Emotional Investing

However logical, analytical and research-oriented we may be, there is always at least one stock in our portfolio to which we have formed an emotional attachment. It is like a first love, a first kiss, or may be just someone special. And so, that stock stays with us, whether it is heavyweight or under-performs.

Why are we emotional about our investments? I guess, if we buy art, we would only buy a Picasso (if we had the millions plus jingling in our pockets) if we liked it. If we bought a boat, we would only buy one if we “liked” her, the rudder and the speed in the sails. So, why are we not permitted an emotional attachment to our stock portfolio? Why must we be detached, cold-headed and hard-hearted when we sell a stock that we know will never recuperate? There is only response. We are hopeful. We are hopeful that that stock which has gone down in the doldrums will turn around. We are hopeful that we will sustain an eventual gain instead of the current dank dark unrealized loss that stares at us. This leaves us with two options. Either we don’t look at our portfolio (then we don’t need to focus on the red-inked unrealized losses) or we itch it like a mozzy bite that won’t go away.

In an attempt to provide you with a second informed opinion on your investments (I regret that I cannot be benign totally, I do charge a fee for this service), I would like to advise you that emotion is not bad. And logic may not be all good: we need to temper one with the other. I do extensive capital gains schedules for taxation purposes, I do boutique bookkeeping for small and medium sized businesses, professionals, charities and non-profits. I do serious year-end accounting, reconciliation and accrual. I prepare and netfile your GST reports. I also do payroll ~ for we all need a little chunk of change, don’t we? I am always available to efile your personal taxes (prior years included). Please visit my website #TrushaDesai.com for services that I provide.

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Buy or Sell

Chart copyright Trusha Desai Innovation Management Inc.

Buying a call option is an effective investment strategy in a bullish market. However, are we always certain of the direction of the market or the underlying? Even if we study the fundamentals and technical, read the insider reports, estimate the earnings, trend the dividend growth and peruse the analysis reports for good measure, there is no certainty in life. I guess Warren Buffett will definitely tell you that, for Berkshire Hathaway does not go up every day. If it did, it would hit the roof and aim for Jupiter.

If we own the underlying, a vanilla call strategy might be optimistic. However, in this strategy, are we going to cover in the money or out of the money? If we are too close to the underlying for comfort, or if the underlying’s stock price exceeds the strike price at some point before expiration, there is the threat of being assigned. Unless being assigned is part of our investment strategy, it is essential that we monitor our underlying’s price regularly. It is essential that we exit our vanilla option before that becomes an expensive proposition.

Therefore, we can safely state that a vanilla option is not for everyone. If we do not wish to get an apoplectic fit, we may wish to stay away from vanilla. If we are more sophisticated investors, we may choose to strangle or straddle or simply butterfly. However, if we have not studied these strategies in detail, we may stick to the tried and trusty “buy-and-hold” and live off the quarterly dividends … for it may be the only “safe” strategy we could pursue. Of course, we can invest in gold, we can invest in futures, or simply real estate: all of these strategies have different risk ratios, of which we must be aware. Perhaps, stashing the cash may be the only consideration if our risk aversion has boundaries. Please be aware that propensity to risk should decrease with age: that is, risk and age must be inversely correlated.

Along with accounting, GST, year-end, personal taxes (focusing on extensive Capital Gains schedules), QuickBooks, Sage 50 etcetera, I also do investment analysis. I am available to give you a second opinion on your investments. #TrushaDesai.com

#financialplanning #strategy #options #financialcoaching

Theta tells time

If you have an investment strategy of buying calls, it suggests that you are bullish on the stock. What would your strike price be? What would your expiration date be? Keeping in mind the Greeks, such as theta (time value) and our understanding thereof, we may decide to buy calls that expire three months, six months or a year from the current date. We needs must remember that call options that have a twelve-month expiration period maybe expensive.

When we think of such longish expiration periods, we wonder what is the reasoning and rationale behind weekly options? Who would ever buy weekly calls? Or do they write weekly covered calls?

When we attempt to study the volume and open interest of option trades, we are unable to decipher without stock trader backing whether the day’s volume focused on purchase or sale of the option under consideration. We can study the volume of a stock and estimate whether the stock was overwhelming bought or sold at particular periods of the day. There are even more sophisticated investment instruments available that will advise us of the dollar volume being traded during differing periods of the day. This information is not readily available for options.

Therefore, when we attempt to invest after-tax income in options, we must remember that our investment may result in a complete loss. We may be marginally fortunate if we walk away with a minimal loss if we perceive that our anticipated bull has turned into a bear for psychological, emotional, financial or economic reasons. Moreover, unlike securities which may provide us with a steady(?) dividend income, no dividend income is obtainable from stock options.

I do extensive investment analysis of your portfolio. I also provide a second opinion on your investments after analysis. I have long-term experience in preparing convoluted capital gains (losses) schedules for taxation purposes.

Please reach out for your professional bookkeeping, payroll, management consulting, capital gains, personal and corporate tax requirements to me ceo@TrushaDesai.com #TrushaDesai.com