Pyrrhic Victories is one of my favourite concepts. Not only because it is so fun to say out loud but also because it is applicable to literally everything if you are feeling curious.
Although this concept long predates its origin story but its a good one nonetheless and requires frequent retellings. Rome as a city state was on the on the up and coming and neighbouring city states were getting quite concerned of these developments. Greek Cities in particular were getting nervous and thought Rome was being too uppity. So they reached out to Pyrhhus of Epirus to come and give hell to Rome and cut it down to size. Pyrhhus of Epirus said something along the lines of “Hehe why not” and he came west with his well trained forces, War Elephants and all. ( Most Roman soldiers had never seen an elephant before this and were shaken.) He defeated Romans in battle, went back to Greece, came back again a year or so later, and beat them again. While he was being congratulated for these victories, he was asked if they should give it another shot . His response was something along these “Hehe, If I get one more such victory, my whole kingdom will be destroyed”. This was because in both battles, Romans had put such a strong resistance and fought like complete madmen, that his victories came at a horrendous loss of life and capital on both sides. He was never seen again in these parts.
This story forms a good basis for any kind of decision making.Trading being entirely about decision making is no exception. Let us see how this concept works in different trading situations :
1. Day Trading : This is why long term Day Traders are my favourites. They literally do Pyrrhic Victory as a full time profession. The amount of concentration, energy, homework and drain full time professional day trading takes, it fits neatly into this box. But if you can manage this for decades at an end, you will make even Pyrrhus proud, keep at it. Respect.
2. Options Trading : Pyrrhic victory here is to decide whether or not to defend your strategy which has not worked. Whether you should leg in to your strategy, come up with a plan, and risk even the adjusted strategy getting attacked ( very common when starting out). This takes work, know-how and effort. So the decision here is whether you should do this to save your losing strategy, to make it breakeven or scrape a small profit. Or simply book the loss and set up another, potentially more beneficial trade. I prefer booking loss but I will agree defending strategies is fun, so again its preference-based.
3. Systems Trading : Making a system over the years takes a lot of work, fine tuning, experience and fails. So the question to ask here is, even if I end up making a great system which works for me over 3-5 years, time tested, weather tested. Bells and whistles. How long will I continue to use this, and how hard is it to tweak with changing market conditions. Is my system a Pyrrhic System ?
4. Penny Stocks Trading : You bought a good amount of the cheapest thing money can buy, with full conviction that this memestock will moon. Literally nothing happens for 5 years. Then one day out of nowhere, that stock zoomed 100%, you got out. It can only be considered a good trade, if you are sure you couldn’t have gotten the same return elsewhere, with less risk, and more sleepful nights, and less embarrassment of telling people that you are holding those kind of goods in your portfolio.
5. Stock Investments : Many people invest in companies at the top, the stock falls 50% and stays there for 2 years. You never sold it so as to not hurt your pride, after a lot of crying and sadness it came back at your price, goes up 5% more. You sell immediately. On paper, yes you didn’t lose money but 5% for 2 years is more red then it is green. Thus reasonable stops are there to protect you from letting your investments go pyrrhic.
There might be many more instances, would appreciate if you can spot them and add to the discussion. Also do let me know if i wrongly identified something under this concept. Thanks