Tuesday, April 22, 2008

Know When to Hold Them and Know When to Fold Them

Last May, I began to trade options on stocks and Exchange Traded Funds (ETFs). Obviously, my primary reason was to make money. Anyone with knowledge of trading options will tell you this is not a good way to make money. They would also give you several other good reasons why I or anyone else, who considers themselves sane, should not do this. However, being retired, and not caring whether anyone considers me sane (except for Linda), I began to do so. For the first several months it was fairly easy because I was buying options on the premise that the share prices of housing stocks and the few select banks would continue to decrease. This occurred with satisfying regularity and thanks to Washington Mutual in particular I was able to make some money. Since then I have learned many things about the difficulties in trading options, but I have also learned that it is possible to make money with sufficient information, good skills, and the right attitude.

The point I want to make is that one of the most important things I learned was that having a good exit strategy is most often the difference between making and losing money. People who trade options or stocks or commodities who make consistent money have a plan, and an important part of that plan is to have an exit strategy at the time they make any purchase. Exit strategies are also a part of life. There is a time to leave home and go to college or otherwise go out on your own. There are times when it is in our best interest to leave a particular job, and the failure to do so can have long-lasting consequences. Exit strategies also come into play in the most important part of our life, be it marriage or a partnership. The cessation of a relationship is never easy, and most often is extremely painful. It is vital that we deal with the reality of a relationship that no longer works and make appropriate decisions in the most humane manner.

The importance of exit strategies exist in the business, political, and social context in which we live. Whenever the stock market is in a boom mode there are always many people who stay too long at the party and find the money they made is a thing of the past. Businesses need to discontinue non-profitable practices in a timely manner. Everyone in business knows this, but history is replete with the failure to do so. IBM seemed to invent the computer, but it was making PCs long after it should have exited this market.

Wars are the most horrible of human events and should be waged only as a last resort. We sort of trickled our way into Vietnam and eventually had over a half a million men and women in the armed forces involved in the conflict which had no purpose and no possible exit strategy. It was a sad day in the history of this country when both Democratic and Republican presidents continued to lie day after day about what was happening in Vietnam. Our exit strategy of helicopters flying out of the US Embassy was a pitiful sight. Initially, I supported our entry into Iraq because I was convinced by the presentation of Secretary of State Colin Powell, that Iraq was a clear and present danger with weapons of mass destruction. I ceased believing that years ago. In Iraq we have been and continue to repeat one of the same mistakes we made in Vietnam. We have no exit strategy. We can "surge" all we want, but we don't know how to make Shiites and Sunnis in Iraq build a working partnership. They have been at war with each other far longer than this nation has existed. We are so immersed we simply cannot pack up and leave but no one knows how we will know when to get out. Hopefully, it will not end in another string of helicopters leaving the US Embassy amidst chaos and panic.


Anonymous said...

Not as funny as the first two but some food for thought. I know and care nothing about the stock market. Wallstreet is run by crooks for the benefit of crooks. HOW COULD YOU HAVE BELIEVE THAT YOU WERE EVER IN FAVOR OF THE WAR. The idiots in charge lied, continue to lie, and will lie until Obama is sworn in. They are arrogant ignorant bastards who "outted" Valery Plame when Joe had the courage to tell the truth. Cheney is as cold hearted a human being as I've ever seen. It was so scary that he was actually running the country when whats his name was put in front.


Anonymous said...

I just stumbled upon your blog. It's sort of interesting in that you take on a wide variety of topics in just three posts. Your concept of exit strategies in life is interesting. I recently broke up a three-year relationship that was going nowhere. When I told her about my feelings I found out that she was happy to end it as much as I was.

I too have an interest in investing, although I would never trade options. Some of my friends did and ended up broke very quickly

Regarding Iraq, I also never believed what the administration said for one moment about what was supposedly happening in Iraq. The weapons of mass destruction turned out to be weapons of misinformation. Your picture of the helicopter shows the is graceful and into a war that should have never been before. My dad served in Vietnam and he never wants to talk about it.


Anonymous said...

You seem to want to be some sort of columnist. I don't think you're that good, although times you're somewhat funny.

Anonymous said...

I enjoyed your blog on exit strategies as applied to life in general, not just trading stocks. Your somewhat irreverant view of world events is amusing. Anonymous (Shana) comments are scary. If she thinks Obama has all the answers to world problems, I think she is in for a rude awakening and the awakening may come too late. Keep up the blog. You have a refreshing perspective on issues that affect us all.