Thursday, April 9, 2009


After a day like today, heading into a long weekend, there are many that were on the wrong side of the trade today. You are not alone. This is not the end of the world. If you played it smart, you were hedged. You should always be hedged whether it be via options or playing a leveraged ETF. If not, chalk it up to experience. It is just money and sometimes money grows, sometimes it doesn't.

But, there are those that are out there who played one side and perhaps had a bigger loss than they feel comfortable with. There are others that took a hit but were not too heavily invested.

For many of those, they will make the retail investor mistake by making a move that will make it worse. DON'T DO IT!!!!

There are 4 moves you can make if you took a hit today.
  1. Double up to average cost down.
  2. Sell and swing to the other side
  3. Sell and go cry to mommy
  4. Do nothing.
Depending on your situation, the worst thing to do is to make moves 1, 2 or 3. Lets assume you were 40% invested in short positions. If you double up on some investments you are probably adding to your stress. Any additional move down and you will panic sell and just take a bigger hit. Do not add to your stress. If you can't sleep at night you are over invested.

If you sell and swing to the long side, you have a similar situation. Any move down in the market and you will probably quickly swing back and then if it is a head fake, you will probably swing again. Your head will be spinning.

If you give up and just take your losses now, you could miss a big rebound and then you would probably buy right back on any move down in the market and then you would be in the same situation as above. Another retail investor mistake.

Today is a great example of why you have to have stops in place or be hedged. If you go naked with too much invested, you are asking for trouble. If you are margined, well, I have no advice for you other than you were asking for it.

The best thing to do after a day like today, if you were on the wrong side, is to enjoy the 3 day weekend, and set a strategy for the upcoming week. Remember why you put your money into something in the first place. What do you think will happen in 10 days, 30 days, 90 days?

To me, if you felt really good about your moves earlier in the week, did something change that now? If it didn't, sit tight. Don't double up, don't panic sell and swing to the other side. You just missed a run up and you may miss a correction. If you believe the market is going to head straight up then do what you need to do and make the retail investor move.

Also, try to focus on the positives. There are many positives out of the market today, if you were short. First, I think today is a good sign we are not headed to a depression. I think that is great news. There is more likelihood, perhaps that job losses will slow down and your job is safe for now. We are still in a bad global recession but today the world doesn't seem as dark as it has been.

Second, perhaps you have a 401K or retirement account which is invested in mutual funds. Today helped that cause. For example, while I own SRS and some puts on various stocks in my trading account, in both my kids college accounts and my retirement account, I am 50% cash and 50% invested in funds. So those all moved up nicely today and over the last month. I am grateful for that.

Third, there are many avenues out there right now where you can save money.
  1. Renegotiate with your landlord on your lease. You will be surprised that they are willing to come down $100 or $200 a month. Be firm though. It would be better if you have another aparment somewhere else that you would be willing to move to if they don't renegotiate.
  2. Refinance that house at 4.5% and save hundreds a month.
  3. Renegotiate with service companies. I was able to get my lawn company and my pest control company both to reduce their rates in half.
  4. And last but certainly not least, you have investments that can still make you money and perhaps today you were just caught in the wrong place at the wrong time. That is how I feel about SRS.
Moving forward, as I said this past week, betting on financials to either side is just that. A bet. A gamble. I luckily did not pull the trigger on any puts on BAC or JPM yet but at these prices, how can I not? I see this as opportunity. I won't invest too much into them but will certainly play the odds and I think the odds are that BAC and JPM will correct very soon. I will stick with my SRS even though I am hurting with the rest of you but again, I was not over extended and had a hedge by playing FAS calls.

All in all it was not a good week for me but it sure could have been worse without a solid hedge. Look for news out of AAI on Monday. ;)


  1. hey bsen..... can I get an email address for you? thanks...


  3. Erik, unfortunately, no one in congress cares because if you think for a second they are not part of this money moving machine, you are nuts. This is going to be played out as the biggest political scam in U.S. history. But it will take years to unravel because all of the politicians are part of it. And if you are not, and try to blow the whistle, you are risking your career and perhaps your life.

  4. agree's w/ EWT on what "wave 2" is like....described as "disbelief"