Back in June 2006 we had some extra money lying around from our insurance settlement. I’m hesitant to name dollar amounts publicly. Let’s just say it qualified as “a lot” in my book. More than a month’s salary, less than a year’s. I hope that is sufficiently vague.
So I decided to invest in the stock market.
Ah, you can tell where this is going already, can’t you?
When I wrote about this a couple years ago I got a number of comments from readers, most advising caution. But I decided to keep this money in the market for a few reasons. For one thing, I was getting financial advice from my father, whom I trust. For another, I am already socking away a certain amount each month into safer managed funds. Also, I didn’t put all this cash in the market, only part of it. And finally, I understood the risk. This particular chunk of change was a windfall, money we could theoretically afford to lose. As I said back in June:
Worst case scenario: I lose all this money. Eh, so what. We’ll still be ahead of where we were pre-Katrina.
The system we used worked something like this: We identified stocks that were commanding a good price for options. Then we bought those stocks and sold the options. This is called selling “covered call options.” At the end of each monthly cycle, we generally sold off any stocks that didn’t hit their strike price and start over again.
After about a year or so, I’d done pretty well. My portfolio was up 50%.
Then things started to go downhill. Soon all my profit had evaporated and I began to lose money. I watched with sick fascination as my portfolio dwindled to half my original stake, then a quarter, then a tenth. Somewhere in there I got a margin call and had to sell off some stocks. Did I mention we bought stock on margin?
Then yesterday I got another margin call and was forced to sell off what little stock I had left.
So that money is gone. All of it. In fact, I owe the brokerage house a little.
I’m a bit stunned. I really thought we could ride this out. I thought, if I just hold on long enough, if I just brazen it out, surely we’ll bounce back a bit. Turns out I didn’t have that choice. The daily headlines fret about when the market will “find its bottom,” but it seems I’ve found mine.
It was an interesting ride, but now it’s over. Easy come, easy go, I guess. I was a bit uncomfortable as a capitalist anyway.
It still sucks. But I’m very glad I didn’t have all my eggs in that basket.
As for Dad, he is much more invested in the market than I, so he’s really feeling it. He sends this cheerful comment:
Mom and I don’t have much money left but we can get by until the grim reaper comes along.
He was born at the beginning of the Great Depression, and he says this is the worst financial crisis he’s ever seen.
And I understand the nation of Iceland may well go bankrupt. Things are rough all over.