cloud Posted August 24, 2015 Share Posted August 24, 2015 For some lessons, we have to learn them the hard way like learning riding a bicycle. We can't learn to ride a bicycle by listening to others. We have to actually ride it and fall a couple times to learn how to ride it. During the last two years, I made many covered calls trades in 2013, and 2014 aided by margin loan. The returns were very good at 40% and 30% respectively.(Mainly because of bull market phase) I thought that's the way to get really rich in a short time. I got over confidence and lost control of position sizing and became too overweight in some positions. At the peak, Michael KORS made up 60% of my current asset and 26% of my net worth.. It started to cause some pain in May, 2015. Taking out emotions and greed, Michale Kors is not the highest quality stock in my portfolio. I know it. It's not a buy and forget stock. but I wanted to recover the lost so I averaged down too much. It's not a predictable stock although it has a very good chance of bouncing back. I am just not sure. So I sold all remaining positions today. I decided to get rid of Michael Kors also because I have a ethical investing rule. I don't invest in stocks directly involve in weapons, alcoholics, tobaccos, animal products etc. Michael Kors's main product is leather goods which I should avoid if I follow my logic but greed and emotion come in play. I was lured by Michael Kors' strong balance sheet, fat profit margin and ROE. I rarely sell low and this is a rare time I admit I made a mistake. It cost me around 10% loss of portfolio this year. There are some other big positions which I sold in July which prevent more losses. Retrospectively, covered call is not worth doing. The small premium it produced and lots of paperwork it involves are not worth it. Often times, the stock rises far above the strike price and I ended up earning less. In the face of severe market drop like in recent months, the call premium becomes worthless and a much lower strike price have to sell to earn a couple % premium then there's a chance of selling below cost! The small premium gives a false sense of safety which encourage over sized positions. I rather buy dividend paying quality stocks and nibble a little bit at a time and ride out the wave. The catalyst of my awakening is interesting. On July 18, and 19th, I participated a Buddhist repentance service called "Compassionate Samadhi Water Repentance" which we repent bad actions we did in the past originated from mind, words and actions.. At one point of the service, there's the mention of repenting our greed, I realized how greedy I became in investing and starting losing my sight. I realized I don't have to get rich quick and I don't have to use margin loan.And I can still do well financially that I can still drive a car, have a nice house to live in and retire early. So I dramatically reduced margin borrowing in July, sold half of Michael Kors in July. I kept 50% thinking there's a good chance it'll rebound because of the ridiculously low valuation. The Michael Kors mistake cost me 1 year of time of increasing my net worth delaying 1 year for me to pay off my mortgage. Similar to what Lululemon experienced, I still think Kors has a good chance of rebounding in a few years but I don't want to own it anymore. The reason of my gotting rid of it is not because of its future prospect but because of my positions exposture, removing margin loan, refocusing on dividend stocks, and also ethical investing. Also my parents' health is deteriorating. I have responsibilities to take care of them. From now on, I'll focus on paying down mortgage, dividend paying stocks, dividend growth, a bit of REIT and a large position in short term bond. Most of my holdings are already dividend paying stocks. I just need to control their position sizing. I'll keep 50% stock and 50% bond until I reduce my mortgage to about $30000, 5 years from now while still keeping some stock positions. Right now it's at $90000. I was planning to move to a bigger house in xyz years. Now I am content to live at the same 160k house(Now worth 180k) for a long time! The mortgage is small. Heating cost, property tax is low. It's easy to keep it clean. I am trying my best to practice minimalism. That's why I don't need to use margin.. I can do well without leverage at all. I can still achieve 10% to 15% return on the stock positions. I know what quality stocks are but sometimes I lose focus and have to refocus. They are the stocks that can be bought and forget. Also I know should avoid resources stocks but sometimes I forget this rule. I don't like working for someone else. I don't like annual performance review and being asked what goals I have for the job next year when the company didn't even change much after 35 years that it still didn't diversify and still rely on government orders. (P.S. any one watched:"Office Space"? Office job is killing my soul.) I don't like having a mortgage. I don't like it at renewal time when they ask you: do you still work at this company full time etc. I hope at next renewal time, I'll say: yes but part time. Working part time without a mortgage a great way to have more time to live a more meaningful life. Today, I sold second 50% of Michael Kors positions and nibbled some Canadian REIT ,banks and Alaris Royalty Corp. . From now on, I try my best to control myself not to buy early so my cure is to nibble positions. Positions sizing is important.Being wrong on big positions is very painful. Link to comment Share on other sites More sharing options...
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!Register a new account
Already have an account? Sign in here.Sign In Now