Ever since I started working in 2005, I’ve been immersed in the big-money promise of the stock market. A few others in my work group are crazy traders, so I hear about their trades whether I ask them about it or not. Hearing them talk planted a seed in my mind. I began to believe more and more that becoming a sophisticated trader was the key to my financial future. I don’t think I’d be a successful entrepreneur or successful property manager or successful investor. I don’t think I have the chops for any of those. But trading—with its instant gratification and internet-like accessibility—I thought I could be good at it.
In 2006, I began to dabble with the brokerage account automatically set up for me by the company. Buying and selling individual stocks, I tried to time the ebb and flow of the stock market. My up days were piddling, but my down days were huge. In a few short months, I was down 50%. So I benched myself. Licking my wounds from the sidelines, I watched the market recover without me.
It would be a long time before I took the plunge again. I had placed so much hope in trading that I didn’t want to see myself fail—even if it meant not trying at all.
Finally in September 2007, I started anew: new account with full options trading privileges at a brokerage with very low commissions. No more trading stocks (aside from occasionally dipping my toes in AAPL), I focused on selling naked calls and puts.
It is as dangerous as it sounds. Leverage is a fickle demon. It can make you rich one day and then take it all away the next.
I experienced that roller coaster ride firsthand.
I was quite gung-ho my first month—or perhaps a better term is reckless. I was selling calls left and right. I think I almost got a margin call after only the first couple days. I lucked out though. The stock market was benign that month and I ended up with a decent return; we’ll call it +X%.
The next month, I got greedy. I wanted even more than +X%. I made some moves which my coworkers thought were crazy. I positioned myself to profit if the market took a dive. The only problem was that each morning I’d wake up to see the market holding or going up. After weeks of that, my faith gave way and I bailed, taking a small loss in the process. Literally a couple hours later, the market dropped. In the aftermath of my poor timing, I mindlessly executed a flurry of trades. I was desperately trying to regain the money I would’ve made had I not bailed out. Bet you can guess how that went: −2X%.
Losses bigger than gains, a familiar feeling. Instead of turning away like last time, I kept at it. I got myself to calm down and be more patient. I lowered my expectations and forced myself to think through every trade; no more buying/selling on a whim.
And you know, it’s been working well. +0.5X% in both November and December and, if nothing spectacular happens, another +0.5X% for January (knock on wood). Compared to my coworkers, it’s not impressive, but that’s not the point. When my coworker boasts that he’s up tens of thousands of dollars for the day, it’s easy to forget that the goal is to achieve consistent gains from month to month so one day I can live off of those earnings instead of depending on a paycheck. I hope I’ll remember that in 2008.
Out of all the things that happened in 2007, this is what I want to remember the most.