Regrets

When I first started trading full time in December 2008 I had a watch list of a handful of mining stocks that were trading close to or at cash value. I didn't buy most of these stocks and since then the gains that these stocks have had are eye popping. We're talking 400-500% on average. One of them includes clm.to which I first stumbled upon when it was $1.15. That stock is now over $17 today thanks to a take over offer. It hurts seeing these stocks where they are now and where they were when I first noticed them.

Hindsight is 20/20. When I look back I ask myself: could I have done better? The answer is yes, but I know I can't be too hard myself. When I first compiled these basket of stocks I had just began trading full time in December of 2008. I was bearish at the time and the financial world as I had known it, looked like it was coming to an end. I saw so many people turn bullish too early in 2008 (including some bears) and got absolutely crushed. I saw extremes that I don't think I will ever see in my life time again! One of these extremes was that in late November 2008 there was a point when every single stock in the SPX was trading below their 200,50 and 20 day moving average! The market literally had no pulse....it was dead. I traded during the previous bear market of 2000-2002 and never was there a time when the market came close to getting pounded like that.

So, given this and given a situation for months wherby cheap simply became even more cheap...a lot more cheap, it was only natural for me to be cautious and refrain from bottom fishing what looked to be cheap stocks. Although I was bearish on the market I was too affraid to short because of the insane volatility and obviously too affraid to go long. So, I did hardly anything for the first 3-4 months when I started. My mistake was that I failed to notice or I should say failed to appreciate that most of the stocks on my watch list were showing great relative strength in early 2009. While the market sank to new lows in March these stocks were making higher lows. By the time April 2009 rolled along I was warming up to the bull side but I wasn't full fledged bullish until the summer of 2009 and by then those basket of cheap mining stocks had already made big moves and so I looked for other opportunities.

I'm sure I'm not the only one with regrets about missed opportunities in the stock market. To me, it hurts more when I miss out on an opportunity then when I take a loss because when taking a loss at least you gave it a shot giving yourself the chance to have been successful. But when you don't take any action it gives you zero chance of being successful...sure, it also avoids you any chance of failure but in the long run inaction will indeed result in failure...it guarentees it. It's far better to have taken chances and failed then to have taken no chances at all.

In hindsight I should have had to courage to buy starter positions in those basket of mining stocks. Positions small enough such that I could use a "no stop" policy to give them the time they need to prove themselves no matter how much further they declined. The panick of 2008 was the mirror inverse of the mania of late 1999 early 2000. In 2008 there was indiscrimate selling of all stocks. Valuations didn't matter whatsoever. In 2000 it was the opposite. It's amazing to have seen this transition from one extreme to the other. What I learned from these experiences is that in order to be successful in being the contrarian in these panick situations you either a)need to wait for the turnaround to happen first or b) have the conviction and proper strategy to withstand initial losses for being early. If you elect to use method a) you would miss out on a big portion of the new trend because the intial reversal from a mania or panic is explosive and relentless. If you use method b) it means you are bottom picking or top picking and doing so under panick situations you will often be early and the pain of intial losses could be great. Almost all the smart asses who attempt option b get wiped out because they commit too much captial and either capitulate by force or by choice because the pain is simply too great. This is why when you top pick or bottom pick under panic situations you need to do so with limited capital giving yourself plenty of time and being mentally able to sustain big losses should you be early (which you probably will be). I should have used this strategy with those mining stocks. I should have commited a small portion of my captial such that if I was early or even flat out wrong I would be able to take whatever pain was dished out. I instead elected to use strategy a) which is actually the right thing to do....with most of your capital but not all. I religiously follow a rule that prohibits me from top or bottom picking the market but there are those rare times when the risk/reward of top or bottom picking is warented with a limited amount of captial and such a time occurs when there is a mania or panic and you see signs that a long term reversal appears immanent. To be honest, I didn't see such a reversal coming near the lows of March of 2009. Although I was seeing doom and gloom galore which is what you see at major bottoms I said to myself "well, what do you expect to see when the financial system is collapsing like never before?". Keep in mind, one would have been been unmercifully crushed trying to play the contrarian card in late September while the market was on it's way to collapsing 25% in 2 weeks. Even though panic and fear was through the roof the market still tanked a lot more in the months to come. When March 2009 rolled along since it looked like a depression was immanent it was certainty conceivable for the market to go lower still. After all, the market had declined 90% from peak to trough during the last depression. But unlike most bears, I wasn't dogmatic in believing that the market must drop by this amount. I was certainty open to alternatives and my open mindedness and objectivity allowed me to turn fully bullish correctly albeit, a few months after the bottom. But, in those first few months huge gains took place including those basket of small cap mining stocks that I was tracking and so I had missed the boat and looked for opportunities elsewhere.

So, now that I look at what I wrote I don't feel as bad as I did prior to writing this for missing out on some of the big moves that took place with those stocks I had noticed 2 years ago. I had just started out trading full time in a crazy volatile market. I wasn't bullish on the general market just yet and so how could I have bought those stocks when we were in an environment where cheap simply became cheaper? But I should have had the balls to have committed at least a minor investment to these cheap stocks especially when they were showing great relative strength in early 2009. That minor investment would have made a huge impact. But, I have no excuses for the fuck up I made in November with psv.to and mal.to. That was a boneheaded, cowardly move.

It's important that I deal with these regrets in the right way. The wrong way would be to try to get "revenge" by being recklessly aggressive and chasing poor set-ups. This will only compound the agony. The correct way to deal with mishaps is to learn from them and improving yourself as a result. The correct way is to look ahead and stop agonizing about the past which you can't change. I'm guilty of doing this. I beat myself up a lot because of regrets not just in the market but in life....and I've had a few.