The 90/90/90 Rule

     Someone, somewhere made a rather tongue in cheek statement that is almost infallible when describing people that trade in futures. 90 percent of the people lose 90 percent of their net worth in 90 days, this is the 90/90/90 rule. When you think about it, there was a very good reason that margin trading was made illegal post crash in 1929. The moneyed class would do favors for each other and the bankers let the speculators trade on margin, asking that only 10 percent be put up as collateral for a trade that leveraged 10 times as much of an equity/commodity. The problem with margin trading is that you always trade at a disadvantage and eventually you lose. Greed will force you to leverage more than you can cover and you go broke. In 1929 the banks that let you do this ended up holding the bag on all of the bad margin calls and they went broke too. Nowadays, margin houses do this: whatever contract you buy, put or call, they buy the opposite, then when you lose they are covered and when you win, they win more because they collect a percentage in both directions. In any case, trading short or long, the individual making the trade always loses, that’s why I don’t do it, it’s mathematically unsound.

     I play nice with stocks, study hard and go long. That way there are no nasty surprises, I’m getting up there, it’s bad for my heart. It is stressful enough taking the simple way, as an old guy in Omaha puts it, ‘very few people have the temperament for investing for the long term.’ I understood that the first week I owned a position in the market. No sooner had I bought in did my investment begin a slow and inexorable downward journey. Day after day, down a little at a time, no great dives but after several weeks it looked like I would not recoup my initial investment let alone make any financial headway with this stock. I bought another stock, this time in a company that had a great idea, a medical appliance that removed fluid from the body of patients that did not respond to diuretics. Only about $200 went into this noble cause, and a good thing too, it also dropped like a rock. This one I sold almost immediately, I managed to recoup only about half of my money. Then came CVSI, a true pot stock with a better idea. Once I placed $400 into their stock it, wait for it, did absolutely nothing.

     I was getting the hang of doing the investigative part of trading and it was making more and more sense so I plowed in some more “dead money” from my savings and started to diversify. 100 shares of Sprint on the basis that they were going to merge with another telecom and become seriously competitive with T and VZ. All that was needed was for the lawsuit that had been won to be upheld on appeal and it should be a done deal, my S would be bought up for a tidy percentage above it’s market price and PROFIT. At the same time I picked up 100 shares of Ford, because they always pay quarterly dividends and this I found out, is important when checking out new investments. By the way, F almost immediately started to lose share price. After a couple of weeks, I had to let the rocks go, I kept Ford though, I had developed a plan to wait until it really tanked before buying more and dollar averaging my entire holdings down so that the trip back to profitability would not take as long. I had a suspicion that there could be a pretty big hole in my logic but the price I picked to do it at has not arrived yet. 

      Watching portfolio printouts full of red ink is not fun. It happens, all of the time. You start to get used to it. What takes a lot longer to get used to is watching a particular issue rocket up in value. I bought 200 shares of CVSI at around $2 a share and before I knew it it was posting gains almost every day. In two weeks it had doubled in value with no end in sight. I panicked. This could not be happening, something was desperately wrong. I could not sell fast enough. Picked up a nice chunk of change, slightly better than double my money in only two weeks time. And then it really took off. One day I was checking my portfolio and checked it out just for grins and it was around $8 a share. I doubled my money, I was kind of OK even though I could have made more. And then later that day, it tanked. There was no way I could have gotten out that quickly, I don’t day trade, I make most all of my trades the night before or shortly before I head out to work in the morning. I secured my gains and I am fine.  I still check the price almost daily, there was a reason that I bought it in the first place, I can get back on the train any time I want to. So, the maintenance of my portfolio now takes up a solid 5 minutes of my day, every trading day. I do research when it suits me and I keep a list of future candidates on hand just in case the right trade comes along..

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