Quote from Trader KGB:
drsteph - Would you be willing to shed some more light on what happened? (to benefit us all in knowing how to possibly avoid such a particular fate)
Dad took a massive position in bond futures in front of the fed. Expected an ease, and there was a surprise hike (as the tale was told). This was many years ago, back in the early 80's. Immediate insolvency.
Of course, he hadn't socked away assets in 'safe' places such as insurance, annuities and what not, so it was a total loss. He never regained his edge and when he was able to get some extra cash, he would trade it away. Died penniless, nearly impoverished mom in the process, usual sad story, blah blah blah.
Ed Sekoyta's famous phrase "Everyone gets what they want" definitely applied here. Dad was a gambler, and he wanted to trade for the rush of it. He wanted the emotional satisfaction from the highs and lows he got, and he surely got those. So, he traded for those swings. And it ended badly. I, as you would imagine, have great distaste for such emotionality in trading (or in general).
The take home lesson is this - you're not always going to know what happens to you and yours, and sometimes fortune's bow is going to just strike you down hard & you can't avoid it. However, he who has something left to start over with does so ahead of the rest of the folks who are at square zero.
With that said, I always get annoyed at the dimwads & personal finance 'experts' who say, "Don't waste your money on insurance or annuities, just have a diversified portfolio and you'll do better..." Sounds nice, until you hit one of those three sigma events and are facing down the barrel of thirty long years to recover to the point you started at. You don't pay management fees for added performance in these instruments. You pay them to transfer risk in a contractual agreement so that you and your family can have something left over when you blow up, and that you will know for sure that you will at least have
something to take care of them, if not to live in high style.
I would recommend that any trader with a family who depends upon him diverts about 5% of profits into protected instruments(IRA, 401K, insurance, annuity, irrevocable trusts) and handles them in an EXTREMELY conservative (cash & bonds, cash life, fixed annuity) fashion. If you are wildly successful, you can laugh about it in your old age. If you aren't, you'll be glad you did. You can fade the temporary loss of growth in your trading capital.
And your mom won't go from living on Park ave. , to a one bedroom low income apartment.
Banjo - I suspect, like most people, we all have complicated relationships with our parents. I just wish someone had given him advice like this and he had followed it. It has been a long climb back up - a third of a lifetime.
