Latest / Calm Under Fire / Nikhil Asrani
Transcript
- Col. John Boggs: Hey, welcome back. This is Colonel John Boggs, ⁓ the president of Fortitude Consulting. And Fortitude Consulting, of course, is a executive leadership development and leadership coaching firm. So today we have Nikhil Asrani, who works at the intersection of quantitative trading, risk management, and real-time decision-making in financial markets. After working with a major Wall Street institutions as a quant and risk specialist. He has spent years developing systemic options trading strategies across equities, index derivatives and crypto markets. His work focuses on building mathematically disciplined systems that perform under uncertainty where pressure is constant and outcomes are immediate. So today we're talking about judgment discipline. and how leaders stay steady when decisions must be made in seconds. Mikhail, welcome. Thank you very much for being here today. Nikhil Asrani: Thank you so much, John. It's nice to join you and always good to have deep conversations about topics that I know about. Col. John Boggs: Perfect. Nikhil, tell me markets markets are unforgiving teachers. When did you first truly feel the psychological weight of risk? Nikhil Asrani: Yeah, yeah, that's hard to forget, That kind of your first time. And the first time I clearly remember going through that is in 2020. I've already been kind of involved with trading before that, but in 2020 specifically, I went all in, of put a lot of my capital into crypto. I bought a lot of crypto in January, February, and then... Col. John Boggs: Mm-hmm. Mmm. Nikhil Asrani: March 2020 came around and we got COVID, right? And the markets tanked, like absolutely tanked. The crypto market dropped by like 60 plus percent within like a week. And so I saw my holdings value drop by 65%, 70 % within a week or two. And yeah, and I had just put all that capital in there like less than 60 days earlier. So I was like, ⁓ Col. John Boggs: Mmm. Okay. ⁓ wow. Nikhil Asrani: A lot of people around me were panicking. I was kind of panicking as well in my mind, but in my actions, was like, I can't just bail on this position that I've put on and just come out 65 % lower capital than what I put in. I stayed in, analyzed the market, talked to people that I knew, people smarter than me. And I was like, okay, maybe this is temporary. Maybe we can see this rebound. And that's exactly what happened. Col. John Boggs: you Nikhil Asrani: didn't really get finally affected by it, but initially, for that time being, it was very stressful and I really learned what the importance of risk management is. At that time, I wasn't really doing that much, I guess. I just kind of bought a lot of stuff without any exit plan. So yeah, was a tough lesson. Col. John Boggs: All Yeah. So was it was there a moment early on when the outcome of a decision stayed with you longer than than you expected? Nikhil Asrani: ⁓ yeah, you know this because like the way I decided to jump in and thinking that crypto is on the on the up and up, which it was, you know, if you look at the crypto charts like Bitcoin, Ethereum, they did kind of go parabolic throughout 2020. for that first quarter, you know, it was really. Col. John Boggs: Mm-hmm. Nikhil Asrani: shaky, right? So in that time, the thing I went through that I just described, that really stuck with me for a long time and pretty much until today because I pretty much learned that if you don't manage your risk, there's always something called tail risk in markets, ⁓ It comes from the bell curve. You you plot a bell curve, you have a distribution and the far ends of it are the tails. And if you don't manage tail risk, it's eventually going to get you at some point. So yeah, you know, that's that kind of stuck with me all throughout my career so far. Col. John Boggs: Wow, wow. Well, you operate in environments where decisions must be made quickly. That's pretty plain. So how do you maintain your clarity when the time gets compressed? I mean, were just talking just before the show, we were talking about, hey, you got 10 minutes left of the trading day and technology gave up on you. I mean, ⁓ my God. So how do you stay clear when you've got to make decisions and time is of the essence? Nikhil Asrani: Right. Yeah. Right, yeah, that's obviously, I'm sure that's a lesson you have learned in your military career, It's like the most, probably the most high pressure environment ever, actually, what you did all your career. then, in this case, I'm not at risk of losing my life. Like you may have been in your missions, but you're definitely at risk of losing a lot of money and... Col. John Boggs: Yeah. Nikhil Asrani: you know, the clarity has to be there. know, it comes with training, you know, it comes with obviously a lot of training over time. Initially you freak out, you know, when I first started trading, I used to like just sweat, you know, and I don't usually sweat unless I'm working out. So I was actually sweating, you know, like my hands, my feet. And then I was like, okay, I got to get a handle on this, right? So over time you train, you train, and then you really come to learn that, you know, like Col. John Boggs: Mm-hmm. Mm-hmm. Nikhil Asrani: No matter what the situation is you have to be calm you have to execute So, you know as we were talking before the show, you know, I lost my internet connection 10 minutes before the market was closing today And I was like I have to finish out the day, right? I can't just let my positions just go, you know in whatever direction at 4 p.m So yeah, you know I think it's the same in sports. I think it's the same in obviously military and same with my field, you know, I used to play a lot of sports so you know, even in there, like when you first start stepping onto a basketball court, you have no idea what to do, right? In terms of like reacting to the crowd and you're like, it's pressure, but eventually you balk it all out, you know, and you just do your thing. So I think a training and repetition is the key. Col. John Boggs: Mm-hmm. ⁓ the key, training and repetition. That is so true in a ⁓ lot of walks of life. You gotta be ready. You gotta be ready. ⁓ Nikhil Asrani: Mm-hmm. Right. Col. John Boggs: What habits? What habits help you avoid reacting emotionally or volatility? When things get volatile, what keeps you from getting too emotional? Nikhil Asrani: So, specific to trading, ⁓ obviously the main thing that keeps me grounded and balanced is knowing that I've done the homework, knowing that I've trusted the math that my trading systems are built on top of. And if you have done it correctly, then Col. John Boggs: I see. Nikhil Asrani: more than likely you should be fine over time. There will be days where it looks like you're getting absolutely destroyed and things like that, but over time you can't really go wrong with doing the proper homework. So same thing, if you're preparing for a fight, you gotta train all the time, you gotta take the right hits, you gotta keep on working with your trainer until you know. Col. John Boggs: Mm-hmm. Mm-hmm. Nikhil Asrani: Like, all right, when I go into the fight, I know I'm gonna get hit, but I'm gonna be able to handle it, right? So it's all about just doing the right homework, training, and I feel like once you do that and then you go through real situations, I think that helps a lot too, you know, having those under your belt. Col. John Boggs: Okay. Mm-hmm. Well, you build systemic trading strategies. So how does trusting a system differ from trusting your instincts? Nikhil Asrani: Yeah, that's a good question. So, you know, when you trust your instincts, you obviously are going off of all your experience right throughout your life and your training in this particular field. But when you trust your system, you're basically trusting the math again, you know, and the principles that it's built on top of. So, I've met a lot of traders who believe they have great systems and they did put the work in but unfortunately they were a little bit off with their assumptions and their foundational knowledge of building the system. they did experience a lot of losses and they did end up having to completely regroup. feel like trading for me is like a really fast moving space shuttle and then Col. John Boggs: ⁓ huh. Mm-hmm. Nikhil Asrani: It's like you turn the wheel or the direction like a degree or two and you're to end up in a totally different place right down the road. And if you turn it back a degree, you you're going the right way. like it so much, it's moving so fast that a little bit of leverage just, you know, you're in a totally different spot. So yeah, I feel like you have to trust your system only if you have built it the right way. And I feel like that's what I've done. So that's the key, you know, the right homework. Col. John Boggs: Mm-hmm. right homework. And I love when you said, and you said it a couple of times now, you said trust the math, trust the math. Can you go into a little more about trusting the math? Nikhil Asrani: Sure, yeah. mean, you know, as far as like trading systems, if you're doing systematic trading, you know, if you're doing automated algorithmic trading that I do, you know, you're not going to sit there and decide on what trades to put on throughout the day, right? You're going to do all that. all that homework and all that decision making beforehand and test it and you do something called like historical testing, it's called back testing, you test strategies on past data and you run your algorithm through it and then you see what the results would have been and that's where the assumptions are important. And when I say trust the math, all of these principles are based on statistics, that branch of mathematics and so if you use the right statistics, ⁓ assumptions and the right modeling, that's how you're building your system. And then on top of that, if you have a lot of trades in the history that you've seen and you see the results, it's called large sample size. So if you have a very large sample size, the likelihood of it failing going forward is much lower than as opposed to if you have... Col. John Boggs: Mm-hmm. Nikhil Asrani: let's say 50 trades in your history of like five years, another 10 trades could change the whole picture, right? But if you have 5,000 trades under your belt, 10 trades are not gonna do much. It's kind of like rolling the dice over and over. If you have a, let's say you have 100, well, not the dice, but let's say you play roulette, you have red or black, let's say you got red like 90 times and you only wanted to do it 100 times. Col. John Boggs: Mm-hmm. Nikhil Asrani: you can have, it's a safe bet that the red wins, right? So it's basically like probability, statistics, and I base my systems on that. And so they do have down periods, periods where they're not doing too hot. And I do get stressed sometimes, but I just come back to the math and I'm like, I don't see anything too off here, according to the math, so I'm gonna stick to it. Right. Col. John Boggs: Oh, okay, okay. All right, so now we're talking about discipline now. So what does discipline look like when your strategy is underperforming? Nikhil Asrani: ⁓ yeah, I've actually been kind going through that this month. ⁓ The last three months before that, I was kind of smooth sailing. Every month was positive in terms of the profit loss. And this month has been a little challenging, just the nature of it. So I'm not going to have every single month that goes amazingly well. Col. John Boggs: Mm-hmm. Nikhil Asrani: ⁓ I've had to stay disciplined this month because a week and a half, two weeks ago, had a day, there was a day where the market really did something crazy at the end of the day and it of doubled my loss for the day. Whatever loss I was about to have, it doubled it. So I was like, man, this is a crazy day. then the next day, yet again, I had a fairly large losing day. And then since then, I've been doing well. Col. John Boggs: Mm-hmm. Mm. Nikhil Asrani: Because of that, the month is down and I'm staying disciplined by, again, going back, I have 12 different algorithms that I trade in my system. So I looked at every algorithm and their performance and I tried to find whether they have any kind unusual behavior going on compared to the history. None of them really had anything unusual individually. So I was like, there we go. We break everything down into its atomic parts and analyze it and then see. If anything is wrong at that level, if nothing's wrong, then you just put it back together and you're like, you know, we're good. Col. John Boggs: Wow, okay, okay. Financial markets. Financial markets generate enormous amounts of noise, just a lot ⁓ going on. How do you decide what deserves your attention? Nikhil Asrani: Hmm. Yeah, that's a very important thing to consider. And over the years, since I've been in the trading arena, I didn't really know for a long time how to make that distinction. ⁓ eventually over time, I started learning more more and more. And your knowledge compounds the more time you spend on it. I guess that goes with anything, right? So I eventually learned that. Col. John Boggs: Mm-hmm. Mm-hmm. Nikhil Asrani: A lot of stuff in the financial markets is useful for either this person or that person or this kind of person. But whatever is useful for you is all you need to focus on. There are so many ways to go about trading that if you try to master all of them, you're going to be just learning forever. the key is to pick something you actually think that works or you learned about from a mentor and then you build on that. And so, you know, I've zoned in on trading options on the S &P 500 index and that's what I do every day. you know, that all the other stuff going on, I actually don't pay any attention to it because I just look at my systems and I'm like, if they're going well and if they're behaving the way they're supposed to behave, know, even if they're losing money, that's, that's totally fine. So yeah, filtering out the noise is actually a big part of successful trading and I hadn't figured that out until recently, maybe a couple of years ago. Col. John Boggs: You said something interesting. You said you said your mentor. How important is it to have a mentor in doing in doing your work? Nikhil Asrani: I think it's fairly important. There are people that have embarked on the trading journey and just did it all on their own, but I would say it took them much, much longer, like orders of magnitude time longer, maybe two, three, five times longer. I've known people that came out of college, joined a trading company without much knowledge of the trade. They didn't have any knowledge of trading, but they had knowledge of math and coding. And then they were able to learn trading from their coworkers, which are basically mentors, right? Like senior traders. And they were able to learn and get better at an accelerated pace to the point that they were managing an entire trading team two years, five years later, four years later. So, but somebody like me, I actually spent a lot of time learning on my own and it didn't really... Col. John Boggs: Mm-hmm. Nikhil Asrani: it didn't really speed things up. It slowed things down for a long time. And then I started talking to a lot of people in grad school. That's where I met my business partner and he's a little older than me and he had traded prior to us meeting and at a firm and everything. So I learned a lot of things from him. I learned a lot of things from other people on the internet that I just connected with. it was, ⁓ yeah, was, think learning from other people is the best way to learn. Col. John Boggs: Hmm. Yeah. That is the best way to learn. Yeah. You don't have to go through the same pains that they went through if you're a pretty smart guy. Nikhil Asrani: Right. Right. I always tell people, I always tell people it's funny, know, I'm like, you know how people say you got to learn from your mistakes, but I actually tell people I try to learn from other people's mistakes and then, you know, take bits and pieces of everything and try not to make those mistakes myself. Yeah. Col. John Boggs: Okay. Okay, trading. is... So trading is collaborative. Yes, would you agree? Trading is collaborative. It's intense. And well, let me put it this way. Trading is collaborative, but yet it's intensely personal. It's individual. Nikhil Asrani: Mm-hmm. Very true. Very, very true. Col. John Boggs: So how do you think? Because this is about leadership. So how do you think about leadership when much of the pressure is internal? It feels like it's all in here. I mean, it's collaborative, but when it gets right down to it, it's you. It's all of what you did today. How does that sit for you as a leader? mean, that pressure's got to be pretty tough. Nikhil Asrani: Yeah, no, I totally ⁓ identify with that because trading is such a kind of a unique, weird field where no matter how many traders I connect with, ⁓ LinkedIn and other places I network with people and I connect with them, there's always this wall, some sort of wall between us where they're not trying to really share all their... intellectual property, know, like their exact algorithms, details, and I'm not trying to share all exactly stuff that I do. And it's kind of like we're trying to communicate about it. But at the same time, we're trying to like hide all the secret sauce that we both have ⁓ of our own. So it's a pretty like it's like a you got to walk a fine line. You know, you got to talk to people, but make sure you don't give away your secret sauce. Col. John Boggs: I mean. Mm-hmm. Mm-hmm. Nikhil Asrani: So it is collaborative in a way where if you're working in a trading team, ⁓ you have to, like if you work at a firm, like a hedge fund, you have to work with other people. That's like mandatory, right? You have to work with software engineers, quants, like quantitative analysts, know, all kinds of stuff. If you're a trader, but at the end of the day, you're accountable for your own profit or loss, you know, as a trader. So no matter what anybody else helps you do. Col. John Boggs: Mom? Mm-hmm. Nikhil Asrani: or contributed, you're going to be on the hook based on whatever the losses are. So it's like kind of like I would draw an analogy to, you know, kind of being the best player on like an NBA team, know, like LeBron James, right? Like no matter how many people he works with and, ⁓ you know, shares the ball with at the end of the day, if the team loses, they're going to blame him. Right. So so they're going to be like, hey, he couldn't get it done. So like Col. John Boggs: Yeah. Nikhil Asrani: As a trader, that's how you feel in your own mind. You're like, I have to get it done no matter who's helping me and it's my job to get it done though at the end of the day. So it's a really unique skill you end up building where you're talking to so many people about collaborating on this, but then at the end of the day, it's your own fault if you don't make money. yeah. Col. John Boggs: You Wow. So tell me, what has this worked? What lessons have you taken? from this work, mean, managing yourself before managing others, I mean, you gotta manage you, you've gotta be very disciplined. So what has been your lessons for yourself, the ones that you take away and I gotta remember this, yeah. Nikhil Asrani: ⁓ You have have the right mindset you're ready every day and you're also doing work after the market. ⁓ So the market closes at four, I usually a little break and then I go back to analyzing my systems and make sure everything went well today, behind the scenes, make sure nothing ⁓ is breaking, so to speak. So basically, You have to be disciplined in terms of doing all the work, but you also have to be disciplined, getting the right rest, trying to be in shape if possible, because I've noticed being in shape actually helps stressful situations. You deal with it better, but when you're eating random food and... Col. John Boggs: Mm-hmm. Nikhil Asrani: not in shape, not getting the right sleep. That definitely has a negative effect on your performance in pretty much anything, I guess, but especially here. yeah, it's just like being mindful of eating the right food and brain food and stuff. And then also just making sure you put a lot of hours in of like actual work because... I could go on a vacation for 10 days and not do a lot and then I'll come back and I'll feel like I'm so behind. I feel like just doing the right, not taking too many breaks, even though that sounds a little crazy to some people. Like, what do mean? I shouldn't be taking a break, but I feel like minimal breaks is what the optimal thing is here. And just so always being plugged in, that's the main thing. Col. John Boggs: Wow, wow. So what advice would you give someone who's entering into a high stakes decision making environment like you're in now? What advice would you give them if they're coming in for the first time? What would you tell them? Nikhil Asrani: Yeah, would, you know, first thing I would tell somebody like that is make sure you handle being wrong pretty well, you know, because when you start trading or maybe a lot of other things as well, you get it completely wrong, right? And you feel like I'm a smart individual, but then the market teaches you that maybe that's not true, at least now, you know, and then you have to get better and then you got to come back, try again. and then you'll be wrong again. So being wrong is a big part of the learning process and also comes with a lot of frustration initially when you haven't been wrong a whole lot. For example, a lot of people get into trading, they go to Ivy League schools before that. They go to Harvard and Princeton, right? And then they come into this field. Col. John Boggs: Mm-hmm. Nikhil Asrani: That's the first time they actually get like a blow to their face, you know from the market in the past they have never right they They've never skipped a beat. They they went to high school. They got great grades. got into Princeton straight 4.0 and then they come here and they're like, crap I'm actually not the best at something, you know, so Like you gotta be it's gonna humble you, you know, so you gotta be ready for that but then the main thing is you gotta tell yourself like I don't have to give up just because that happens, right? I can just get better and keep trying again. And that's what I did. Like I said, it took me years and years to get better at trading, probably close to like nine or 10 years. by now I've been doing it for like 13, 14 years. So it's a long process. Be ready to be wrong, be ready to be frustrated and then just handle it well. Col. John Boggs: Mm-hmm. Bye. So tell me how has your relationship with risk evolved over time? Nikhil Asrani: I would say it's become more of a respect thing now. In the past, I used to not consider it a big deal. I used to just think, yeah, everybody takes risk. Sometimes you lose money, sometimes you gain money. But since the 2020 COVID stuff and then this month and last year some stuff happened where I got really valuable lessons of managing risk. It's more about respecting it and knowing that it's always there. know, like, cause a lot of people, even in general, right, in life, you don't really think that you're at risk when you're crossing the street, right? Like you're like, I don't know, why would I get hit by a bus today? Right. What, but when it happens to somebody that's considered a tail event, you know, like, which means it's very, very, very rare, but it just happened. Right. So Col. John Boggs: Yeah. Yeah. Nikhil Asrani: So like in trading, if you don't want to blow up, know, the blow up means just losing all your money one day. If you don't want to blow up, you got to manage tail risk at all times. And that's the biggest risk of all of them, right? So like, it's more like a respect thing. I'm like, okay, I know you were, I know you're always there. I got an account for you. ⁓ Col. John Boggs: Mm-hmm. Wow. For leaders or investors out there listening and they're interested in disciplined approaches to risk or markets or systemic decision making, what's the best way for them to learn more about your work or to connect with you? How do they do that? How do they connect? Nikhil Asrani: Yeah, yeah. Yeah, you know, I love connecting with people and I always keep connecting and having calls with more people off of LinkedIn. So that's my main platform of choice. You know, they can find me by my full name, Nikhil Aswani, and you know, I'm the founder of my company, Edge seven is the word edge seven trading and it's, it's right up there on LinkedIn. And so they can just find me that way and send me a connection request. You know, I always connect. with whoever wants to learn something about trading for me or anything I can talk about. also, I wanted to say I've been pondering and tinkering with the idea of starting to kind of coach students who want to learn about trading in a more direct way because there are books, there are podcasts, blogs and all kinds of stuff like web pages you can read about trading, which I used to do. Col. John Boggs: Mm-hmm. I guess. Nikhil Asrani: But like I said, like we both talked about earlier, learning from a mentor and learning from somebody who does it already, that is invaluable. It absolutely trumps everything else. ⁓ Col. John Boggs: Mm-hmm. Mm-hmm. Nikhil Asrani: I've been thinking about, I have never done it yet because my time is always taken up by the stuff I'm doing. But I was like, why not give back? Why not coach people on trading? And obviously, it would be somewhat of a paid service. It won't like because I have to account for the time. But yeah, so people can find me there and I can even send you some other stuff later. Maybe we could put it up and Col. John Boggs: course. Nikhil Asrani: Yeah, you know, that's, I'm always open. Col. John Boggs: Wow, that is fabulous. And that's fabulous. And I like that you were going to start coaching because I love coaching. if that's the way to learn almost anything, that's the way to get better at anything is if you have yourself a coach. That is the number one way of going from here to here is having a coach. Someone that's been there like you have. Nikhil Asrani: Yeah. Col. John Boggs: and willing to teach, willing to coach. And of course, you ought to seriously look into, hey, formalizing that, like, hey, this is the program, this is how we're going to do it, and do it every so often. We can talk about that offline if you'd like. Nikhil Asrani: Yeah, that'd be great. I'm looking forward to that chat. Yep. Col. John Boggs: Yeah, absolutely. Well, hey, thank you very much. Thank you very much for this time. I greatly appreciate it. And more than a little bit. folks, you heard it. mean, Nikhil is contemplating doing some coaching out there. So reach out to him ⁓ and make it worth his while, make it worth your while. If you're going to start investing, don't Don't gamble. Don't go out there not knowing what you're doing because you're going to get eaten alive. Nikhil Asrani: No, bad idea. Yeah, I know too many people that have lost their life savings or half their life savings. And these guys, these people are like high earning people too, right? So they had saved up a lot of capital and then they're like, hey, I'm down 250K. And I'm like, okay, like that is scary. So you're better off learning from somebody that already knows how to trade and then just pay them a little bit and then make a lot. Col. John Boggs: Yeah. Nikhil Asrani: for yourself. ⁓ I know you are in the business of coaching people as well. It's always good to talk to somebody who's experienced like yourself. I'm looking forward to more chats. Col. John Boggs: There you go. There you go. That's the one. Mm-hmm. Mm-hmm. All right. All right, folks. Well, Nikhil, thank you, sir. Thank you very much. And for everyone else, hey, until next time, we'll talk to you later out here.