Hi OZ; Great set of sad messages from people who were long SANM.
The really sad ones are the guys who borrowed money in order to put nearly 100% of their "portfolio" in a single stock. To hold any stock above about 4% of your portfolio (with the intention of taking a loss if the stock drops in half, thereby keeping your risk to 2% of your portfolio) is not a healthy way to run a portfolio. This is why mutual funds buy lots of stocks, instead of just one. Daytraders have the same sort of risk limits, but can generally assume that their risks are less than 50% of the stock price, so can put more than 4% of their equity into a single trade.
I've been thinking of the reasons people overtrade. The main reason is that they want to make a killing in the market. This is a form of greed, which is an emotion that traders must avoid. I shorted AMZN after their most recent quarterly report (which was dreadful) with the intention of holding it for the long term, as it is clear that their growth story is broken. Since I am holding for the long term, on a fundamental basis, I have to do this with a small enough number of shares that I don't need to cover with a loss between now and their next quarterly report. AMZN is known to be a high flyer, so for this kind of trade I need to have a very, very high stop loss.
This is how a trader on the AMZN thread responded to my small share size. First he quotes my original post:
<<<I have shorted a small number of shares, (small enough that I can withstand a return to $200 per share without covering), and intend on holding these short for a long time. Meanwhile Mr. and Mrs. small time investor are still living in dream land...>>>
Talk about living in dream land...<<<(small enough that I can withstand a return to $200 per share without covering)>>> what did you short 10 shares? Sheesh, you guys are too much...
Live by the sword, baby...and BTW, what conviction you have...you can withstand a return to $200...
And your previous post saying AMZN is a short to zero...you are laughable, sir, and have proven your ignorance.
Get a job...
#reply-10694050
Notice the appeals to the emotions in this post. To get this sort of thing from people living in cyberspace is expected, and I think we are all accustomed to blowing it off. But what can get us into real problems is when our "friends" say the same sort of thing to us.
One of the hardest things about the market is the sure knowledge that if you pick the right stock, you can make incredible profits. Everybody has a friend who got lucky on one stock. If you're trading the market full time, shouldn't you be able to pick stocks better than your lucky friend? (Nope, not unless you happen to be lucky too.)
Anyway, here are some things to keep in mind or say when others influence you to take excessive risks:
"The stock market will still be there next year, I'm in no big hurry to get rich."
"I always like to keep a lot of cash in my account so that when I find the next great trade I can take it, and the next couple trades after that one, too."
"This trade seems like quite the sure thing, but I have seen my share of sure things fail."
"I know I seem like quite the genius to you, but every once in a great while, I am a little too "early" in a trade. So I have to be careful."
"I've got so much money, that I don't mind earning interest on it. I like to keep my risks so low, that they never bother me at all."
"There are so many traders I've heard about who put too much cash on one trade and got burned. I know I'm the smarter than all of them, but only in that I know not to put too much on any single trade."
"One of the things I've noticed about the big professional trading firms is that they never put a big portion of the firm's capital on a single trade. Someday I'm going to be huge, and I'm going to get there by trading like the big guys."
-- Carl |
