Realizations always arrive too late. That is human nature. Human’s are wired to be loss averse so when you realize something and then apply that to past decisions you have created loss. You realize the mistake you’ve been making this entire time. However some mistakes aren’t mistakes. We just look at them wrong at first.
Yesterday morning I had one of these realizations and it involves a stock that has been both a friend and enemy of mine, Marvell. I bought Marvell in a bit of a monkey see, monkey do moment. The firm managing my mother’s portfolio has done an excellent job and they bought some Marvell. It then started to really go up. I first bought it at $198 and I looked smart to do so.
However I wanted more out of the stock and one day I almost bought a $200 strike option with a January expiration for $3,400. I stopped myself. I talked myself out of it. Loss aversion kicked me in the teeth. I ended up buying a $280 strike option with an August expiration and then held it too long and then not long enough. Thursday June 18 would have been the day to sell it. I sold it that Tuesday. I made money but not as much as I would have by either believing in my conviction or having more patience.
I still had my 15 shares of the stock and I did sell five of them near that Thursday high. But I held 10 more, and I lacked the situational awareness to sell those while the stock was over $300, and then I came close to selling them a couple weeks later when the stock bounced back to $295, but then it started to fall and fall and fall. CNBC called it profit taking and sector rotation, but it turns out it was forced liquidation.
That is when I had one realization. I should buy options in the stocks that were force liquidated, then I immediately had a second realization, I don’t have the money to do that. Then I had the final realization in that chain. If my plan is to sell Marvell when it gets back to $300 then this isn’t ownership, it is a trade, and an options contract is the better asset for that. So I sold my ten shares and bought a $235 strike option contract and am now hoping not to make the same mistakes again, but I am sure I will.
David Huzzard Writes 