Learning from mistakes

There is a quote James Dines put in his newsletter "wise men learn by other men's mistakes, fools by their own" by HG Bohn and today I feel like the fool.

Now I am admittedly trying to rationalize this statement with the mistake I made last week betting that Goldman would ramp during options expiration.

The quote is a rather tough luck approach to life, but Mr. Dines in an earlier newsletter mentioned that the price of tuition in the stock market is expensive in hopes of garnering outsized gains which would imply mistakes. I am curious to Mr. Dines approach to the matter. Is it fair to say that the quote is more along the lines of saying “don’t try to reinvent the wheel but create a more environmental friendly car!”

The only counterattack I can muster is Edison's salvo on success: "99% perspiration, 1% inspiration"

With this introduction I am going to try to analyze my mistake in gambling on Goldmans Sachs last Monday.

First, when one trades, he has to be sure his mental state is 100% since time is of the essence.
I have been pounding this into my mind the past year and have tried to apply a rigorous discipline in order to excel in this field of endeavour.

The subtle emotional background in this trade on reflection is: my success in gambling Saturday night, my string of profitable trades, a slight sense of envy after reading the WSJ journal article covering GS, and jealousy concerning my succesful friends which I only realized after seeing why yesterday afternoon.

The logic behind the trade was that it was obvious that Goldman would blow out their earnings which was made even simpler by the article in WSJ. The article was there to attempt to keep the price stable as buyers will prop the stock up. I knew that. I also new that everyone said it was a suckers bet to back the truck up on this stock ahead of earnings. With such pessimism, I thought that was enough to overweight the positive spin with the WSJ article. The stock was around 208-209 when I purchased 210 options for around 7 bucks. I felt that a good half hour in the morning would boost the options price by 15-20% easily. To hedge I shorted the futures market since if GS shocked to the downside the market would collapse. This would have worked if I didnt go overboard and buy GS 230 options which I thought was a possibility since the market was oversold and the last time the market surged GS went up over 20 points. I paid over a 1 a share which again was overpriced (after the fact), but the sellers knew what the buyers were expecting and charged accordingly. The overweight on out of the money options blew my spread wide open and exposed me if GS went down and it did.

GS opened up for about 5 minutes but the options never opened up or at least I didnt receive a price above what I paid for. I said that I would then wait for the conference call which I did and then saw no buyers for the option as GS dropped 10 points at one time during the day.

It was a gamble that I lost. I do feel like an idiot, but then again I would probably do it again just not with that much leverage. And by the Cramer even said it wasn't a great bet. In fact, he has been very acute the past month.

I tried telling everyone I know how I gambled inappropriately. Not sure why. I think it has something to do with some ethical credos I have. Anyways, my friend told me that several of his trader friends say the same thing. So maybe I should just suck it up and say nothing. A trait I will attempt.

But this didn't effect the rest of my week since I isolated the problem and didnt allow it to effect the rest of my week. But come the weekend I kept dwelling on that mistake. And now I'm writing about it.

And another friend who is a doctor mentioned how he had to handle patients dying. "You just have to block it out of your mind." There's nothing you can do. He's right.

But I like to say a prayer or think about that moment before burying the past.