Transcription
Learning how to think like a VP at Goldman Sachs isn't complicated, but it can completely change your life. I worked at Goldman Sachs for 7 years where I became a vice president and made enough money to start my business that now makes over $250 million a year. These are the lessons I took from Goldman Sachs that will transform how you think.
The first thing they teach you at Goldman Sachs is how to be greedy. I'll never forget early on when I was on the trading desk, one of my co-workers gave a price to a client. He realized that he had made a mistake. When my coworker was booking that trade, he realized he had made a lot more money than he was expecting. And he turned to his boss and said, "Wow, can you believe we made $2 million on this trade, which is way more than he would have expected?" And I remember the boss was furious. She said to him, "You need to call that client and apologize and change that trade so that it's priced appropriately." My coworker was stunned. He thought that he had made this great trade that everybody was going to be excited about, but instead he was getting yelled at and being told he needed to unwind it.
But this is an important lesson. The reason why you do this is because the firm could have held this person to this trade and made that $2 million today. But that client when they saw their statement, when they figured out what was happening, would never trust the firm again. That client had the potential of tens of millions of dollars of business for the firm. So, by taking advantage of the client in that one trade, we were putting all of that future potential business at risk. So, would you rather have $2 million today in that example or $10 million a year in perpetuity? That's what being long-term greedy mean. And that is one of the things that makes Goldman so successful.
If you refresh YouTube, how many videos of a hot crypto coin or an arbitrage that could make you money for a few months will you see? If you want to get rich in the next year, it will probably make it harder to stay rich for 5 years. Before you chase a quick win, ask yourself, will this help or will it hurt my reputation 5 years from now? Will I be proud of this when I'm old and tired and looking for meaning? Build systems, relationships, and habits that will serve you when the hype dies down. Don't just play for today's dopamine hit. Play for the right to keep playing.
I specifically worked on the options trading desk when I was at Goldman. That means that every second I could have been making or losing millions of dollars for the firm. In the real world, you don't get to hit pause. You have to make the right call right now. Every single day, I was making hundreds of trades. On busy days, I would have tens of clients calling asking to make prices, oftentimes looking to trade with me in the same direction. You would have lots of the biggest clients in the world calling you, asking for pricing, all looking to take a trade in the same direction. This always put me or the firm on the opposite ends of big moves. You're going to get put in positions where you're uncomfortable. You're going to be put in positions that you are going to have to manage carefully, otherwise you're going to lose a lot of money. The key is in order to manage that, you're going to have to be making decisions quickly because seconds often times can mean the difference between getting out of that risk appropriately or getting tattooed and losing lots of money before you blink your eyes. Often times people get stuck in a bad situation and they get paralyzed and by the time that they decide what to do, it's too late because everything is falling apart. But that applies to any business that you're in.
Picture yourself on a trading floor. The numbers spinning, the pressure mounting. You have seconds to decide. Buy, sell, hold, freeze. There's no safety net, no committee, just you and the clock. There's a reason Peter Thiel, Jeff Bezos, and Mike Bloomberg started their careers on Wall Street. If you want to be successful, you need to learn how to assess an opportunity quickly, then act fast. Stop waiting for the universe to send you a sign. Make the call, take the shot. If it blows up, learn, recalibrate, and move again.
That begs the question, how do you evaluate if a trade is actually worth taking? Traders think probabilistically. But what does probabilistically mean? Here are a few examples. If I told you that every time you flip a coin and it lands on heads, you make $100, but every time it lands on tails, you lose or pay me $1, would you take that trade? Yes. Because probabilistically, you have a 50% chance of a hundred times greater return than your expected loss. But what if I told you you get $100 every time the coin lands on its edge, but you lose a dollar if the coin lands on heads or tails? Well, if there's even a 1% chance you can land the coin on its edge, the math favors taking the trade. I bet that's not what you were expecting me to say. But if you really start to think probabilistically, you're going to start seeing opportunities everywhere that are not obvious to most people at first glance. You don't need to be a trader to think like that. Every decision you make in life moves the odds in or against your favor. Learn to realize that nothing is guaranteed, but some things are more likely than others. You want to make sure you're making high-quality decisions with high probabilities of success regardless of the outcome. You're going to make decisions consistently that have bad outcomes, but so long as your decision-making process is clear and rigid over time, you're going to find that your good outcomes outweigh the bad. The quality of your decision-making process matters more than the short-term outcome.
Jeff Bezos has this great framework. Life is full of one-way doors and two-way doors. Most decisions are two-way doors. If you open the door and don't like what you see, you can just turn around and go back to where you came from. Other decisions are one-way doors. Once you walk through, you can't turn back. Those are the decisions that need to be considered before you go through.
In trading, a good trader knows how to manage a loss. In life, it's inevitable that we are going to lose or that we're going to be put in a situation that is less than ideal. But once you find yourself in that situation, regardless of how you found yourself there, it's your job to figure out how to minimize the damage and to move on. In trading, this happens a lot of the time, especially when you're a market maker, you get put into a position that immediately goes against you, and that sucks. Nobody likes being put in that position. But once you're in it, there's nothing you can do to change the situation that you're in. All you can do is figure out how to minimize the damage. Don't sit there and just wait for it to get worse or hope and pray that it's going to come back. More often than not, all it does is it gets meaningfully worse. If you're doing something important, it means you'll make the wrong decision sometime. At Goldman, you learn how to make do with those losses and limit how bad they can get.
Imagine you're in a high-stakes trade. The other side is making a move that seems frankly idiotic. You're tempted to take the easy win, but then you pause. What if you're the one missing something? What if their incentives are invisible to you and you're about to be the punchline in someone else's story? If someone is making a decision you think sounds stupid, ask yourself if you're the fool. They say if you can't spot the dumbest person in the room, you are likely it. Charlie Munger, one of the behemoth investors behind Berkshire Hathaway, says, "Show me the incentives and I'll show you the outcome." The easiest way to predict how people will behave is to understand as much as you can about why they're making their decisions. I say it doesn't matter if you're the dumbest, as long as you're smart enough to know when to get out of the room.
One day I was fairly young on the trading desk. My boss had gone home and the trading floor was quiet. One of the salespeople asked me to make a market on something. Out of obligation, I gave them a price that I thought was fair. I thought to myself, "What a great deal I just got. I can't believe I was able to make all this money on a Friday when everybody else is gone for the weekend." I called my boss just to let her know what was happening because it was a decent size of risk to be taking on a Friday. She immediately said to me, "There's no way that that person would take that trade without knowing something. I want you to hedge it." I thought she was crazy. So, I went to the market. I started trying to hedge it. And I immediately realized that nobody else was willing to trade with me. I was the fool. I was the one who had made the mistake. There was something that happened in the market quickly after that changed everything that never allowed us to fully cover that risk. I was the sucker. I was the one sitting there who thought I had all the information. When I thought that I've gotten the best over someone or I thought that there was a sucker, I realized that in the end, I'm the sucker.
If you're watching this video, it means that you want to make millions. Check out my video on my favorite boring businesses to start your journey.