While we do not know exactly what the future brings ... I am sure that many others are breathing a sigh of relief after today.

I have been a shareholder since 2004 and an options holder since the fall of last year ... so I have been through a few rocky periods before last week (as I am sure many AFB members remember quite vividly):

- the drop from 86 to 50 in 2006
- the rampant SJ FUD in late 2006
- the post earnings selloff in Jan 2007
- the August meltdown

Even with those experiences, the speed of the drop in the recent week was startling ... a sobering reminder that we truly ‘ride on the back of elephants’.

For myself, I held on tight ... having 2009 LEAPS gave me that luxury ... however, seeing a paper decline of approx 1/3 of your account in less than a week (before today) is stressful to say the least.  Even with this drop, I am well up for the year since I purchased most of my options at the end of Jan 2007.

I am curious if this most recent fall has changed other AFB members view of risk and how better to prepare for the next time ... for myself, I am reconsidering my ‘all-in’ position and may have a portion in cash to act as a buffer ... no less confident in AAPL or it’s prospects ... just more respect for how one can be tossed around in this market.

Thoughts?

Re: Lessons Learned?

[quote author=“Derrick”]
I am curious if this most recent fall has changed other AFB members view of risk and how better to prepare for the next time ... for myself, I am reconsidering my ‘all-in’ position and may have a portion in cash to act as a buffer ... no less confident in AAPL or it’s prospects ... just more respect for how one can be tossed around in this market.

Thoughts?

This isn’t the worst I’ve been through (I’ve been at this awhile).

Lessons to be learned? Follow one’s instincts. The sell off was irrational and the fundamentals remain the same.

I’ve posted as the subject of this topic a 5-day comparison of AAPL and GOOG.

I’m convinced now AAPL and GOOG are metaphors in the minds of traders for high flying tech stocks and at times may trade with violent swings.

What I have learned from previous experience is when AAPL falls through the floor “double down” but keep an open mind concerning the time of the bounce back up.

Eventually AAPL will become a Dow component. Until then swings of this kind can’t be ruled out. Played right it’s a good situation to make gains. But it’s never a comfortable ride no matter the thrill.

I think the hardest part of these drops is the speed in which they happen. As amazing as the last couple of days have been, last month when we went from 170 to 153 and back to 170 in about 10 minutes still sticks in the back of my head. Today, to me shows where investors are going to look when the market finishes its shakedown. The forward P/E of this stock relative to growth is so small that APPL should outperform all others for the next 2 years. JMO As I stated last thursday I was able to reposition by selling at 183.4 and rebuying at 174. I thought I was stealing at 174 and still do when looking at this time next year. Nothing could prepare me for that and the 3 day rule had me by the nuts anyway. Good thing because it probably kept me from making a bad decision.  

Re: Lessons Learned?

Derrick-

Really excellent post!

For me personally this drop has not changed my views at all. 

FWIW this is how I look at things;

AAPL is a good long term investment that will outperform the broad market for the forseeable future.

It is and has always been a “high beta” stock that is subject to sharp declines and parabolic rises. If you plan on being in the stock long term you shouldn’t be suprised or shaken out by sharp moves down that accompany broad market sell-offs, “sell-the-news” events or FUD generated whipsaws.

When we have the next “Bear market” fundamentals may not matter and it will go down or trade sideways and investors should be prepared for that possibility.

If you’re an investor and have seen your initial investment double, triple or more - it is just good risk management to take some of your profits off the table from time to time.

It’s easy to convince yourself (or others) you’re a trading or investment genius by continuing to buy a great stock like AAPL that is going up ln a bull market but IMO that is not how long-term success is achieved. You also have to know when to sell.

For anyone who is *TRADING*  the need to manage risk is paramount.  Options are particularly tricky in this regard and the twin devils of trading -GREED and FEAR are easily magnified when trading options.

There’s no one right way to trade stock or options but there is one truth that this past week has magnified:

No matter how good things look, you should always be prepared and have a plan for what to do if things don’t do what you expect them to.

I apologize If I’m just stating the obvious - it helps me to remind myself of these things. 

Just a couple of charts to put things in perspective. 16 months of AAPL from Nov 98 to April 00 (top) and July 06 to Nov 07 (bottom). 

I’m not making any predictions and my core long AAPL position is intact, but as Mace and the Ellioticians like to say: “History Repeats” and those who fail to learn it’s lessons…

It’s great to be long AAPL (as I am) but don’t get blindsided

Re: Lessons Learned?

I think gut feel counts for a lot, but only on the basis of general knowledge. A lot of general knowledge is here and that gives one a great deal of confidence.

As a ‘buy and hold’ the only thing I have been bothered by, was the nagging sensation that suggested selling at $190ish was a good thing to do. Apart from that I know that AAPL will rebound and do so very quickly. You only have to look at the general 87 crash to see how quickly things can recover (but don’t look at the fall of AAPL in 2000 that was different to now!).

After a few years following this board you do tend to form an opinion which is based on the collective opinion of this board. There is so much well considered and rational discourse here that it almost becomes a truism.

The discussion on past events is also very useful. It allows us all to verify and validate (or not)  our opinions.

happy days

[quote author=“mtdoc”]Just a couple of charts to put things in perspective. 16 months of AAPL from Nov 98 to April 00 (top) and July 06 to Nov 07 (bottom). 

Wow… don’t thosee charts look samey

But the fundamentals are different for Apple/AAPL.

DotCom was just silliness.

Mind you the US is being run by a bunch who have just poured $1.5B down the drain with the net benefit of what??? Has it made anyone feel happier or safer??

Imagine what technologies could have been built for $1.5B and how much wealth and power that could have given to the US and it’s citezens.

Sorry, sorry…. got OT.
 

Lesson finally learned (and possibly for carbonat too?): Holding long term positions in highly margined accounts cannot defend against situations such as the past week, because there is never a moment when you can be sure your maximum loss is sustainable, unless you reduce margin during the volatility, which guarantees a loss on the round-trip dip and recovery.

[quote author=“sleepygeek”]Lesson finally learned (and possibly for carbonat too?): Holding long term positions in highly margined accounts cannot defend against situations such as the past week, because there is never a moment when you can be sure your maximum loss is sustainable, unless you reduce margin during the volatility, which guarantees a loss on the round-trip dip and recovery.

I have consistently found that I underestimate by half the likely magnitude of any sell-off. If I prepare for 5% it generally reached 10%. If I have prepared for 10% it generally hits 20%, and so forth. That’s why if I get my margin’d positions wiped out, I never buy them back immediately because chances are there’s a lot further to fall. This discipline worked well for me this week. I missed the bottom because I waited until yesterday morning to buy, and only then when I could see the week-long downtrend overcome in the pre-market - but at least I avoided possibly seeing yet more margin’d trades being wiped out in the Friday afternoon swoon from $171 to $165, and then the Monday collapses to $151, had I re-bought on those days.

Hard lessons indeed.

I hope Carbonat is ok.

I have learned that after the Aug drop and now this past weeks drop that for me it is best to hold all of the common during the volatility and not try to time a bottom.

My options on the other hand can get the shaft in a hurry so from now on I wont be holding any positions that dont hvae at least 3 months left till OE. It’s just too much stress especially because I am really only playing with a small amount of cash in the options ($5000.00 to $10,000.00) compared to my common.

Maybe once I am able to build up some significant profit again on the remaining options I have I will be more comfortable playing with nearer term but having all my profit and then some wiped out in a matter of 4 days sucks the big one!

I have preserved my initial option investment and then some after today and I am holding some back in cash so I wont be gaining as quickly. I will be practicing my patience and be holding that cash in case of another 10% dip or greater.

My lessons learnt for this year are:

Never, ever hold a position at max margin unless you have a stop loss very near by. Even a position that isn’t at max margin can become max margin quickly, so use margin sparingly. Fortunately I’ve not had a liquidation, but seeing it even happen to others makes me very uncomfortable.

Use stops. Even on multi-week/month positions, stops are essential, but keep them at a distance where normal swings won’t hit them. Only on multi-year non-margined positions can you ignore stops.

Use price targets. When they are hit, either sell, sell half and trail the positions with stops, or bring your stops closer and trail any further rises.

EW can help with price targets, particularly with longer term swings.

If you’ve already ridden out a couple of days of a big drop on an unstopped position bought solely with cash or very little margin, and there was no fundamental reason for the drop, and you believe the position will recover over the next couple of weeks, sit tight. You’ve probably already lost 80% of what you are likely to lose through not using stops. Selling near the bottom hoping to buy lower often results in you not buying back lower, but higher.

If you have spare cash then nibble a little every few bucks of the fall, but don’t start until day three of the drop. It’s unlikely you’ll nail the bottom, especially when many others will be saying that the charts look terrible and it could fall further. But watch that margin percentage!

It is tempting to try trading your way back up in a recovery. Don’t bother, most of the recovery will occur when you aren’t able to trade, often overnight. Better to just sit tight.

When your average-in price has been met, it’s often tempting to start looking for much bigger gains, but ask yourself, would you buy a position at that level? If not then sell, or lock it in with a close stop.

Vow to trade better and take steps to improve your trading (especially where stops and price targets are concerned). 

Oh, and if your broker looks like they may be having a few financial difficulties, then don’t ask questions, just move your account. 

Wheeles,

I printed your “lessons” The trailing stops are the easiest free insurance you can have. Will read your post many times in the next couple years.

Thank You

I learned some lessons the hard way the past few days which I’m embarrassed about to tell the truth. I freaked out about the drop and the large chunk of change that I have sitting in Etrade. I would’ve been ok except the Etrade thing amplified everything. I mistakenly liquidated everything thinking that would get my money out of Etrade faster (not true - got some bad info from someone at Ameritrade) and missed almost all of the big move yesterday

It was hard coming back here and reading everyone’s celebratory comments to be truthful. Anyway, I bought back in and feel at ease with what happened. The best part was my wife trying to console me. She said, “don’t worry about what you might have missed, as long as we have each other and some Mac and cheese, we’ll be ok”. That really put things in perspective!

Lesson learned was to stay true to your gut (I’m such an Apple bull, that should make it easy).

When markets get crazy, find some way to step back from it and try to rationalize your actions. Step away from the screen for awhile if that’s what it takes to think clearly.

Get some advice from trusted AFB members. If I had done that I probably wouldn’t have liquidated and would have about 80-100K more in my account than I do today.

Don’t get greedy. As my profits were piling up the last few months, I actually put more stress on myself to keep that going (and strayed away from a few rules and took some risks that I normally wouldn’t do). All that added up to overreacting to the situation.

Cheers,
Mac

[quote author=“ChasMac77”]IThe best part was my wife trying to console me. She said, “don’t worry about what you might have missed, as long as we have each other and some Mac and cheese, we’ll be ok”. That really put things in perspective!

Thanks for sharing your story Chas. You’ll make back your loss. Either way, you’re a rich man.

Every time I have a bad day at work or a down day in the market, I breath deep and remind myself of what really matters- my loving wife and young son and the beautiful world I live in.

I just finished a dinner of pesto pasta cooked over a wood stove with my wife -  we’re going on day 3 with no power due to a windstorm (a small generator runs my DSL modem , laptop charger and the refrigerator)

Thanks for reminding me how rich I am! 

[quote author=“mtdoc”][quote author=“ChasMac77”]IThe best part was my wife trying to console me. She said, “don’t worry about what you might have missed, as long as we have each other and some Mac and cheese, we’ll be ok”. That really put things in perspective!

Thanks for sharing your story Chas. You’ll make back your loss. Either way, you’re a rich man.

Every time I have a bad day at work or a down day in the market, I breath deep and remind myself of what really matters- my loving wife and young son and the beautiful world I live in.

I just finished a dinner of pesto pasta cooked over a wood stove with my wife -  we’re going on day 3 with no power due to a windstorm (a small generator runs my DSL modem , laptop charger and the refrigerator)

Thanks for reminding me how rich I am! 

Doc, thanks for the nice words. 3 days with no power would’ve done me some good   You’re right, I am a rich man, - great wife and kids and a very comfortable life. I’m very lucky indeed! I have a feeling that all of us at AFB are pretty blessed in that regard.

Chas

[quote author=“danthemason”]Wheeles,

I printed your “lessons” The trailing stops are the easiest free insurance you can have. Will read your post many times in the next couple years.

Thank You

Dan, I hope you manage to profit from them, or at least reduce your losses.

I still get caught out with not having any stops. Usually it is when I am going for a “quick scalp” and a trapdoor suddenly opens under my feet. Then I’m too concerned about taking a small loss to save a potentially bigger one.

Twice in the last few trading days I have had my average-in price met, and in both cases I have missed getting out. The first occasion I set my target price a few cents too high. Then yesterday I did not set a target sell price in the PM as I had submitted my ACAT transfer forms to move my holdings away from E*TRADE and didn’t really want to prolong things by trading. I wasn’t too bothered by this as I didn’t think my average-in price would be exceeded. However, it was by over 2 dollars.

So, why didn’t I sell then? Because my ISP had crapped out around 8am EST and didn’t come back online for a couple of hours. In that time I could have got out for a profit and slept much better last night. When my connection came back, it was too late.

Now I am going to have to wait up to 10 business days for my account to transfer. In that time I will just have to hope nothing too catastrophic happens.