were able to gather lessons to help them in the future.  We should consider failure as an integral part of our education, and welcome it when it occurs.
2. Acknowledging and Accepting Failure is the First Step – Refusing to accept failure leads a greater web of problems.  I came from an honest family and grew up a trustworthy kid.  I had numerous failures before, but my grit allowed me to bounce back.  However, when it came to my performance being evaluated by others who had a monetary stake in my success, I somehow changed that definition of failure in my mind.  By not accepting failure, I prolonged and magnified it further.
3. Failure is not a Reflection of Talent – Even though I was a kid with a lot of grit, I still made the pitfall of letting the frequency of those failures serve as indicators of my natural talent, in my own mind.  It was a self-image issue, where I allowed instances of failure to play a role in how I viewed myself.  Had I looked at failure objectively, without letting emotions play a role in defining my inner-ego, I would have avoided the self hate, and would have used failure to get better.
4. How One Manages Failure is Indicative of Character – I always thought I was a man of character.  And maybe I was.  But when I made the choice to mislead investors to hide my failures, I threw those notions out the window.  Failure is a hard ting to deal with, and never feels good.  But how a person behaves during those times of failure that speaks volumes about his character and integrity.
Today, I wonder how things would have turned out, had I manage failure the right way.  I have come up with two potential scenarios.  In the first, investors may have withdrawn their money with a small loss on their principal, and minimal long term effect on them.  As a result, I would have a slight uphill battle in my efforts to raise additional capital with a blemished investing track record.  But eventually, I would have learned from those mishaps to get where I wanted to be.  The second scenario is that investors would shrug off my small loss, and not regard that loss as a flaw in my talent, but rather a natural occurrence that takes place in the market, even for the savviest of investors.  In that case, I would likely be growing at an unhindered pace guided by what I learned from the small failures along the way.  Both scenarios would have avoided the disaster that took place instead.
I cannot change the past. Rather, knowing that I want to make financial and emotional restitution, I can use the failure of a lifetime to fuel progress in the right direction.  Now and forever, honesty and humility shall serve as my compass.  Future failures are inevitable.  Only this time, I will soak up lessons from each one of them to make things right.

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