One Investor’s Dilemma

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I received a reader e-mail that touches on a common theme, so I’ll share it with you. “D” writes as follows:

I really enjoy all your comments and efforts! Can you let me know what you’re looking for regarding when to short the market, and if you’re shorting and what you’re shorting? I really appreciate your input! I have lost so much money this week! Looking to try to make it up!

At 62, on social security, you get a little desperate. I’m hoping to make it up on a 2 beta short, please give me your opinion on all the questions, I threw at you. I will really appreciate that. I really enjoy all your comments, and trust in you.

I appreciate that this reader enjoys all of my comments, but she won’t like this one. There are too many things simply wrong with her thinking.

First, she’s been a reader since about August 07 and writes that she has lost a lot of money this week (the week of 1/14). How can that be? I’ve been harping on the use of a trailing sell stop every week, so if she followed that advice, she should have been out of her positions quite some time ago.

Second, she’s looking to try to make up losses by now using 2 beta short ETFs. What is this? A vendetta against the market? If so, she will come out a loser every time. Investing is not about desperately making up losses. It takes a careful systematic approach to make money. While you’re doing that, you will also have losing streaks which you have to accept for what they are. The key here is to control the downside risk so that you can live another day to keep investing. “D” has demonstrated that she can’t handle the long side of the market; there is no way she should dabble on the short side, since she apparently does not apply discipline to her decision making.

Third, she’s on social security and desperate. That is not the mindset to have when you are investing. It is a recipe for a financial disaster in the making. My suggestion is that this reader, given her circumstances, should not be investing at all; she should keep her money in a CD or money market account.

Market Commentary: With the domestic market heading sharply lower today—the Dow was down over 300 points at the time of this posting—I will write and publish an additional market commentary later on after the close.

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Comments 1

  1. I think your suggestion to “D” is perfectly correct. Investing or trading is a very risky business. Majority of investors loss money. Above 90% day traders loss money. There are lot of things to learn in investment and trading. I was from a foreign country and I did not have such a knowledge. I lost a lot in 2000-2001. After that I read many books and today I am still reading everyday, but I do not think I am an investor with good quality. I only risk a very minimum portion of my saving. With such a brutal bear market, I don’t think any inexperience investor can earn money by shorting the market.

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