Some call December 31st, "old year's day." For traders and investors it is a good time to look back and hopefully learn some lessons from the year gone by.
For the trades reported on this blog I am down approximately 1.5% for the year. Many years -1.5 would be rather poor, however, when the overall U. S. stock market is down 35% to 40%, and many foreign markets are down even more, down 1.5% doesn't look bad at all. To put it in perspective, after a 40% loss, a trader must go get a 66% gain to break even. (Start with $100, lose 40% and you are at $60. A 60% gain from $60 only gets you back to $96).
In my profile, I write about survival. For traders this is vital. Money management is at least as important as making good market calls. So even though my main tactic is to sell naked puts, and a bear market is where that can lead to huge monster losses, my loss for the year was modest.
Ruthless cutting of losers and small position size might be considered the secret sauces for 2008. While, it is true that almost all of the losers I reported would have closed at a profit if held until expiration, there was no way to know that at the time the loss was taken. Just one terrible loss would need a dozen or more of the small winners I tend to shoot for to make up for it. Best to take the medicine and feel some discomfort than hope and possibly wake up with a game changing loss, or worse be out of the game all together.
All the best. Cheers.
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