Jasper M's  Instablog

    Robert Prechter's advise for successful trading is largely focused on discipline. One major component of this is admitting your mistakes. 
   I believe there can be no better way to accomplish this than to share your performance - that way, if you are failing, and can't or won't admit it to yourself, the guy next to you can enlighten you. 
    I have proudly laid out my greatest trading successes (such as they are) in my profile. It only seems fair to share some of my worst. That is what I am going to be doing here  - show anyone who cares to look, my poorer trades
    Not from my whole career, mind you! That would be just too painful. And time consuming. BUT, as it happens, recent market action, and my response to it, provides a convenient sample. Starting back in May, I began buying puts, mostly way out of the money. I finished off the last purchase this morning (I think). This will be my sample.
   As I write this line (10/21/09), this is a 'placeholder' entry. If and as any of these options expire worthless, or I just give up on them, I will use the "Edit" function to add an entry of their time and price of purchase. I expect to make the first entry in the first few days of November.
    Bear in mind that some of these have expirations going out to 2011, so this might be a loooong project.

Or not.        ; )

Oct. 30: Weatherford International (WFT) (or in my case, WTF ?)
   Goldman saw this company as a leveraged play on oil field utilization, and I agreed . . . but I had different expectations of where oil was headed. While I predicted the rise of oil to around $75/barrel this summer, I had no idea demand would return to those levels so late in the year, with depression looming. 
   I bought a small handful of the Feb. '10s, @$7.50, at a nickel each. Oil is currently just a bit under $78/barrel, and WFT is trading at $17 and change. I still have some time on these, and it looks like oil and stocks are going to be headed in the direction of bailing me out, but I must admit that my original expectations justifying the position were erroneous.
   Moral: Goldman Sachs is not always wrong; moral turpitude does not equate to universal error. I made the same mistake our intolerant ancestors did, during Europe's religious wars - anyone believing differently was a 'heretic', and presumed to be open to every other kind of sin. Which is silly, as the gentlemen on both sides, while they would cheerfully kill one another, would never stoop to stealing.

Nov. 1: MBIA (MBI)
   Once upon a time, there was a company that insured other people's debt. That is, put up its own pristine credit rating to support those less fortunate, who paid it handsomely to do so. 
   But then, its pristine credit rating went away. The business model was no longer executable, right? So the company must be doomed. Right?
   Um, well, no, it turns out. Somehow this company manages to stay in business insuring bonds and CDOs, despite the fact that its own credit rating (=capacity to actually make good on claims) is shot. No, don't ask me, I don't know.
   Much was made of a notion to split the company, shielding its relatively attractive muni arm from whatever might be about to happen to the rest of the firm. Given recent events in almost every state in the union, but most especially California, I wonder how this really would help. 
   Most of the puts in the financial sector that I made so much on in 2008 were LEAPS I had bought a year or more earlier. As 2008 progressed, I had been stalking MBI as a 'zero-short', but didn't pull the trigger in time, and then the SEC said no short selling, so what's bear to do? I tried to set up a 'synthetic short' using puts, but I came in too early (May), and cheaped out, went too low, and not quite far enough out. 
   I didn't lose much on this, but the errors are obvious enough to be painful. I waited too long, then couldn't discipline myself to walk away, instead coming back in too early, embracing a strategy that required me to be proved correct quickly.
   I would say "won't make that mistake twice", but . . . 

    American International Group (AIG)
   "The Dead walk ! The Dead walk !! The Dead . . . pass taxpayer money, to Goldman . . . !?" 
   Who would have guessed the taxpayers would supinely accede to this abomination? Not me, that's for sure. The fact that (relatively) free markets attach any value to this hollow shell is beyond me. They are either assuming the Recovery Fairy will make all their potential liabilities go away, or they believe the government well really is bottomless, and will never find a better way to keep Goldman Sachs in business. 
     My trajectory for this position was almost identical to my MBI experience: waited too long, wouldn't walk away, couldn't short, back in too early with a too-aggressively structured synthetic position. Recent market action might actually take this one into the black, but I have to admit, my assumptions were just wrong.