November 10 Lessons

Something is not working, or I wouldn’t be down 10% in one week.


LESSONS FROM CSCO EARNINGS

I got a bit unlucky with CSCO and CTSH this year. I also trusted the GS calls blindly, going into earnings, and didn't buy any real protection.

Lessons:

1. I will NOT hold onto uncovered calls going into earnings. I will buy some Puts. Even if analyst expectations are great, I will COVER MY ASS with good Puts.

2. I did a good job on getting rid of expensive CSCO calls ahead of earnings.

3. I need to focus on fundamental analysis: Buy long-term calls in undervalued firms that will come up.

4. I will always have Puts in place. Even if I am one day ahead of Options expiration, even if the market is headed down.

5. I will expect my Puts to become worthless. I will first buy the next month's Puts, then sell this month's Puts.



LESSONS FROM NASDAQ FALL, WHICH I HAD PREDICTED

I guess I could argue that I got a bit unlucky this past week. I had been expecting a NASDAQ fall, for more than two weeks now. I had even predicted it to Chach. My largest options holdings were QQQQ puts. But I sold them all for little gain the day the market started falling, because I had one eye, or maybe BOTH eyes, on options expiration.

So, actually, I didn't get unlucky here. I just made a mistake. My MISTAKE was that I wanted to NOT LOSE money on my Puts. I had made stupid last-minute calls on CSCO and CTSH, and I didn't want to lose another buck on my Puts.

I need to think of Puts as money that is gone. The minute I put it in, it is gone. It is my fee for the gains. My insurance for the calls.

Also, I didn't realize that the market would keep falling. Because I wasn't in Predicting mode, sit-back-and-laugh-at-the-fools-panic mode. I was in stardust-in-my-eyes look at the dollars falling from the sky mode.

So I guess the lesson (and I have realized this a couple of times already) is that I don't trust my long-term insights enough. I get too wrapped up in day-to-day trading and forget about what I had written in my diary, or in my Word Document. Which is why I want to keep referring back to this blog, on a regular basis, to read my previous posts.

I need to remember that my biggest gains come on my LT predictions, and that LT predicting is my strength and my style.

1. Put buying – I will always hold Puts. Even when Options are expiring and market is going down. If I am naked, I will buy Puts even when the market is going down.

2. Because of # 1, I will stop having huge down days. That’s over now.

3. LT Value investing verses ST Earnings Plays –

I will spend 90% of my investing time forecasting the future and writing about it, and finding values. I will spend 10% of my time looking at my portfolio. Fundamentally, because of who I am and want to be, I am more comfortable sitting back and reading and hiking and meditating than I am glued to my computer mindlessly watching tickers go up and down. As I have seen, I am better at forecasting than most others. It is when I get caught up in the day-to-day jumble or panic that I lose my forecasting edge. Because I am not a technical analyst that is also when I make mistakes - such as buying too soon when a stock is going down.