The Two Edged Sword of Discipline

Golden Age

Giclee Print

by Pihua Hsu
item #: 11728536A

While I'm happy to report that my accounts are in good shape and at their highest balance, the BUT is this: They should be much higher.

There's a huge difference between seeing and taking advantage of an opportunity (buying a position be it stock or option) and MANAGING that position (limiting losses/maximizing profits). That's a general statement, certainly. In truth, it is hard to look back with the benefit of the future having unfolded and judge a decision when the future is murky. Harder still when you have a psychotic market and you've got money on the line. In this context, it is hard to levy an objective judgment on what one could or should have done in the miasma of uncertainty from the perspective of certainty.

But every investor is faced with uncertainty and must find successful ways to manage that uncertainty in order to maximize profits and minimize losses. Essentially, that translates into have a good process (discipline) and sticking with it. A consistent process founded on sound principles will yield better results than being willy-nilly. For example, you will displease the gods of Probability should you play black jack, and sometimes take a hit on 16 and at sometimes pass. You either always do it OR never do it. It's called being consistent, and consistency is always founded on discipline.

As this blog is for heuristic purposes I want to tell you how I committed a double blunder on my HERO. I bought 2000 shares of HERO two days ago. As I indicated, I felt that I had a decent risk/reward. One of my disciplines is that I never buy a stock ahead of earnings. (Well almost never!). I generally look at when a company reports prior to buying. I did not this time. That was Blunder 1.

HERO happened to report yesterday a.m. They beat, but frankly, the outlook for some of these drillers is not all that good. I watched the stock, and I did not feel that the price action was indicative of a really strongly desired stock. I had a very nice gain, and I took it. My 'nice' gain could have been a really extraordinary gain as there was at least $2.05 more in that trade. When you buy a stock at $4.9, two bucks is a rather sizable percentage gain.

I spent a good bit of the day kicking myself. I should have tranched my sales in thirds--something I generally do. Blunder 2!. I'm not excusing that. I strayed off my discipline. But I assuaged my disgust (yes, I really was disgusted), with the knowledge that had I really been following my discipline, that I wouldn't have bought it to begin with! (Oh the things we rationalize to keep us from looking like a dumb ass!).

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I will be out all day tomorrow. We begin our two-day odyssey to secure Lacey. As it turns out, a Border Collie from this shelter needs a ride to Richmond, which is just 20 minutes from where I live. Now how strange is that?

The weather promises to be beautiful: high sixties and clear. I'll take my camera and bring a few shots back of the Great Smokey Mountains. The futures look promising, but I don't think that any are fooled by our prospects economically either here or in other parts of the world. So many are calling for a bottom process. A bear market rally is not part of a bottoming process insofar as I understand bear markets. Seems more of a relief rally.

But, these present opportunities in which we can either participate with prudent positions and vigilant risk management or stand aside and watch. I've just enough exposure to feel like I'm participating with UYG, UPW, and SSO. I still have some DUG having sold DIG yesterday.

HERO will likely be $10! But, if my discipline is to not buy before earnings, and to look at both charts and fundamentals, I'll either find an entry or find another opportunity. In fact, holding the thought that there are ALWAYS opportunities in the market to find at better risk/reward than chasing an extended stock is also a good discipline to both hold and more importantly to practice.

I hope that you have a good day.