Jared's Market Commentary - Biloxi Blues

By Jared Rosenbaum Sometimes coming up with titles are tricky and sometimes they are just too easy. We spent the first three trading days of the week in Biloxi, and I think it's safe to say for most people it was a very "blue" start to the week...or perhaps red would be more appropriate. I actually think the market might have bottomed for a little while (who knows what that means anymore...could be a few weeks, could be a few days), but with all of the uncertainty out there, it's a little hard to say until we look back and reflect. The week closed out strong, but the last few weeks have shown how quickly things can go south. I middled myself and went to 25% stock / 75% cash in the long-term account. I really want to be 50/50, but I still believe this market will eventually go lower and would rather play it safe given all of the uncertainty and messed-up global issues. The contrarian in me says to be 100% in stock, as it appears everybody in the world is looking for another crash, which I just don't see happening right now. Also keep in mind that I'm ahead of the market by 10%-11% this year, so I can "afford" to be a little conservative to let thing play out. OK, enough teasing with all of this market chatter, let's get to the lessons... So I made a rule earlier this year that I would stop playing on the same day that I arrived to town. This was born from the concept that the flight to Vegas is lengthy, and after a long day of travel (usually after a long day of work), I was not in the right mental condition to focus. So on this trip I used the same discipline and waited until I woke up the next day. I got up, went downstairs all fresh and relaxed, and proceeded to get my a** handed to me on a sling. In fact, not only did I lose, I basically blew my wad in the first few hours. The problem with doing that, aside from the obvious, is that I never gave myself an opportunity to make a comeback, I never waited for things to get better, and really just had too much risk in play at one time. Lesson 1: No matter what, don't put all your eggs in one basket, one trade, or one bet. The past two weeks showed that anything can happen and if you get caught at the wrong time, you can lose it all...FAST Lesson 2: I don't ALWAYS win in the casino (contrary to popular belief)...don't worry though, I'm holding my own. After my whooping, we decided to focus on having fun, which included a stop at the local pawn shop. While we were browsing the merchandise, including the massive adult video section, a nice young lady came in to retrieve some merchandise. I don't know what she does for a living, but I think I noticed her on the cover of 4-5 of the videos on the wall. Anyway, she paid the value she received, plus a nice hefty interest rate. It reminded me of how people still need to borrow in order to finance their lives, and there are still people making loans to those in need...albeit on a secured, semi-predatory basis. Lesson 3: There is still loan demand out there and there are still institutions willing to lend. The problem is that unless lenders get compensated appropriately, they aren't going to take the risk. In addition, even with a proper return, they are only going to lend to creditworthy situations that have a likelihood of repaying their debts. In this current economy, banks aren't lending because the certainty of repayment is in question. They are probably all insolvent as well, but so long as we have shady accounting standards in this country, that won't be an issue...but I digress. On the last night of the trip, I decided that I needed to redeem myself for the debacle at the tables at the beginning of the trip. Of course in my mind I wanted to get all of my money back at once, but given the magnitude of the beating, this was not very realistic and generally trying to "get it back all at once" doesn't work. So I set a realistic goal in my mind and actually won more than anticipated. Lesson 4: After suffering a big loss (such as Monday or Wednesday), don't try to recoup losses all at once by pressing or over-betting/playing. Although the market shot up like a rocket on Tuesday and Thursday, this generally is not how to make up what you just lost. Chip away at it and stick with the fundamental methods that got you into the profit zone to start. Lesson 5: Don't suffer big losses. One of my favorite bloggers always talks about staying near your highs, which means don't suffer big draw downs of your capital. For example, if you have $100k in an account, taking a 5% loss (or $5k) is very easy to recover. It might take one trade, or it might take 2-3, but you can make that money back. Conversely, if you go all-in on a trade and lose $25k, the chance of getting it back are harder and are definitely going to take longer. Also keep in mind that when you are trying to make that $25k back, you are now risking a larger percentage of your capital on any given trade, than if you had $95k in the account. Finally, as I continued to try to chip-away at the losses on the last night, I found myself in an interesting situation. The casino, in an effort to save costs, was closing tables as quickly as possible around 1am. Their goal is to keep one pit of 8 tables open but get everything else closed as soon as players leave. I kid you not they had chip trays covered before people even stood up. For me, this is bad since I prefer to play alone. By having only 8 tables open, they were all packed...good for them, bad for me. There were 3 tables in another room, each with one players. I figured there was a decent chance somebody would leave, which would open a spot for me. I stood there for over an hour, watching them all win and lose and never get up. Around 2:30am I realized that these people were likely to play all night and the outside tables were still packed. Not liking my options, I went to bed. Lesson 6: If playing/trading conditions are not ideal for your style of play, DON'T PLAY! There is no rule that says you have to be "in action" 24/7, there is no rule that says you have to get your lost money back immediately, and there is no rule that says you should force yourself into a bad situation. This current market is a great example, as you can easily rationalize why you should trade; but really there is so much uncertainty and conditions are not very "ideal" for most people, so just sit back and watch for a while. Pretty soon the smoke will clear and the market will provide better opportunities - both short and long. Jared PS-I received a couple of questions about how Biloxi compares to Vegas and other places. I really like Biloxi, as the people are friendly, the weather is good, and the Beau Rivage is a very nice property. With that said, there are limited food options, little entertainment, and it's just not as "nice" as Vegas (hence the lack of excitement in this week's lessons). In addition, it's amazing how much tighter they are at the Beau in regards to comps compared to Vegas, which is completely backwards. So if given the choice, I say head out west. If you're looking to break up the familiarity of Vegas, Biloxi is a good place to try one time.