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October 2008

Recs

6

Skiing is pricing me out of the market

October 21, 2008 – Comments (4)

I started skiing when I was 14 (back in the devoian era) and have kept at it ever since. I got my first pair of skis in 1972 (a pair of really thrashed Head metal skis that I got for $10 from a neighbor) and have had my own equipment since then. I've skied at a lot of places from small to large and easy to hard. Now that I'm on the wrong side of 50, I don't take a double black (experts only) run for my warm up run, the knees need some time to limber up. I still do the double blacks, but I have to be on my game for them.  [more]

Recs

15

Leverage Works Both Ways

October 13, 2008 – Comments (7) | RELATED TICKERS: CHK

In addition to the two CAPS profiles I run (chk999 and chk999longonly)
I also am in several games over at investopedia.com. Those are portfolio
managment games and I use them to sharpen my portfolio management and try
options and shorting strategies. To quote Inspector Harry Callahan "A man's
gotta know his limitations" and I'd like to find out what mine are with play
money, not the real stuff.

In the longest running game I had plenty of cash when the panic hit and
have been able to buy some great things. (And some long term call options on
some nice stuff too.) But in the other game I was very heavily margined
and it was all on long positions. And they went down a lot all of a sudden.

I got a margin call.

When I went into that game I realized things were very dire. I had to
sell most everything to meet the margin call. While that portfolio isn't
wiped out, it will take years of patient and skillful investing to rebuild
it just to what it was when I started it. Never mind trying to get into
profits. If stuff falls much more, it may have a negative net worth. This from
being up about 30% over where it had started.

Stuff like this is happening in real life too, but thankfully not to me.

One of the current oddities of the panic has been how Chesapeake Energy (CHK)
which has fallen really a lot. Now given that it has trillions of cubit feet
of gas reserves (and I'm not kidding about it being TCF), you'd think it would
be of some value. The mystery seems to be cleared up. Aubery McClendon,
the CEO, had to sell all his company stock (about 33 million shares) to meet
a margin call. So all those shared dumped in about 3 days really hammered the
price. (Which I think opens the door on an opportunity, but that is a different
issue. Caveat emptor.)

It's a good thing that my margin call was only in play money, because a complete
wipeout in real money would really sting. I've taken three things out of this.

1. Margin should be used only with the greatest of caution. Know why you are doing
it and what your exit conditions are.
2. If you are on margin check things often, they can go sour very very fast.
3. Even billionaire CEOs can get burnt by it. Think about that before you decide to lever up.  [more]

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