SUNDAY, JUNE 25, 2017
Hello everybody! Whoohoo the trading week is about to begin! The week ahead is going to be exciting! I’m sure I will laugh and cry and probably drink, but no matter it will be a week to remember. It’s going to be one of those weeks I look back on in years to come and say man what a ride! One way or another a move will be made and it will be good or it will be bad, but either way I am prepared. I have strategically planned not to care…
YES, AGAIN, PLAN NOT TO CARE
How many times must I say it! I should rename this site to Plan Not To Care! The trick to investing is planning not to care. You should not watch the market every minute of every day. You should not be concerned if a stock you hold drops 7%, in fact, if you truly believe in the company you should consider that moment a great buying opportunity! I continue to stress a few points over and over in my posts because it took me years to figure this shit out. Emotional discipline is crucial and you must hold a long-term viewpoint.
I just read the below article on MSN and I rarely like any of the articles I find on that site, but this one was actually dead on. Everything that was said was absolutely the truth and even the five (5) things to watch out for were perfect. Worth a read anyway…
The dangers of being an overconfident investor http://a.msn.com/00/en-us/BBCCSbo?ocid=se
PROFITS COME AND GO
I use the image to the left as an example of how things can go really crazy. Yes, that’s a 40,000% return on LinkedIn the day it took a nasty tumble last February. It lost half (50%) of it’s value that day and people thought it would never recover. Those that bailed are probably wishing they hadn’t because it’s right back where it was that very day. Around $195 per share. Talk about a great buying opportunity!? Of course, I hate LinkedIn so I skipped it.
I suppose it’s due to running my own business for twenty-three (23) years now, but I am programmed to go with the flow when it comes to cash. Money comes and money goes (mostly goes) throughout the life of a business and certainly my life. I have always dealt with large “chunks” and I don’t live like most people with a set paycheck every two (2) weeks. I have a tiny little W2’d salary that covers some basic expenses, but the majority of my money comes from the chunks randomly during the year.
My point is: I am used to watching large sums come and go. It has literally become just digits on paper to me so I do not get emotional about it. Most retail investors I talk to cannot control their emotion especially when things are going against them.
Stay calm. Relax.
You must understand terrible things will happen. There will always be somebody out there trying to drag your favorite company down. As they say stocks take the stairs up and the elevator down and that’s the truth. Investing requires patience, confidence and common sense. My best friend has a hard time trusting herself especially when it comes to making decisions about money. She’s been trying to invest in a few ETF’s since January and has yet to pull the trigger. She is missing the ride and I have tried to explain that there is no “good” time to get in. You just have to do it and ride the wave. Go slow and be careful. Accept the fact you’re going to be wrong sometimes and as long as you’re ok with what you own you things will work themselves out. Invest in good companies and stay away from “lottery stocks”.
Recently I was up more than 40% YTD and I was feeling pretty good about 2017. The thought crossed my mind to sell everything and watch from the sidelines the rest of the year. I mean, damn, 40%? Who can argue with that!
Today I think I’m around 26% and needless to say I was pretty bummed out about it over the weekend. Hillary noticed and laughed about me being bummed saying things like “26% really? That’s just terrible”. I know, I know, but I feel I lost my grip on emotional discipline last week.
For a brief moment, I went back to my old strategy and began “trading” more than “holding” and it was burning me. You cannot time the market nor can you “know” what a particular equity is going to do at any given moment. This has been my point to my best friend for months: there is not timing the market.
After trading for years I can tell you there is no way to know and every day will surprise you. It’s the main reason I love it so much…you just never know what’s going to happen! I feel it’s the last place where you can truly get spontaneity.
I digress. I quickly realized what I was doing and did the most important thing I could have done: I walked away.
For the record, I’m not at 26% because of my trading losses from last week. I’m at 26% because I am holding a great deal of Nvidia NVDA 168,10 +0,60 +0,36% calls and Nvidia is consolidating right now. It will probably continue down (I hope) to the lower 140’s again. Notice how I said “I hope” in that last sentence? I hope it will go down? WTF? Yes, I do hope it goes down so I can buy more. That’s having confidence in a stock or company you like. Just because it’s pulling back is no reason to panic or bail out. You will always lose money panicking. That I can guarantee.
I’m also down from 40% because I have a secret trade going that I will not explain until later in July. It is down, burning me bad right now, but I’m using the “houses money” so I was willing to sacrifice some gains. The risk-reward was just too high. Hopefully, if the universe aligns, I’ll be right…and at least break even!
PANIC AND LOSES
Something I said above made me think of my worst panic moment. I remember it like it was yesterday. It was September 2015 and I was holding 1000 Ford 14 December Call’s (yes, I had several months before expiration, but this was the equivalent of 100,000 shares and would have cost me over a million to call so I was nervous to say the least) and VW happen to announce their emissions scandal which rocked the auto industry.
It was a rough Friday for Ford and the following Monday was even worse. That following Monday I lost $42,000.00 in a single day when Ford hit $12.50 I believe. It may have even gone lower it was all a blur. I lost nearly a third of my trading portfolio and I remember the moment I capitulated…selling every last call for $0.38 per contract to try and salvage what was left. I almost cried. I had not planned not to care. I cared a lot and so did Hillary!
It was a devastating moment and it taught me many hard lessons. The most important being: never hold more options than you can afford to exercise and never, ever, place huge bets with your own money. Always use the houses money and if you don’t have any gains to use, then you don’t need to be placing huge bets. See, most of this is just common sense!
Regardless, I lost the money and bailed. In my defense, I was in the middle of a Real Estate class and I had fever, but I will not use that as an excuse for allowing my fear and emotion to overwhelm me. How did the trade ultimately work out? Well, six (6) business days later Ford decided to skyrocket to $14.76 per share and my calls would have made a profit of more than $240,000.00. It took me months to recover from this one event. I had lost tons of money and I had watched it come right back and skyrocket. I remember standing in the shower for days wondering where I went wrong and how I could have done it differently.
I remember I kept thinking I was missing something and if I were a professional trader or money manager I would know how to pull myself out. The funny thing is…I am now glad I lost that money. It truly kicked my butt and made me sit down, study and really learn how the option world works. I became determined not to be that sucker again. It literally made me a better investor and I owe my gains and all future gains to that one moment.
During that time I also heard one sentence Guy Adami (CBNC Fast Money) said over and over in my head: learn to play the game and the money will come. I knew I didn’t know how to play or I would have known what to do and had more confidence. I decided to devote my life to learning the game…
IN THE END
It was really simple. I let emotion and fear drive my decisions. I was playing a dangerous game I wasn’t prepared to play and I cared too much. It occurred to me during that debacle that I have made most of my money and picked up some of my best clients during those times in my life when I just didn’t care. The less I care the more confidence I have. Strange, but true. Everything, at least for me, is very much tied to my opinion of the situation. If I care too much I will fail every time…
I was gambling, not investing and that my friends will destroy you. I believe it took until January of 2016 before I started easing back into the market. Having learned a valuable lesson.
Today, I hold a primary portfolio full of stocks I love. I hold big names and a diverse group. I accumulate shares on any weakness and I always have a shopping list ready in case of a flash crash. I love dividends and selling PUTS and CALLS to subsidize my annual returns. I play it smart and it’s much more fun this way. I have my little “mad money” portfolio that I use primarily for options and that’s the portfolio I use for this blog.
Do I still speculate? Of course! I allow myself one (1) true gamble each year…and 2017’s is in play as I type.