Quote from neke:
Thanks for expressing all that fear about a blow-up in my account. I would start by asking: what do you define to be a blow-up? A 50% draw-down? 90? 100%? Running the account to negative? I mentioned it near the start of the thread, and maybe I need to repeat: I dabbled into the market as a newbie in December 1999, lost money on a cummulative basis until October/November 2004, at which point my cummulative loss in the market was about 51K from a cumulative deposit of 56K. That was
the bottom for me. The balance left was then about 5K. By a ombination of greater commitment to discipline and recording and analysing my trades, together with focused research on potential winning strategies, I turned my trading around, and not only wiped out that loss the following year, but made up to 70K on top. Since that bottom, I have withdrawn a net total of about $220K from the market (meaning the original total amounts brought in - about 56K before the bottom - plus a net of about 164K in addition). I feel at a loss trying to understand what constitutes a blow-up.
I have given several scenarios of risk/reward calculations and what it takes to maximize an edge, with attendant drawdowns. I have got a drawdown of 50% since the start of the thread and another of up to 40% in January. To be sure some of the losses could have been better managed/avoided. If somebody thinks the account is in danger of going to 0 or negative, it would be appreciated if you could lay out the scenarios that you have seen in my trades that could lead to that, and the probabilities of those scenarios taking place. That would be far more useful to me, and enlightening to others, than crying wolf. As an illustration here is a scenario that could lead to an account balance going to zero:
It is a day before options expiration. GOOG is trading at $495, and is releasing earnings after the bell. I take all the money in my account and buy strike 500 CALLS expiring the day following release of earnings. It does not take a genius to know that the probability of a wipe-out is very high (as high as 50%). Fortunately I have never done something like that, I do not believe I will fall into a temptation to do it.
I know the next time I have a 30% drawdown - which will come - someone here will say "I told you so". Let me say it in advance though: a 30% drawdown is quite NORMAL with me. That is not a wipe out by any means!
As for net worth, NO we do not have a million in net worth, not even after adding the equity in our homes, retirement savings, the balances in our bank and brokerage accounts (including this). My regular income outside the markets is about $100K, sufficient for our normal needs, though 2K from the market each month does help here and there, while we save the balance.
