Trading vs. Poker

[Jakobsberg]

that's a solid point, jakobsberg. you've been lucky in 2008/9, but markets could also have lost another 25% or even more after you went in. i don't know what I'd done then - especially with borrowed money.

where did you borrow the money from? do you mean normal broker leverage? I haven't heard of anybody (banks,...) borrowing money for investment purposes, other than real estate.

Well sure the market could have gone down 25%. Its possible but since it was already a long way down I gave it a low probability. It was already one of the largest, steepest drops in the history of the stockmarket. The lucky part was me being at the right age and already having a decent amount of savings/deposit to take the risk when the opportunity came along.

Instead of paying a large deposit for a house I bet that I could make a higher rate of return in the markets than the bank borrowing cost (ca 1.5%). Since borrowed against house then no broker margin calls etc. Even if stocks stayed at those bombed out levels the dividends were >1.5%. Just betting that the World would not end. It didnt and even if the World did end then I would not care about the stock portfolio at that stage anyway.

Many people also have the possibility of selling stock and buying options if you want to increase the leverage. Most want to do the opposite and sell. Takes a while to feel that impulse and do the opposite.

 

[i am nobody]

you've been lucky in 2008/9, but markets could also have lost another 25% or even more after you went in. i don't know what I'd done then - especially with borrowed money.

You cannot know if he was lucky. To make that statement you should know everything he knew and everything he did. Maybe he knew things you did not know. He took a decision and was succesful, that's all we know. All these "what if's" are useless, the only thing that counts is the result.

 

[Jakobsberg]

To finish the story I also took out a personal loan of 40,000 USD at 5% once I had a large profit on the position in 2010/11 and added to it. Kept high leverage until 2013 and then just buying the dips after I think the bottom is in and using options to leverage into the relief rally until the momentum fades. Now still 100% invested but no leverage and all loans paid back apart from house which is still 1.5% and less than dividend income. Skill ? Luck ? Right Place, right time, right age ? Right amount of experience to recognise the opportunity ? Right level of naivety to do it ? Probably a mix of the above but you only need to get rich once and if you do not try then there is a huge risk you stay in a cubicle until your mid-60s.

I actually thought the bottom could have been in at the end of 2008 but had ability to continue buying and adjusting leverage in the spring of 2009.

It looks good in hindsight but sure I could have been stopped out. Just thought the risk was worth it. Not took such risk before then and hopefully now, as long as I avoid doing somethign stupid, wont have to do it again either.

Very few day trades with options in that period as well. There are many ways to skin a cat not just day trading and I think most folks have a better chance in the longer timeframes.

 

[SwingToWin]

still sounds a little too risky to me, but - well done, my respect for your courage!
how old were you back then in 2008?

 

[londonkid]

To finish the story I also took out a personal loan of 40,000 USD at 5% once I had a large profit on the position ......................................

you legend! balls of steel.

 

[romik]

I know a couple of lads who made huge money, wealth, trading stocks and bonds, neither of them were capable of beating arabs at a London casino playing poker

 

[Jakobsberg]

still sounds a little too risky to me, but - well done, my respect for your courage!
how old were you back then in 2008?

In 2008 I had my 32nd birthday and it helped having had some experience trading stocks since 1999 and investing through a few cycles but never had enough money to make a difference until early 30s. At least not enough so it was worth the effort of trying to trade. Science/Engineering background and MBA with lots of investment courses before crash (mostly nonsense about efficient markets, beta risk, CAPM etc) but at least you see the historical data and think about it.

Risky was buying stocks in 2007, by late 2008 they had a 50% off sale and the lowest valuations (PE etc) since early 90s. Now think US is fair to overvalued but Europe can gain for another few years e.g. many Swedish banks pay 5% dividend and PE of 13.

 

[jk90029]

1.2^40=1470

I get your point that over a long period 20% compounds up to a big number.
But you need a long period. If your aiming for 1 M USD to save several years I would wait until a big opportunity and borrow money.

Of course
1.2^45 = 3657.262 ~=4000
and
1.2^50 = 9100.438 ~=9000

So, exercise everyday to keep healthy body so that you are suppoed to be VERY RICH in case you live 5 or 10 years more.

Borrowing money depends the interest. If you are confident to have annual 20% compounding strategy, then you may pay 8% to the loan so that you got 12% edge, for the loan amount, in the long run.

However, history shows that most creditor shall win over the debtor. Pobably it is shown in the 400 year of modern capitalism.
I will not forget 2008 crisis that index will fall below half. If it happens, most investor with half loan will be dead again. But creditor will not die.

 

[jk90029]

So starting out with 1000 USD will take a long, long time (38 years) at 20% and is just not worth the effort to get 200 USD in the first year. The dollars per hour of effort is just not worth it.

At the age of 20s and 30s, it is not easy to save 1K. But with knowledge of 20% compounding you choose to save/comsume.
In 20s and 30s, working is more rewarded than investing, as 1K of capital gave me ONLY $200 annually.

So save 10K for annual 2K return, for better "The dollars per hour of effort". Probably 1K saving every month for 20 years (from 20 to 40) makes 12K*20=240K which can be multiplied > 1000 times at the age of 80.

I believe that is plan and history of most RICH person. Any comment or objection are welcomed.

In short, there is two main point, 1)how much you save and 2)15% or 20% of annual compounding.

 

[jk90029]

I went big and borrowed money to save time when the opportunity was there in 2008/9. Now trying to decide when to jump off the bull.

That might be a coincidence. None has consecutive luck in the long run.

But I agree possible bull (mountain top) and only less than quarter of my asset is in equity. 3/4 is in cash expecting a hugh drop in the near future.
Personally, instead of 0% of equity as "jump off the bull", 25% is my current portion.