New Way of Investing

(c) 2010 F. Bruce Abel

OK, after a lifetime of study, I am ready to announce a new way of investing. It involves the tension between the terror of simplicity and the necessity for complexity. Simplicity in investing causes too much worry. Complexity allows the individual investor to fool himself out of being terrified.

You put your money directionally on INTC such as buying 1000 shares. You have made a directional bet that Intel will go up. There is a one in three chance that you will be on the wrong side. This causes big time worry. The worry over that possibility causes sleepless nights. It causes you to get out of INTC.

OK, so let's say you put your money on two or three individual stocks. You have still made a directional bet on "the general market." Your anxiety is the same or worse. You do not sleep, especially in today's world which has pulled the pants of the market down and exposed the axxes in New York without a soul.

Diversity is said to salve anxiety. Not any more. Complexity? Give it a chance.

OK, I bought five August 220 calls on Apple and sold five August 230 calls on Apple, a few weeks ago when Apple was about 222. That's complexity to some extent. I don't have to root so hard for the directional bet. I feel more comfortable.

Then I buy 1000 shares of GE and at the same time 10 puts on GE. I can sleep. I have paid 5% for getting some sleep.