My continuing timeout from trading while I wait for the second coming....
of SLV. Well, let's call it a sabbatical, while I bone up and learn as much
as I can while I wait for this miraculous event.
This week I have been reading the faux autobiography of Jesse Livermore,
"Reminiscences of a Stock Operator." This is a very enjoyable book. I especially
enjoyed the part about the Reading Railroad, since I have been playing Monopoly
with the family of late.
Anyway, Jesse is fishing crazy. Loves fishing. Every winter he goes down to
Florida to go fishing offshore, and every year it seems he just can't help himself
and has to interrupt his vacation to stop in to the broker's office in Palm Beach.
Whereupon he usually gets involved in some misconceived trade that ends up costing
him big, or in any event prematurely terminates his vacation.
This Livermore story is so fascinating. I was originally unwilling to even read about this "failed speculator," because that's not how I see what I am doing here. But then I listened to the Manesh webinar, in which he describes how his trading apprentices have to re-read "Reminiscences" every three months.
Must be something to it.
I think I should do an intensive study of Livermore over the next month or so. Here are the books I've got:
"Reminiscences of a Stock Operator"
"How to Trade in Stocks"
"Trade Like Jesse Livermore"
I would like to get copies of
"Jesse Livermore: World's Greatest Stock Trader"
"Jesse Livermore's Methods of Trading in Stocks"
US market closes here just before dawn. So I check my under-water USLV position every morning when I wake up.
Today I was able to wake up to a lovely breakout on silver, and my position is now at 59.46. Still a long way
to go to get back to BE at 84, but at least I feel better about my decision to stubbornly hold fast on this. I have been all the way down the "slope of hope" and now coming out on the other side. This thing kept me awake with bad dreams on Monday night. It's been quite an education.
I am of two minds about where we stand with this PM breakout:
1. Drunken sailor: USLV is headed back to 320, which is where it was a year ago, and I am going to ride the whole position all the way.
2. Disciplined trader: position is too big, need to downsize ASAP, regardless.
Now have an trading plan for this position, with T1 through T4. The last 25% I would like to let run.
3. I don't know if this trading plan is so smart. The more conservative side of me would want to sell 90% of the position when it gets to BE at 84, then let the remaining 10% run. After all, this trade was mistakenly oversized by an order of magnitude in the first place.
I don't know what to do. Maybe the best thing is to stay flexible on this, and if we get back to 84 with clear momentum, them I will stick with the plan. If, on the other hand, this rally peters out and we can't break through the resistance around 84, I will implement Plan B and get out right away.
Back when I was building the house I got stuck on the lighting design right while the electrician was running cable, and was forced to really bear down. I got really dialed-in on the subject of lighting real quick, and I ended up exasperating our architect with 3000 word emails on such subjects as "12V vs 110v halogen bulbs."
The architect responded sarcastically, "What are you gonna do, write a book?"
That's kinda where I feel I am with this diary and my silver ETF position.
I am obsessed with it, and I expect you readers are getting sick of hearing about it. How much can you write about a single trade, anyway?
Speaking of which, I have been slowly working my way through a book on one single trade by Bill Ackman called "Confidence Game". This is one of the Subprime stories that did not make it into Michael Lewis' book "The Big Short."
The reason being that it is such a long and involved story. I had originally become interested in Bill Ackman because of some news article where it said that he had read over 100,000 plus pages of mortgage bond documentation during his due diligence for his MBIA short. I remember thinking when I read that number that it would have to be an exaggeration, that nobody could do that. (And also that this little stunt disproved the "who'd a thunkit" hypothesis about Subprime. Some people did actually do the homework.)
Well, from reading the book, um, no that turns out to be a wrong assumption. Bill Ackman is exactly the kind of animal that does that sort of thing. Striving for total information awareness, to know more about the subject of inquiry than the subject knows about itself. This is hyper-fundamental analysis.
The result of all that research was the conviction to put on the single massive CDS short trade that Ackman was forced to hold resolutely for seven years -- in the face of Elliot Spitzer, the SEC, Barney Frank and his committee, Ackman's hedge fund staff, his investors and ostracism from the whole of Wall Street. Talk about grit, sheesh. Diamond grit.
Well, we know how the story ends. All of the above were dead wrong, and Bill Ackman made almost 2 billy on the single trade.
My fascination with Bill Ackman notwithstanding, all of my reading and studying of trading indicates that he's a bad example. The worst kind of example. His style of operation is just so wrong in many ways.
1) It's geared to hitting grand-slam game-winning home runs only
Forget about home runs, I need to focus on hitting singles.
2) I should not even pretend to use his Big Short example as a justification for my USLV trade. There is no comparison. What I did in taking my USLV position was just feed a bucket full of quarters into a flashing slot machine. No conviction to it at all.
From my subsequent reading about it's clear that I violated the cardinal rule of trading by holding onto this loss and riding it all the way down. Nothing worse. About the only error I did not make was to double down.
And as long as I don't sell, it's still risk-on. Which means that I have learned nothing.
Making that admission, I guess it means I am getting psychologically close to capitulation, after five months. Other voices tell me that only by capitulating will I develop further as a trader. Well, that may be so, but silver is now trending up with momentum, half of my loss has been recouped in a week. A few more good sessions and I am going to be back to BE.
So I am going to focus on "patience."
That's my takeaway from the Jesse Livermore books, patience, and this brings me back to Bill Ackman, too. Glacial patience.