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Tom Armistead
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I am a retired accountant, having spent the early years of my career in the insurance industry and the later part in the field of accounting. My insurance experience has given me the willingness to accept investment risk if I feel the return justifies it; also, an interest in applying risk... More
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Tom Armistead's Instablog
  • Investing Advice From Lucky Hans 0 comments
    Feb 3, 2012 5:26 PM

    The Brothers Grimm are little read these days: children's books have moved on, and TV and video have taken over the role of books to a large extent. Besides, some of the material is politically incorrect, to put it mildly. Nevertheless, the tale of Lucky Hans is worth a read for investors who trade frequently.

    Hans, having served 7 years as an indentured servant, asks for his wages, in order to return home with them. His master gives them to him in the form of a lump of gold as big as his head. Hans ties it up in a handkerchief, slings the handkerchief over a stick, puts the stick over his shoulder, and heads for home.

    For you gold bugs out there, assuming Hans' head was of normal average size, that was lot of gold at $1,700 an ounce.

    Gold is heavy, and Hans began to sweat and tire, lugging his burden along the road. A stranger came by on horseback, and Hans, wishing to ride in style, traded the lump of gold for the horse, even up.

    It's all down hill from there - Hans trades, in succession, for a cow, a pig, a goose, and a grinding wheel. The grinding wheel is heavy, and he finally kicks it into a well, heading for home much relieved to be rid of his heavy burden. I'm sure his mother welcomed him with open arms.

    As a frequent trader, I sometimes think of Hans' journey. How about those shares of IBM I sold for in February 2009 for $92? Or the Carbo Ceramics I sold for $35 in September 2009? According to my notes, I was going to use the proceeds of the IBM sale to buy some financials, where I thought I saw opportunity. Details of what I intended to do with the proceeds of the Carbo sale are not available.

    I won't put you through the exercise: if I wanted to, I could trace the last of the proceeds of the IBM sale to the purchase of some out of the money calls that expired worthless. As a practical matter, some strings of trades deadend in losses, while others multiply trivial amounts into meaningful sums - rapidly.

    The moral of the story, for traders, is that sometimes you pick up treasures very cheap. It's a good idea to think carefully before you discard them for the next momentum idea that comes down the line.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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