MANAGE YOUR RISK – AND YOUR PSYCHE
Ron H.: “I have discovered that I do not have the right psychological makeup to hold speculative holdings that bounce up and down on no news (actually I don’t mind them bouncing up, just down). Although I never invested more than I can easily afford to lose, I have now sold all but a truly trivial number of shares of BOREF. I am just more comfortable owning index funds and leaving it at that (although I am sure I will be mad at myself if BOREF becomes the standard on all airlines and soars to the moon).”
☞ Investing only works when you’re comfortable with what you’re doing. In my case, it makes me crazier to miss a home run than to strike out. So I diversify widely, even with that portion of my money that I can truly afford to lose. (Which is a big portion, because I don’t have a car a plane or a boat and I don’t eat.)
Diversifying lets me sleep easy even amidst the strike outs.
Dan: “With regard to your MONT short — you should pleeeez put a stop-loss buy order on it, or at least buy out-of-the-money calls since — as with most stocks everyone is shorting (evidenced by the difficulty in borrowing it) — some enterprising 28-year-old hedge fund trader will come along and start buying as many shares as his position limit will allow . . . overnight, off exchange, any silent way he can . . . in a broker or custodian account he has set up with restrictions on stock lending. Actually, he and a few pals at other hedge funds will do this together because, hey, they all belong to the same sailing club and what a cool way to make some money! Then, when your broker and that of everybody else who’s short goes into the stock loan market one day to borrow the stock again (they have to do this every day since most brokers borrow money only on a daily basis…or did yours find someone who they can provide your stock to for a longer loan, like maybe as long as you want to be short…or do you even know?) . . . Anyway, you get the drift. Stocks with a lot of short-interest usually go up 50-100% in a flash one day before finally crashing so hedge fund guys can get bigger bonuses. Meantime all the shorts, put owners, and call-shorters are wiped out. The time to short a stock is AFTER the short squeeze which, the odds are overwhelming, will come. I speak from experience, of course, having lost a small fortune — overnight — in a short squeeze.”
☞ Good advice, if you understand it; even better advice if you don’t — because that tells you you really have no business shorting stocks. My own sense is that short squeezes are not as common as Dan says (“the odds are overwhelming”???). But that’s no reason not to worry. I have two short-selling friends who were literally rich one day — serious millions — and wiped out the next.
CHEW YOUR FOOD
Gray Chang: “Your advice to ‘eat less’ makes perfect sense: look better, feel better, save time, save money, save the environment, and so on. Many folks understand this but have great difficulty putting it into practice. Here are two relatively easy steps that can help: 1. Sharply reduce or eliminate sugary beverages. Drink plain water, tea, or coffee instead. Reason: Liquid calories do not satisfy your hunger like solid food. Switching to plain water is the easiest way to reduce calories without feeling hungry. 2. Eat mindfully. This means not doing other things at the same time such as working, driving, watching TV, or using the computer or smartphone. Look at the food, think about how it was prepared, and enjoy the taste as you chew and swallow it. This goes both for meals and for unhealthy snacks. Reason: When you eat mindfully, you get greater satisfaction and naturally stop sooner. It’s fine to enjoy conversation with someone sitting with you at the table, because when you’re talking, you’re not eating. However, you should avoid talking on the phone, as it draws your mind away from what’s in front of you.”
Quote of the Day
My problem lies in reconciling my gross habits with my net income.~Errol Flynn
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