Jun 28·edited Jun 28Liked by Stock Picker's Corner
An insightful summary. I love the clarity of the rules. They remind me of the following maxim: simplicity beats complexity. Thanks for sharing.
Regarding options, I would like to add some color. Zero-day options and similar strategies are 100% crap. However, there are wealth-building strategies with options like LEAPS. They represent the opposite of short-term thinking approaches.
A properly selected LEAPS call (underlying asset's price well below strike price, implied vol below 40%, high open interest/volume, and at least 12 months to expiration) offers massive asymmetry skewed in investors' favor. For example, when the stock moves 40% to 60%, the call may move beyond 500%.
I have been using LEAPS calls to exploit strong impulse trends with 12-18 month durations. Of course, I am not saying options are easy to use; neither is it the only way to gain Alpha.
It is quite the opposite; options (even simple plays such as LEAPS calls) require experience and knowledge. Moreover, LEAPS are just another tool in the box of industrious investors. As a reminder, there are no all-round tools. The hummer does not screw bolts, nor does the screwdriver punch nails.
Dear Mihail: First, apologies for the delayed response. Jack and I are working on our Midyear Review for SPC -- and a fun feature we came up with (watch for it).
But I wanted to thank you for writing.
Let me pay you a couple of sincere compliments.
First, for your eloquent insights ... which are extremely well presented.
And, second, and maybe even more important, for being able to present a different viewpoint in such a civil, well-presented, and engaging manner. I wish more folks embraced your approach ... and had your insights. Having read some of your other work ... I know this approach is part of what defines you ... again .. rare stuff.
Please also let me say ... up front ... that any comments I make here ... are presented in the same spirit of exchange ...
Far too many investors believe there's a "right way" to invest .. and a "wrong way."
When the real truth is that there's "a right way for YOU to invest" (and by "YOU" I don't mean you, Mihail, I mean the "you" on the other side of this typical debate).
So there's "a right way for YOU to invest." And there's "a right way for ME to invest."
Those "ways" may be the same. Or they may be different.
You'll often hear me say (as I did in that story), the No. 1 rule of successful investing is "know thyself."
I think you'll ALSO hear me say ... I KNOW that some folks do well with options. (And now I know who SOME of those "some folks" are .. YOU ... lol).
But I long ago acknowledged in the "know thyself" chat with myself that I'm a stocks guy ... I'm a Contrarian at inflection points (but after I buy ... I WANT folks to agree with me ... so I can make money.)
I know I don't like to trade short term. And I know I like to play the long game ... it's what I'm good at. It's where I've done most of my best work as an investor ... and as a guy who does this stuff ... researches and writes for others.
So I got off the options train ... even though I know that, some folks, like you, can do well in the very situations, and with the very strategies, that you detailed in your superb note.
I also suspect most retail investors don't have the time, experience or emotional resolve to venture into the options realm. Options don't fit with their "know thyself" nature ... know what I mean?
Since that's what I'm comfortable investing ... and writing about investing ... that's the group I'm going after.
But, just to underscore, I also readily admit that for some folks, the strategies you outlined can work.
Thanks for writing. PLEASE do so again. I love these discussions ... especially with smart people like you ... and some of the other cool folks we've met here on Substack.
You underlined so many crucial points, often disregarded by market participants. The first and last thing is to know who you are. Everything else follows.
At the entrance to the Temple of Apollo in Delphi is inscribed the following:
Know thyself, nothing to excess; certainty brings insanity.
Knowing ourselves is the beginning and the end. We only learn who we are when we unlearn who we are not. To be ourselves is to stop being who we are not. Again, the lesson of weeding and planting.
That being said, knowing what does NOT fit you is the first step to figuring out what does. Knowing what fits you is a mandatory ingredient in the game of financial markets.
As a market participant, I tested many strategies, assets, and markets to determine what was NOT for me. Then came the less difficult part. I discovered my mojo on the markets: an event-driven strategy applied to old-economy businesses (energy, shipping, mining), expressed via LEAPS calls.
As you said, this is my way of doing things. It is neither superior nor inferior to other approaches. It fits my cognitive and emotional strengths and weaknesses, emphasizing the former and soothing the latter. It's as simple as that.
A gentlemen's discussion following the motto "I agree to disagree" is a rare gem. A well-argued and respectfully presented comments even more. It is an indulgent pleasure to exchange ideas with you. I am glad I started writing on Substack. Thus, I get the chance to meet exceptional writers and thinkers like yourself.
Looking forward to discussing more compelling topics.
An insightful summary. I love the clarity of the rules. They remind me of the following maxim: simplicity beats complexity. Thanks for sharing.
Regarding options, I would like to add some color. Zero-day options and similar strategies are 100% crap. However, there are wealth-building strategies with options like LEAPS. They represent the opposite of short-term thinking approaches.
A properly selected LEAPS call (underlying asset's price well below strike price, implied vol below 40%, high open interest/volume, and at least 12 months to expiration) offers massive asymmetry skewed in investors' favor. For example, when the stock moves 40% to 60%, the call may move beyond 500%.
I have been using LEAPS calls to exploit strong impulse trends with 12-18 month durations. Of course, I am not saying options are easy to use; neither is it the only way to gain Alpha.
It is quite the opposite; options (even simple plays such as LEAPS calls) require experience and knowledge. Moreover, LEAPS are just another tool in the box of industrious investors. As a reminder, there are no all-round tools. The hummer does not screw bolts, nor does the screwdriver punch nails.
Dear Mihail: First, apologies for the delayed response. Jack and I are working on our Midyear Review for SPC -- and a fun feature we came up with (watch for it).
But I wanted to thank you for writing.
Let me pay you a couple of sincere compliments.
First, for your eloquent insights ... which are extremely well presented.
And, second, and maybe even more important, for being able to present a different viewpoint in such a civil, well-presented, and engaging manner. I wish more folks embraced your approach ... and had your insights. Having read some of your other work ... I know this approach is part of what defines you ... again .. rare stuff.
Please also let me say ... up front ... that any comments I make here ... are presented in the same spirit of exchange ...
Far too many investors believe there's a "right way" to invest .. and a "wrong way."
When the real truth is that there's "a right way for YOU to invest" (and by "YOU" I don't mean you, Mihail, I mean the "you" on the other side of this typical debate).
So there's "a right way for YOU to invest." And there's "a right way for ME to invest."
Those "ways" may be the same. Or they may be different.
You'll often hear me say (as I did in that story), the No. 1 rule of successful investing is "know thyself."
I think you'll ALSO hear me say ... I KNOW that some folks do well with options. (And now I know who SOME of those "some folks" are .. YOU ... lol).
But I long ago acknowledged in the "know thyself" chat with myself that I'm a stocks guy ... I'm a Contrarian at inflection points (but after I buy ... I WANT folks to agree with me ... so I can make money.)
I know I don't like to trade short term. And I know I like to play the long game ... it's what I'm good at. It's where I've done most of my best work as an investor ... and as a guy who does this stuff ... researches and writes for others.
So I got off the options train ... even though I know that, some folks, like you, can do well in the very situations, and with the very strategies, that you detailed in your superb note.
I also suspect most retail investors don't have the time, experience or emotional resolve to venture into the options realm. Options don't fit with their "know thyself" nature ... know what I mean?
Since that's what I'm comfortable investing ... and writing about investing ... that's the group I'm going after.
But, just to underscore, I also readily admit that for some folks, the strategies you outlined can work.
Thanks for writing. PLEASE do so again. I love these discussions ... especially with smart people like you ... and some of the other cool folks we've met here on Substack.
Be well, my friend.
Bill
Thanks for your thoughtful reply.
You underlined so many crucial points, often disregarded by market participants. The first and last thing is to know who you are. Everything else follows.
At the entrance to the Temple of Apollo in Delphi is inscribed the following:
Know thyself, nothing to excess; certainty brings insanity.
Knowing ourselves is the beginning and the end. We only learn who we are when we unlearn who we are not. To be ourselves is to stop being who we are not. Again, the lesson of weeding and planting.
That being said, knowing what does NOT fit you is the first step to figuring out what does. Knowing what fits you is a mandatory ingredient in the game of financial markets.
As a market participant, I tested many strategies, assets, and markets to determine what was NOT for me. Then came the less difficult part. I discovered my mojo on the markets: an event-driven strategy applied to old-economy businesses (energy, shipping, mining), expressed via LEAPS calls.
As you said, this is my way of doing things. It is neither superior nor inferior to other approaches. It fits my cognitive and emotional strengths and weaknesses, emphasizing the former and soothing the latter. It's as simple as that.
A gentlemen's discussion following the motto "I agree to disagree" is a rare gem. A well-argued and respectfully presented comments even more. It is an indulgent pleasure to exchange ideas with you. I am glad I started writing on Substack. Thus, I get the chance to meet exceptional writers and thinkers like yourself.
Looking forward to discussing more compelling topics.
Best Regards,
Mihail