After facing the first hint of adversity in 2013, I was thinking this weekend about how we as traders, deal with turmoil.

I got into investing/trading in 1998, and if there is one thing that I can take away from this experience, with absolutely certainty, is that long-term success in this biz is crafted from the realized loss of capital and the depths of despair.

I love when I read traders who just started flinging their feces at the walls starting in 2009, “swinging their dicks around” with tales of market winship.  Traders who boast of nothing but wins are, in my opinion, a joke.

You want to know why?  Because NO ONE wins all the time, every single person who has ever traded in the market has had a losing streak and will experience draw downs.

That is what I care about.  How do traders deal with adversity and “lossship”.  How do they deal with the humbling experience of have a thesis, throwing real money at that idea and having the market reject that idea, sometimes with extreme prejudice?

From a personal standpoint, my approach to this matter is (and will be) a constant work in progress…as I still do not handle it very well.  Few things suck worse than busting your tail to hammer out a few percentage points, only to watch them evaporate in a couple of sessions.

Nevertheless, as long as the market continues to trade, there will always be opportunities to learn.  Figuring out how to deal (emotionally) with the inevitable fact that your account will not reach new highs every single day is among the most important lessons to learn.

Being able to survive draw downs within the constraints of your strategy will build self-confidence.  Have a sense of awareness that losses are part of the game.  Even some of your best conceived ideas will not result in winning trades, and that is ok.  Those experiences can be some of the most frustrating, but also realize that confidence is built through having control over your strategy and recognizing that even great ideas don’t always pan out.

I believe that self-confidence does not materialize out of winning all the time (though, keep in mind, that doesn’t hurt); rather it is forged from how we deal with losing.  There is exponentially more gratification gained from staring down a grave scenario and figuring out a plan to turn things around, than from jumping in and being successful right away (which, I believe is an unsustainable approach to trading).

Here is the latest portfolio update, which had a nice rebound on Friday.

-EM

We all should have been aware that this brief “retreat” on the stock exchanges was a perfect opportunity to buy more shares of all of our favourite (sic) stocks and ETFs at reduced prices.  Looking at the futures this morning, I am seeing lots of green…big surprise.

The country was obviously starting to crumble at its very foundation upon the thought of three consecutive days of stock market losses.

Rumor has it that normally clean shaven men (and women…though I can’t speak to that) have been seen roaming the halls of the Federal Reserve, faces adorned with the first signs of stubble.  Evidently a mandate has been passed down from on high that, for the love of man and country, beards will be required for the foreseeable future as a sign of “solidarity” in the face of this latest economic calamity.  Members of the 1982 New York Islanders have been hired as consultants to help guide them through this transition.

As an aside, I would love to join in the cause, but Mrs. ElizaMae (an oxymoron, no?) has passed her own anti-beard mandate following the 2011 Super Bowl, stating that “growing a beard out of superstition is stupid idea” (forgive me, I’m paraphrasing a bit here).

My portfolio continued to receive clawhammers to the skull in quaint early-day trading yesterday, though things stabilized later in the day, but I still finished the day off by a decent margin.  Aside from my idiotic mistake of holding a full GTN position through earnings, an oversized position in MDY has been a significant contributor in the violent fluctuation in portfolio performance since Wednesday morning.  Here are some brief notes regarding my positions:

• If my cost basis on ALJ wasn’t in the mid 20’s, I would be much more enthused by this pullback as a buying opportunity.  As it stands, I’m not all that eager to average down on an already underwater position, so I am more likely to wait this out than I am to buy more shares…probably to my detriment.
• I really should be buying more shares of CBI, but earnings are next week and I’m more content to just hang on with what I currently own versus buying more, only to have to sell by next Wednesday.  Unless we are looking at an extended pullback here (and I don’t think that we are), data from The PPT suggests that this would be a good place to add.
• There was some interesting post-earnings action yesterday in ESV.  Now that is out of the way, this could be a buyable dip, though I would like to see the range of prices lessen significantly before feeling better about adding shares.  My cost basis could be lowered nicely here, but I’m still feeling a little nervous following Wednesday’s bloodbath.
• I am content with my positions in MRH, PCL and RWT and will just let the market do what it wants with them for the time being.  The patterns they have etched out with “markets in turmoil” are not those that I have a great amount of confidence in trading…so like I said, I’m going to sit and wait.

There are a number of other stocks that I am interested in buying…you will be the first to know if and when that should happen.  Try to contain your excitement.

-EM

Thanks in part to Yahoo Finance initially reporting (when I started the position) that GTN was to report earnings on 2/25 and part due to my own stupidity for not checking multiple sources (or rechecking with Yahoo, as it were), I have taken a most heinous loss in GTN this morning, selling at 3.29 (from an average of 4.36).  Seems fitting, considering my physical well being.

This is why, unless it is your primary strategy, you don’t play with earnings, kiddos.

Blech.

-EM

Instead of regaling you with tales from the House of “ElizaMae” aka: The Infirmary, lets speak for a moment about the current state of affairs on the stock exchange and how it relates to my portfolio.

Last winter I missed out on the incredible move in AAPL…errrr the stock exchange, from October – March.

In 2013, I was not to make the same mistake.  After “solving” the fiscal cliff, the only trade was to go long.  To my detriment (in performance only), I have remained relatively cash heavy throughout this perpetual melt up.  Not out of being defensive mind you, rather because I was implementing a new strategy and am waiting for the setups to come to me.

As an aside,  I think “paper trading” is a bunch of baloney (aka “jumbo”, for those of you familiar with the Western PA colloquialism).  You can never experience the pain of losing through paper losses.  If you have ideas, start with small positions to test your theories.  Make sure that you can scale them into larger positions should they prove to be successful.

Leading back into commentary about my portfolio, this is the essence of why my cash has been “heavy” and my positions “light”.  Granted, it is not difficult to gain confidence when EVERYTHING goes up every day.

I am 100% sure there are new geniuses anointed amongst the pikers on Twitter each and every day with their epic “calls” of market winship.

Nevertheless, we have been in the sweet spot for a while, my only hope is that my fellow compatriots here have benefited from this incredibly easy market and can realize some gains.  It won’t last forever, so “get it while the gettin’s good”.

Some notes regarding my positions:

• Since breaking through 20, ALJ has used that level as support on two occasions now.  If you have read my blog with any frequency, you know that I respect the power of round numbers.  I think this is meaningful in either direction (support, or if it breaks below 20 with emphasis on a closing basis).
• CBI continues to “sashay” higher, and I continue to sell off parts of my position to lock in profits.  I am comfortable letting the remaining shares that I have run for now and will look to buy this stock back on dips.  If you follow these updates and/or are a subscriber to The PPT, you will know when a good time to buy/add to this name.  Earnings are next Wednesday (2/27).
• I wasn’t able to have my limit sell order filled in ESV last Thursday and then had to sit by and watch the stock retreat on Friday.  Yesterday provided me another opportunity to  realize some gains (at an even better price than I had originally tried to sell at), and I did just that.  This afternoon I will continue to reduce my position as ESV reports earnings before the bell tomorrow (2/21).
• From the looks of the daily chart, I was a day early on my GTN add.  I really like this stock here. UPDATE: DAMN YOU TO HELL YAHOO FINANCE FOR INITIALLY TELLING ME THAT EARNINGS WERE ON 2/25.  My apologies for the tenor.
• MDY is doing exactly what it is supposed to be doing, namely, giving me significant exposure to a segment of the general market.  This is the anti-EEM this month.
• I may look to add to my boring MRH position on this consolidation.  Having locked in a nice profit prior to earnings and being nicely in “the void”, I feel good about adding some exposure here.
• PCL finally perked up yesterday, but I’m not going to read much into it until it breaks higher (>49) or lower (<47).
• RWT is overdue for a pause and I will look to add should that opportunity present itself.

-EM

I sold off about 20% of my $ESV position at 65.37 (from 63.64) as a preemptive measure toward lightening up into earnings which are scheduled for Thursday.

-EM

I took a little more off of my CBI position this morning at 54.55 (from 50.85) to lock in a few more bucks profit.  I still hold over 50% of my original shares in the name and will look to add more on a pullback.  Earnings are next Wednesday, so I’ll likely wait until after that event to add.

-EM

Getting sick sucks.  Getting sick while having to take care of 2 young kids (who are also sick) sucks exponentially worse.

I have little time or energy to write a thoughtful post this morning, so I will present you with a portfolio update as of Friday:

-EM

Two transactions: I sold out of the remainder of my $AN position at 45.98 (from 42.29).  I also added to $GTN, buying another block of shares at 4.43.

-EM

I’m taking some profits here after the nice run that has taken place in $CBI since I added to the position on January 31st.

I sold about 23% of my position at 54.13 (from 50.85) for a nice little gain.  Thus far I have been letting these positions run, but starting now I am going to start taking off small parts when they are showing a profit as a) a little bit of protection and b) to lock in some gains.  I will look to buy back those shares I just sold AND MORE on the next favorable dip.

-EM