Apr

18

I was in Oslo when they started to close the northern Europe air space on Thursday. I decided to take a lift by car from friends to Gothenburg, Sweden at least to get 300 km closer to Milan, Italy. Then I was faced with a dilemma. What is best the best strategy in such an uncertain environment? Wait for flights to go back to normality? Sounds good but how long could it be? Or take a train and travel 24 hours or more? Sounds good as well, but all trains are full now, so the only option is to book a train in some days from now. And what if in the meantime they reopen the airports? Why face a long journey when a plane would be much faster? Or rent a car, provided that they are available, and drive home? That's a long trip, and expensive as well.

It's like being caught in a losing position with limited capital available and having to decide if it is better to close it and accept the loss or hope for the market to go up soon. You cannot wait too long, as you risk losing all your money, but on the other hand it's difficult to sell when you lose.

I have put a stop loss on Tuesday, when I will stop to wait for improvements. Then I will sell and accept the long trip home, provided that it will be feasible. But new (reliable?) forecasts will be provided, and I will change my mind again, as I always do, being unable to fully implement the strategy I decided when I started the trade.

Ken Drees comments:

My father said to me so many times, "he who hesitates is lost". The trading relation lesson is that you first want to doubt the severity of the position going against you. Hoping for the best leads you right into crowd think–things will improve, etc. So here it seems like you at least acted by moving away, but then realized that you are still losing and that losing trades take up capital that can be deployed elsewhere, and losing trades take up time and mental focus and lead to less than perfect mental acuteness. Best to get your arms around the loss and remove it at any cost. 

All these stranded people are like people who have just received pink slips. They just lost their jobs (flights). So should they not take this opportunity to hike the back country, visit that winery, or linger in the cities that they always wished to see, but never had the time to? Some may do so who can afford it, others may not be able to afford to or are not skilled enough to be "re-trained". 

Paolo Pezzutti replies:

I have spent so many days traveling during the past 3 years in so many countries. Most of the times what I have seen is airports, hotels, and conference rooms. Very seldom have I had the opportunity to visit places and understand the culture of the places I have visited. It is like a standardized and artificial reality. For stranded travelers, I think the issue is the lack of choices. You can analyze the options what you want, but practically speaking, in most cases you cannot do anything but wait.

Victor Niederhoffer comments:

Many of us own individual stocks that are stranded, doing nothing while the world spins on its axis. What is appropriate to do in such situations? I would hypothesize that counting would help. Louis L'amour always said that the first moment of a life threatening situation is the best time to act.

Ken Drees replies:

I read once about an older trader, a simple man who simply said that at the end of the day if any one of his trades was "a loser" he would simply "kick it out" of the barn. At first take that seems extreme– or is it? The first time I read that I thought it was too black and white, now it's more of an essential idea for me–the taking of the first loss. Do you like the stock at that price today? Is the stock in a losing position? Would you buy that same stock today–double your position? If the answer is no then its a loser and a candidate for deletion. If every trader on Monday morning got rid of every losing deletion candidate, the force of the positive relief exhaled into the atomsphere would shift the winds over Europe and free the skies for all to get back to work, play, and normalcy. Sell your losers for the tired, the untrainable, the funflighted. 


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  1. Gary Rogan on April 18, 2010 10:12 pm

    When a choice has to be made in the environment of severe informational fog, one simply has to learn that after an appropriate amount of thinking (meaning a lot faster than a paralyzed mind typically takes) one has to take one of the alternatives by whatever means one prefers: a coin flip, deciding which one “feels” better, or by assigning some possibly bogus values to various sub-alternatives and doing the math. Counter-intuitively, the more difficult the decision, the less important is what is decided. Not in the sense of the difference in outcomes, but simply what additional “thinking” can add. Getting more information is always worthwhile, if possible, but what I’m referring to is that point where all the information one could get has been obtained, and the choice is still very difficult.

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