So what are we all learning here (about investing and our own psychology)?

This shakeup is very nerve wracking, but I find I’m learning a ton, and even if it feels expensive now, I suspect that there’s a silver lining for finance professionals who are trying to cope with this crisis. Think about it. How many times do you hear “well, the guy’s smart, but how will he perform in a crisis.” All of us are getting a trial by fire. Some of us may walk out less hurt than others, but I’m sure we all learn lessons about ourselves. I for one am learning more about how different parts of my investment/trading toolkit fit together - what parts do I want to hedge, what parts do I just trust to a strategic asset allocation, what parts might I look for technical indicators, what parts do I want to use fundamental analysis for. It also tells me a lot about why you *always* allocate short term liquidity needs to cash. It is sooo tempting to put in “just a little more” when things are going up steadily. I also am learning a little a lot about how I handle the stress of drawdowns. At the start, you can be just mesmerized by the OMG drop, and then try to figure out what to do. I remember reading Curtis Faith in The Way of The Turtle (a trading oriented book) that says he does not try to predict what the market will do. Instead, he decides on what his course of action will be if the market moves up, down, or sideways. That way he is never kicking himself because his analysis is wrong, he is simply reacting to the market. Now if the market is efficient, that mechanism shouldn’t work, because he’ll just be racking up transaction costs and small losses forever, but I am less and less convinced that the market is efficient enough that trading rules like this are useless. I’m convinced that the market is not efficient because 1) I don’t believe human systems can ever be perfectly efficient, and 2) we see observe autocorrelation and momentum that is simply inconsistent with EMH. I do believe in something I call the PEMH (Pretty-efficient markets hypothesis). This follows along the lines of “The Wisdom of Crowds” logic, and it suggests that under “normal conditions,” the additional returns to expertise are pretty small - perhaps smaller than the transaction costs of using it. But this is a periodic thing. Markets definitely have “moods,” and during transitions, things really go all crazy. These moods are linked to behavioral biases. Well, I’m getting off my original points here… What are other people learning about themselves… in your next interview, when someone says - how do you think you can handle a crisis - what are you going to say?

Examine 30 ideas before you pull the trigger on 1. Rinse and repeat. I’m always too fast & sloppy. There’s no rush.

I’ve learned I suck.


Time to buy a timmy ho’s franchise.

This is only my opinion but I don’t think this crisis will change much of the psychology in the market. It’s in our culture to make excuses and take advantage of current market constraints to make a buck. Changing one’s behaviour is very difficult and it’s only going to get worse because younger generations have already adapted to today’s risk tolerance. If you’re tempted once, what makes you SO sure you won’t be tempted again? Especailly given the fact that in tomorrow’s market, it could be an entirely different set of financial instruments…I mean hey, this time it will be different…right?? In other words, we are only going to change if the environment changes aka more governmental regulation. Every toddler reaches into the cookie jar…it doesn’t matter which generation.

i learnt that it is easier to buy than to sell at the right time.

kcin Wrote: ------------------------------------------------------- > I’ve learned I suck. Haha.

A small loss is a professional loss. I sold some positions two weeks ago and at the time it sucked to realize the losses. Now, those trades look pretty dam good. Oh yeah, never understimate the size of a panic.

Use more stop (stop-loss) orders.

Always keep some dry powder. If I only had some cash…

Protective puts are a cost effective way to hedge holdings.

I’m learning how transaction costs are preventing me from hedging appropriately. I’m also crystalizing my investment philosophy. 1) All single stock purchases are based on relative performance, so they are either market neutral, sector neutral, or a pure pairs trade, depending on what the investment thesis is. (this is where transaction costs really start to add up). These are all alpha decisions. 2) Market exposure is determined by a combination of medium-term economic fundamentals and technical indicators. This is a beta decision and presumes that the market is not completely efficient because we’re all a little irrational in crises. 3) Express political views with options (though I don’t actually practice this, I think that options are the tool to use for expressing views related to the political process). 4) Options are probably also good for managing extreme tail risk (provided you think your counterparty is good). It might make sense just to insure your extreme tails. I hurt today (down 3.2%, down 1.5% if you include cash), but I was partly hedged, so didn’t realize just how bad things got out there until I looked at the chart at the close.

man you write some long posts man…are you at work?

I learned that most people are squeamish

I learned that everyone knows what is going to happen, and that they are all wrong. That and to not get excited by daily moves, upward or downward, to not be too boastful of your good calls nor to rag on those who made some bad ones… and when people tell you that cash is for people without balls, it may just be that they dont have the balls to go to cash… most of all i learned that some things arent covered in books, defy explanation, and just are what they are…

I learned that Murphy’s Law holds pretty well.

Bring spare pants

Picco Wrote: ------------------------------------------------------- > Bring spare pants You are duty-bound (hee-hee) to tell us the story that caused you to have this insight

I got a lot of practice saying *FUACK* in the last few days… And yea, I learned that I can be a stubborn son of Bi*ch - not good.