A Systematic Organization of a Goal

So I’ve been stressed recently about investing and so I decided to sit down and approach my goal of being a bad ass investor in a systematic manner.  Here’s what I came up with.  I think what I did here could be done with just about any goal.

“I feel that my quest to become a highly profitable trader has been very disorganized, causing me to waste time, feel stressed, and lose money. Thus, I’ve decided to take a serious look at what exactly I’m trying to accomplish, problems with that goal, ways to overcome that goal, and, finally, I will create a specific curriculum that allows me to efficiently make progress in accomplishing that goal.

My goal (broad): To be an effective options trader, because options offer the greatest potential rewards, more control, and an experience that is close to that of a venture capitalist (a career I might want to have when I’m older).

Note: effectiveness, in this piece, means being able to generate maximum profit while spending the least amount of time and incurring the least amount of stress. Each of these is equally important, although I predict that profitability will be the most difficult aspect of effectiveness to achieve.

Problems with the goal of trading options: Investments in options have relatively high minimum equity requirements, high risk, and require permission which might only be available far in the future. An option with a lower risk (percentage wise) has a higher minimum equity requirement.

Potential Solutions to Problems with Options: Because options offer high leverage, small gains can be made large. Thus, I can achieve good gains while lowering risk if I seek very low risk opportunities. Another way to reduce risk and min. equity requirements is to use level three options; unfortunately, however, these require difficult to obtain permission.

Potential problems with the goal of being effective:

1. To be an effective options trader, I will need to understand options trading very well, specifically which options to buy in a specific situation.

2. I also need to be able to recognize opportunities (such as situations in which a certain stock is very likely to change in a certain way).

3. I then need to assess the risk, the potential for profit and loss, and if possible, divine as precise as possible an idea of how much and when important factors (such as price and volatility) of the stock is going to change. Based on this assessment, I need to know which option will being the most profit at the least risk and purchase it. Once the option has been purchased (and becomes an investment), I need to be able to continually assess changes that are occurring in real time and make profitable decisions (such as whether to buy (and what, exactly, to buy), hold, or sell (and what, exactly to sell)).

4. The more time I spend (in the organized and efficient manner described in this piece) on developing these skills, the less time it will take for me to do them, and the less stressed I will be as I do them.

Ways to increase effectiveness:

1. To improve the ability to understand exactly how all of the different option types (such as different strike prices and different expiration dates) as well as the different options strategies (such as spreads and straddles) respond to different changes in the underlying stock, I need to read options trading books, practice with virtual trades, and gain experience from real trades.

2. To improve my ability to spot opportunities, it is most important to be paying close attention to a number of companies that are either very good or very bad, to wait for times where they are drastically under/overvalued and are likely to be corrected. The better I understand these companies, the better the opportunities will be (in that they will be more effective (profitable, take less time and cause less stress)).

3. To improve my ability to assess these opportunities, I need to read books on technical and fundamental analysis, value, growth, momentum, and other types of investing, and on investing psychology; I need to practice with virtual trades and gain experience from real trades. I need to discuss stocks often with others so I can see things I wouldn’t on my own, as well as learn to quickly and concretely describe aspects of the stock that are likely to cause it to act in a certain way. I need to quickly record these in a journal and state precisely how I think they will cause the stock to change and why, based on that change, a certain option strategy will be the most effective. During the investment, I need to keep these aspects in mind, watch for changes in them in real time and react accordingly (I will base my reaction on a quick reassessment process in which I do a trimmed-down version of what I did before I made the investment). Also based on these assessments, I need to determine the most effective time to end the investment and end it. After the investment is over, I need to assess how closely the investment followed my original assessment, how well I was able to reassess and react as the situation changed, and make note of all of this in my journal, paying specific attention to aspects of the stock that I didn’t consider that caused it to change in ways I didn’t expect.

Plan to increase effectiveness:

1. Find two hour blocks of time each day of the week, preferably the same time block, and set it aside as time to be spent improving options trading effectiveness.

2. Only look at, read about, or think about stocks during those time blocks, unless you are currently involved with an investment.

3. Avoid things (such as websites) that will cause you to think about stocks outside of the time blocks and, even when in a time block, try to avoid random data (such as random stock quotes or short articles), as it destroys your focus and increases your stress (it seems the human brain does not do well when confronted with an excess of random data).

4. It is fine to spend those time blocks doing other things; however, if you miss this time blocks, do not try to reschedule them for later, just wait for the block the next day. If something is on your mind that keeps you from focusing effectively on investing, then do try to force it; take care of the other thing instead. Always remember that you’re young, you already know more than a lot of options traders, and, like with options trading in general, THERE WILL ALWAYS BE ANOTHER OPPORTUNITY.

5. Try to spend a 40-60 minutes working on items from the schedule (one at a time), and the rest of the time practicing effective options trading with a virtual account (ie, go through all of the steps); focus on whatever aspect of effective trading you’re currently reading about.

Schedule of readings and activities to do:

1. Read chapters in options books on simple calls and puts. Avoid references to more complex options until you are able to obtain level three options privileges (which might be far in the future). After reading these chapters, read chapters on different tools (such as mathematical models) for trading simple calls and puts.

2. Get a book on technical analysis, assess what aspects will be useful and then update this part of the schedule and study them.

3. Get a book on momentum investing, assess what aspects will be useful and then update this part of the schedule and study them.

4. Go in search of more companies, read their earnings reports and try to gain a sense of them.

5. Get a book on investing psychology, assess what aspects will be useful and then update this part of the schedule and study them.

6. Think of more tasks to add to the schedule and add them (then do the top one).

Rationale behind this plan: I’m sure I spend more than 14 hours a week thinking about and reading about investing, yet I accomplish very little for the amount of time I spend. I believe that 14 hours a week devoted to anything is quite a bit, and more than enough to experience rapid increases in skill if done the time is spent in an efficient manner. I think the plan is efficient, because I don’t need to waste time deciding what to do during the time I’m devoting to improving my investing, because I have clear guidelines saying what I should do. I also spend a significant amount of time devote only to this one thing, which I think will help reduce inefficiency caused by having to think about multiple things as once. Most importantly, this will reduce the stress I feel when I’m working on other things, but I feel like my time would be better spent doing stocks, or I spend a few moments checking stocks. I think this scattershot approach is hard on my brain and causes stress; the times I’ve learned the most about stocks have been when I’ve focused on one thing and one thing only (like reading Peter Lynch’s books on the plane).”

Information/time

Nearly anything anyone could possibly want to know is now available on the internet. Information is power (it certainly is money; conceivably, with enough information, one could buy an option in a stock that´s about to increase by around 50% and achieve around a 1000% gain in one day). The problem, then, is that it takes us time to find information, and, at this point, we don´t have unlimited time. That´s the main purpose of this website: to utilize our collective filtering ability to find valuable information and then concentrate it here for you.

Or to put it in an overly simplified way: assuming information has monetary value, this website allows you to earn more money, or just gather more valuable information per hour, than you can anywhere else. We are constantly trying to increase I/t.

Our website increases your I/t by decreasing time spent searching and by providing articiles that have a higher I value than can be found elsewhere.

There is another way to increase I/t, however, and that is by decreasing the value of t. Here is a link to an article that describes a company that does exactly this:

http://venturebeat.com/2007/05/10/live-ink-offers-better-way-to-read-text-online/

Livelink allows you to take any reading material and decrease its t value (and increase its I value) by converting it to a format that allows you to read it faster (lower t) and retain more of what you read (higher I).

Pardon my editorial explicitive, but that is fucking amazing.

Right now this service is quite expensive, but how long will it be before all text is written in a more efficient format, before people start to investigate the means by which information reaches the brain (not just written text, but spoken word, pictures etc.) and, in every conceivable way, the connection is improved by a more efficient format.

I/t is the essence of this page. As much as we can, we have to track, promote and provide developments such as these that allow for a higher I/t.