Actually, sometimes they are the best place to be.
As some of you might know, I run a trading room. I have a great time with the community we as a team have grown it into so far.
Some of my time with my team is spent pointing out unusual options activity that I like.
But most of my time is spent answering questions about my own trading methodology because they seem to work pretty well. My answer is always that this is what works for me. If something else is working for you and shows you things more clearly than my set-ups do then there’s no need for you to switch.
Then I explain it to them anyway.
Back to the story at hand. The see-saw markets we’ve been seeing recently, the escalating trade war tension…it has people trying to catch wild swings, or end up losing on a ‘sure thing’ because the indices were weighing down the stock.
So a few guys took some heavy losses and told me they felt like they needed to take a break. I told them they should take a break.
Your money is safer in cash than it is .equity much less most of what some of the room do with heavy option allocated portfolios.
If you’re on a losing streak….take a breather. Step back and remember that you can trade for a living but you can’t live just trading.
I take breaks even when it feels like I can’t make a bad trade. I simply shut off whatever I’m trading on, grab my dog and drive down to the beach. Or just sit outside on the patio and read a book.
Staring at every single candle and tick, trying to maneuver what is mostly just noise, is not exactly a fun thing to do. If you’re confident in your investments and
So take that break. I thought the following anecdote from earlier this might help. Even the best get the timing wrong and seemingly hit a funk. But if they’re confident, seasoned and good at what they do, it’s nothing at all how the uni-directional way with options….
Of course you’re gonna need a break.
Ray Dallio and Warren Buffet’s HUGE LOSSES
There’s a reason the sidelines exist in sports.
Sometimes the sidelines are actually a pretty nice place to be.
The lowest paid players in the NFL take home $450,000 annually. The majority of players might only see a few minutes of game play in any given season, if any play time at all.
On January 23rd of this year, at Davos, the largest annual public facing economic forum in the world, Ray Dalio made a comment:
“If you’re holding cash, you’re going to feel pretty stupid.”
Dalio founded and runs the largest hedge fund in the world, Bridgewater Associates. They manage around $160 billion dollars.
The mainstream financial news was quick to call him out on his comments, a week or two later, as being a tremendous error of judgment. The Dow had seen two one thousand point drops since his remarks.
But then again, he does control the largest hedge fund in the world for a reason. Nobody is ever always right. Those big hits on the market that same week “cost” Warren Buffet $11 billion dollars. Temporarily.
“Wonder why most fund managers can’t beat the S&P? Because they’re sheep…and sheep get slaughtered.” – Gordon Gekko, Wall Street
Yes, he lost $11 Billion dollars. But that was over the course of a week.
Within two weeks they were back to where they had been with their equities. With indices still hitting all-time highs 8 months later, I think it’s safe to say Dalio was right.
The genuine point of the story is actually this…it’s fine to take a break from trading. Even long breaks. It doesn’t really matter….once you have a solid strategy in place.Both of these guys are salty old dogs who have been around. I’ve heard Warren say several times that he doesn’t check Berkshire’s portfolio every single day. I’ve also heard many people say that he’s lying when he says that….I truly don’t think he is.
He knows Mr. Market well.
From one of Warren’s Stock-Holder Letters in the late 80s:
“Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence.”
That it for now my friends. Until next time…and stay safe, it’s a jungle out there.