When I began investing in 2011, I made every mistake known to man. Like most young investors, I was ignorant, overconfident and naive. The only thing I had going for me was lack of money. Pissing away 45% of my portfolio meant about $500; a lot for a college student, but nothing if you consider it investing tuition.
In 2012-13, things didn’t improve from a process standpoint, but, I achieved good returns in a very bullish market. I invested in what I knew, such as Nike, Tesla and Apple; a far cry from my first ever “investments” in Globus Maritime (GLBS) and Banco Santander (STD). Yes, at the time, it actually traded under the ticker symbol, STD, and it felt that way each time I checked my account.
My earliest successes led to hubris and more lessons. I over-traded on emotion and lost a good deal of money in the beginning of 2014. Not easy to do in those conditions. I was determined to right the ship.
2014 was a turning point for me. I shifted my attention from Bloomberg and Stocktwits to books written by Benjamin Graham, Robert Shiller and Daniel Kahneman. If there’s one lesson I’ve learned, it’s that financial news is toxic and generally non-formative. It’s meant to sell ads, like porn.
By writing down my strategy, objective and processes, I improved my returns greatly since the beginning of 2015, returning roughly 64%, which is about 12% better than the S&P 500. I attribute it to prudence, a bull market, and Jeff Bezos.
Fast forward to Q4 of 2018, and instead of panic selling into the mania, I boldly invested all my cash and even went 115% equities. I’m a staunch contrarian so this was easy to do, however, it was reckless. I was rewarded handsomely with a 20% return from the Christmas Eve bottom. I let it get to my head.
The point of this post is not to boast, in fact, I’d consider the last six months to be the most reckless and least sustainable since I begin investing.
In January I came off margin, in February I continued to trim and even built up a small cash position. At the end of February, I bought a QQQ put option. My first option trade since 2014. I went from trimming to selling positions, only to watch them climb by a percent each day since. I gave up good positions in a bull market, a rookie mistake.
Then, in the last couple weeks, things got ugly. I went from one put option contract to five. It’s a play out of my 2011-12 playbook. I caught myself thinking that the market is wrong. The market is always right.
What about slowing growth in China? And, how about Brexit? When will the Mueller report be released? Why aren’t interest rates rising anymore? There’s supposed to be liquidity issues!
I’m a dumbass.
I’ll hold my QQQ puts until expiry in April and May, but I’m highly confident they are expiring worthless. I won’t trade them, so I don’t trigger the wash sale rule when I ultimately take a $1,130 short term capital loss.
My lesson is that I need to have a written plan in place. Until recently, every process and every trade was according to my investing plan. I didn’t have a plan in place for using margin or tail risk strategies and I acted without fully considering the odds and consequences.
I’m reflecting so I can move forward.