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 17: Larry Swedroe – Do You Project Recent Trends Indefinitely Into the Future?
ISMS 16: Top 5 EM Country Interest Rates – Normal China Yield Curve
ISMS 15: Top 5 DM Country Interest Rates – Steep US Inversion
ISMS 14: Regional Interest Rates - Low in Asia, Egypt and Frontiers on Fire
ISMS 13: Global Interest Rates - Hikes Slow, Inversion Signals Recession
Peter Ricchiuti – Don’t Fall in Love With a Stock
Jason Hsu – The Market Can Be Crazy for Longer than You Have the Conviction
Shreekkanth Viswanathan – Qualitative Strengths of a Company Matter Too
Jeremy Kokemor – Tread Carefully When Investing in Metals and Mining
Paul Hodges – There’s No Substitute for Judgment
Amy Minkley – What Is Your Enough?
Benjamin Claremon – Know What Kind of Investor You Are
ISMS 12: CPI Racing Across the Globe
ISMS 11: US Banking Crisis and Fed Rate Cut
ISMS 10: US CPI Could Decline to 4% By YE23; Unless QE Revs Up
Michelle Leder – Read the 10-K Before You Buy That Stock
ISMS 9: Saving Silicon Valley Bank Brings New Risks
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