At the beginning proceed with caution – or – FOR GOD”S SAKE DON”T DO WHAT I DID!
If you’re reading this article, understand that I’ve walked in your shoes. Like you I was a new member to Phil’s Stock World, arriving on the site looking for companionship and education on my options journey. Probably like you, I had read a few books on options, dabbled in some trades, made and lost some money, but I was still looking for a system, as well as a teacher.
Having read Phil’s daily posts on Seeking Alpha, I was both amused and intrigued, here was someone who spoke plain English, obviously had some education, a passion for the markets, and an opinion on most everything! He also wrote on the importance of “being the house” – of being the on the side of the odds, and being consistent in an approach to investing. All these things appealed and made sense to me, and after reading the article Phil wrote on “How to Buy Stock for a 15-20% Discount” I decided to jump in with both feet. Being a quick study, I took the plunge in late 2008, just in time to have a single, very successful month in December.
Wow – 10-15% gains in my first month! It was a great Christmas Season! I was going to retire early! Obama took office with great promise, and I was keenly optimistic for 2009. I invested heavily, in a variety of sectors, across the board. I sold lots of premium, and things were looking good.
Well, you know what happened next, things went bad, then worse, and then downright scary! I had a number of sleepless nights, and the more I read, both on Phil’s favorites as well as the main street media, the worse things looked. I did my best, but on a number of issues, I pulled the plug and panicked. Not understanding how to roll down, I just sold, generally exactly when I should have been buying. In my first three months of trading, I probably lost 30% of my holdings.
Fortunately, I have some background (martial arts training) that taught perseverance, and I didn’t bail out on my new education altogether. I don’t expect you to understand from a martial arts perspective – but there’s a great summary on lifelong learning called “Mastery” by George Leonard – a former editor at Esquire. If you’d read this book, I think it will help your options mastery education a great deal. I was down, but not out. Convinced that I’d found not only a good teacher, but a good community of fellow investors, I pressed on. I started to actually read what sufficed for the beginners guide, I read the older posts, and I started to join the daily chat. I asked my dumb questions, got Phil’s generally patient answers, and learned. I remember when I first understood what it meant to “double down” – which was like a revelation for me. I started to actually practice more patient, often smaller, and more successful trades (see “The Man Who Planted Trees”). Its taken several months, but my losses have all turned around, and I’m now comfortably in the black.
So – learn from my mistakes – the first thing that I would encourage you as a beginner to do is to NOT invest anything until you have read the site – both the daily articles and the chat – for at least two-three months. Ideally, I’d say that it would be useful to read the site both during market open hours, as well as re-reading the days chat after hours, when you can go back and understand the approach as well as the language. Phil has his own jargon, and he’s not going to change it for you, so you’ll need to develop a lexicon as well as an understanding of the approach, so it will take some time.
Second, and after you’ve read the site for a few months, you should select a few stocks that you like, and begin to execute some small trades with the accompanying option plays. I’d recommend a couple that you may take from Phil’s many suggestions, and a couple on your own (we all learn better from our own mistakes – as there’s no-one else to blame). At the beginning, it would be beneficial to start with just 100 shares of each position, and for reasoning on that I’ll refer you to the strategy section here. Your objective at this stage is not to make money, and of course its also not to lose money – you’re objective is to learn how to trade in a system – selling premium.
So my young paduan, with that all said, I’m going to wrap up the first chapter with a quick summary of your homework:
- Read for a few months the articles and the daily chat.
- Read Mastery
- Watch “The Man Who Planted Trees”
- Then…and only then… start to make some small investments based on Phil’s approach
This is the first in a series of articles aimed at Members new to Options Trading.
