My Worst Investment Ever Podcast
Business:Investing
BIO: Edward McQuarrie is Professor Emeritus at Santa Clara University. He writes on market history and personal finance, and his research has been mentioned in columns in the Wall Street Journal, Marketwatch, and Barron’s.
STORY: Edward opened an account to trade naked puts. When the financial crisis of 2008 hit, he thought it was a good time to sell his puts. He ended up losing almost all the money in his account.
LEARNING: Keep your play money small. Never trade your treasury bond until maturity to avoid losses.
“I find intermediate treasuries to be superior to total bonds, especially for new investors.”Edward McQuarrie
Guest profile
Edward McQuarrie is Professor Emeritus at Santa Clara University. He writes on market history and personal finance, and his research has been mentioned in columns in the Wall Street Journal, Marketwatch, and Barron’s. His papers can be downloaded from SSRN.com, and he posts as McQ at Bogleheads.org, where you can view some of the charts mentioned today.
Worst investment everYears ago, Edward gave himself a small play account to keep his hands off the money in his 401(k) account. In that play account, which he opened with a broker, Edward began to trade options, and more particularly, he began to sell naked puts.
Then the great financial crisis of 2008 hit. Edward had been trading puts and calls for four or five years at that point. By November 2008, the Lehman Brothers had already gone bust, and the markets were going down, so Edward thought this was an excellent time to sell a naked put.
At that point, Edward had $21,000 in his play account, and his maintenance requirement was only $11,000. A day later, he logged into his account and found a balance of $11,000 and a $21,000 maintenance requirement. This meant Edward was $10,000 short. His best option was to take the loss and reduce the maintenance requirement. So after 30 minutes of frenzy to position covering, Edward still got a margin of about $2,000, which he had to cover with money outside the play account.
Lessons learnedEdward’s number one goal for the next 12 months is to write as much good stuff as he can pump out the door.
Parting words“Own the total stock market, just like Andrew said.”Edward McQuarrie
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Connect with Edward McQuarrie
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ISMS 27: Larry Swedroe – Familiar Doesn’t Make It Safe and You’re Not Playing With the House’s Money
Manisha Thakor – Invest in Your Financial Health and Emotional Wealth
Richard Smith – Anything Valuable Is Hard
David Perry – Bet on the Person, Not the Idea
Tom Wall – If You Make Some Money, at Least Take Half off the Table
Rick Warner – Be Careful When Investing in Banks
Mohit Tater – You Don’t Know What You’re Getting Into Until You Are in It
Vorathep Srikuruwal – Walk That Property Before You Buy It
Phil Bak – Be Slow to Jump Onto Bandwagons
Jack Schwager – Never Stay in a Position That Violates What You Believe In
Sampark Sachdeva – Don’t Be Afraid to Take the Plunge
ISMS 26: Larry Swedroe – Are You Subject to the Endowment Effect or the Hot Streak Fallacy?
Vishal Bhardwaj – Do Not Let Emotions Run Your Business for You
Harjeet Khanduja – Work Smarter Not Harder
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