Lesson #1: Dealing with Black Swan events.
What is a “Black Swan” event? Essentially, it is an unforeseen event that catches one offguard, in this case monetary loss.
Yes, it’s true, I just endured a black swan event with my VXX position. Let’s examine the ramifications in depth.
Over the past 2 months, VXX has shed nearly 40% of its value. Exactly two months ago, thanks to a previous 100% return in VXX and other substantial winners, I was up a little more than 40%. Exactly two months ago, I had 25% of my assets in VXX.
What happened?
We had the most stupendous rally in generations. Anyone who thinks they “nailed” it is being 100% disingenuous, since there is no way to predict anomalies. Back to the point:
I lost 40% on 25% of assets over the past two months, just in this one position. What does that mean in real terms?
Let’s use 100k as an example, something most of you ham and eggers do not come close to in your idiotic zeeco accounts.
25% of 100k= 25k
loss of 40% on 25k= $10,000
$10,000 loss from 100k= 10%
Comprende?
Just so that I can break it down for you real simple, down to your level, my VXX tragedy cost me 10% of assets. Since I had more than 50% of assets in cash + treasuries and the rest long, my net, net loss, over the past two months, is less than 10%. My year to date gains are still about 30%, give or take a point. I do this professionally, not for newsletter type pin action.
Why do I mention this for the umpteenth time?
You know damn well why I am talking about this. Mention me again and you are fucking fired.
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Ham and eggers, lol. Years ago, I had to support myself on a trading account of the size of that hypothetical loss. Try beans and ramen.
Hey…….no.
Dam tiny keypad. Ahem. No swearing tip DOW 10k remember?
This is not a blog, but a public notice. Something that should be printed out and taped on your wall.
Are there chinese scratch tickets or can we only play lotto?
he swore!
fucking take note of that shit, and what it means.
:oooOOOooooOO
also seriously the new cool is blues rock
get on that
http://www.youtube.com/watch?v=sEPouBnFFgA&feature=related
sorry ~
i mean “i think blues rock is a good tempo for the rally. “
I was too involved to even notice my curse word.
Holy shit you broke your vow.
It won’t happen again.
No worries, QE2!
Dr. Fly, if you are still holding those $VXX shares you have not lost anything because its value may rise again before we know it. I hope so.
I love you!
Trojans, penises,
what the heck has gotten into you?
oops.
I get it, figurative language for being f***ed ovah.
oh no
Since you broke your vow does that mean we’re NOT going to DOW 10,000 now? Holy crap that’s gonna hurt. I’m hanging on by my last nerve waiting waiting waiting. Fucking stick save today really pissed me off !!!!
Fly, Do you stil have your 15K (x Fly multiple shares) of VXX or did you drop that hot (mashed) potatoe?
Still long. It no longer hurts due to my bulked up long position.
When you work with big numbers the loss looks small. When you have a small nest egg. 10 to a 20 percent loss seems like a lot to recover. The danger of losing money is trying to work to get it back to fast and losing even more.
And yes I am now living off eating crickets, and chasing it down with water that came out of the ohio river.
Oh.. And you can catch me now, living in a van down down by the river. Lol
howdy neighbor!
Are you in Cincicrappi, then?
________
Le Fly, you are quite gentlemanly sans the cusswords. Perhaps a new moniker should be “Mr. Fly, Esq.”.
The point here is asset allocation. I adhere to its laws always
I have two holsters; VXX in one, FAZ in the other. Just waiting to draw…
Believe me, many here have been in your shoes. If you will look around, this town died a long time ago. You don’t need to carry a gun in this town.
Folks here move up north, where the grass is green and the girls are prettier.
@FLY- Any reason why HEAT’s calls are so cheap, kind of scared when they let me in these microcaps so cheap.
btw- I think you will lose buying these calls. If you want it, buy the stock instead.
Black Swan event?! Try oversized position or maybe not cutting your loss reasonably. People start to confuse truffles with potatoes, that’s maybe why NNT is on a media hiatus…
Anyway you got a fresh style though, unlike most of the shady creatures in this industry.
Unless the Fly is cursing because he took a ride in his spaceship and already saw that we could be down 1000 points tomorrow if the Bearded Clam doesn’t live up to high market expectations in his speech? The man does see the future.
The market is set up in terrible shape for tomorrow…between Google and Bernanke…if market doesn’t rally it would be a huge change of character….talk about “sell the news”.
Day
It was my black swan event. It’s as simple as that.
Thanks
Bearded Clam sez:
All will will be well, we are on the job!
My local news said tonight:
Douche bag news anchor: Let’s see how your money fared on Wall St…
—shows Dow, Naz, S&P—
Douche bag news anchor: oooh… It looks like a killer, down across the board… In other news… Fireman saves cat from tree
What a killer!
I prefer the neutral style from broadcast media. If only I could read the short term direction of the market as easily as the voice of one local radio money news reporter. No need to listen to the whole report because in two seconds I know the market direction by the sound of his voice.
Similar story, on a much smaller scale with me: lost a bunch of money on illtimed TZA and VXX since joining PPT in June, but still up 10% over that time, so hey, happy child here.. 🙂
Le Fly,
The chateau duhart-milon 2007 was delightful.
there’s that saucy little pie-hole we’ve been missing…
You bloke yo plomise not to seweah. Vely bahd ting to do. Poltforio is doomed now. You roose munny fo rest of yeeah as punishment.
“Fucking fired” is not cursing. It’s just a serious thing said with emphasis. The alliteration goes together and must be used in that manner.
i concur.
Sorta like “Kenny Fucking Powers”, just sayin!
indeud.
I am in Vegas and just saw a sweaty looking ben bernanke sitting at a black jack table with a laser printer in his lap. QE3?
How long you been doing this? i.e. trading without stops?
… “Mention me again and you are fucking fired” …
—
Damn !!!
Did I miss something ?
Was there “insubordination” ?
Was there “conduct unbecoming” ?
What did i miss ?
.
I never use stops. I buy stocks for a reason.
Fistful of Awesome!
(for a few awesomes more?)
_________
My latest post. I am seriously calling for a pause in spite of google’s stellar earnings http://www.ibankcoin.com/peanut_gallery/index.php/2010/10/14/strategy-update-3/
Futures should be up after GOOG…hmm…