Insane Emergency RE strategy

[ERD50]

... would like to hear what you think about decreasing the percentage of equities as you get older. ... Are you "age adjusting" your portfolio as time goes by?

I guess I'll cross that bridge as I come to it, and just try to determine what AA makes sense for the NW and life expectancy I estimate at that point. I've found it interesting that the FireCalc runs are not really very sensitive to AA - a wide range gives similar results.

Now, if my NW declines to the point that I feel I need to get 'safer' with a more conservative AA I still run the risk of inflation eating that up. But having fewer years ahead of me, that might be OK. I pretty much expect I'll keep 60-70% in equities throughout, but who knows? If in my later years, my NW is at the point that I anticipate leaving something significant to my kids, I'd kind of treat the money as 'theirs', and at their age it should probably be invested fairly aggressively.

I guess that's not an answer, just my rambling thoughts on the subject as I anticipate some BBQ and cold beer by the lake in a few minutes. Happy Memorial Day Eve!

-ERD50

 

[FIRE'd@51]

dixonge

First, let me say that I have enjoyed this thread as much as any I have participated in since joining this forum.

In your post #156, you mention the market closing Thursday at 1071 and opening Friday (settlement) at 1051. I am curious what the strikes of the expiring SPX credit spread were?

 

[dixonge]

Unfortunately, I think you are now making a second mistake. Your bad experience with options has turned you off from the market altogether. This one could take much longer than a year to learn from, and by then it may be too late to adjust. Or like many others, you adjust at precisely the wrong time.

I have a tendency to think in absolute terms. Everything is either black or white, all or nothing. I blame it on my fundamentalist religious upbringing, and perhaps a touch on my mild case of ADD. Being aware of this, however, does not make it easier to moderate my feelings. This was an attempt to take savings and boost the dollar amount in the short term, as well as protect the principle over the next five years or so while providing income. I have shifted to other ideas for attempting to achieve similar results.....none of which involve the risk of losing 30% of my nest egg literally overnight.

While most of the forum is pretty conservative and content with some basic AA and Buy&Hold (which is fine), there are a few of us still looking for an edge. We've been around too long and seen too much to expect a 'silver bullet', but we keep looking for something that might eek out a few percent or lower the risk or some combo. But I don't think anyone can provide good data that says ignore equities (unless they cherry-pick the dates). Think about it.

-ERD50

I used to believe that home ownership could easily be justified as both a financially wise move and a long-term investment. It is established conventional wisdom. I no longer believe this. In similar fashion I feel as if I am being disabused of the notion that equities is a good long-term investment. You mention cherry-picking the dates, and yet what if those are the dates of your market entry and retirement in real-life? Are we not cherry picking dates when we attempt to show steady 7-8% gains over the history of Wall St.? Are we not ignoring all of the many legal and financial changes over the last century? The changes in the last decade alone should give one pause when looking at statistics from 1940...

If you got back in near the bottom in early 2009 you were probably pretty happy up until at least the last month or two. But what if you got into the market since March of 1998? You would be break-even or at a loss depending on the timing...

Steady gains appears to be very elusive during that stretch, especially if you look at one lump-sum investment and track it.

I would be interested to see a chart looking at a dollar-cost average approach during the last 10-15 years.

 

[dixonge]

dixonge

First, let me say that I have enjoyed this thread as much as any I have participated in since joining this forum.

In your post #156, you mention the market closing Thursday at 1071 and opening Friday (settlement) at 1051. I am curious what the strikes of the expiring SPX credit spread were?

1060/1050, of course. I had managed to lose track of what amounted to four positions' worth of spreads - 20 contracts in all. I had thought I had moved all spreads that I deemed 'too close' down to other values. I missed that one, and by the time I discovered it I made the decision to leave it. I was almost 15 points away from break-even at the close, so that seemed reasonably safe.



This was a 'last straw' event. The last two months were rough and already had me thinking about pulling out of credit spreads. That Friday morning just removed all doubt.

 

[Ed_The_Gypsy]

Dionge,

Thank you for publishing your experience. It is a brave thing to do.

Sometimes high-risk strategies do work. That was also a brave thing to do. Trying to work full time at the same time made it much more difficult. I sympathize.

Your Plan A is interesting. It brings to mind George and Tioga (?) and others. It is a realistic possibility.

You ain't alone. Our situations are different only in scale. My DW may not get the retirement she wants for us.

Best wishes to you. We would be interested in how things go from here.

 

[FIRE'd@51]

1060/1050, of course. I had managed to lose track of what amounted to four positions' worth of spreads - 20 contracts in all. I had thought I had moved all spreads that I deemed 'too close' down to other values. I missed that one, and by the time I discovered it I made the decision to leave it. I was almost 15 points away from break-even at the close, so that seemed reasonably safe.



This was a 'last straw' event. The last two months were rough and already had me thinking about pulling out of credit spreads. That Friday morning just removed all doubt.

I hope you don't take this the wrong way, but in an attempt to learn something from this "post-mortem", it appears to me that you simply made a trading mistake. If I am understanding you correctly, you "lost track" of your positions and didn't roll them all. When you discovered the one you neglected to roll, you took a chance that it would settle out-of-the-money. In doing so, you exposed yourself to a gap open, and it went against you. That is different than the strategy failing. Had the options expired at the close (1085), we wouldn't be having this discussion, and you would be setting up credit spreads for the next 60 days. The lesson I would take away from this, is that you can't expose yourself to overnight risk when a cash-settlement occurs at the open.

 

[Purron]

I guess that's not an answer, just my rambling thoughts on the subject as I anticipate some BBQ and cold beer by the lake in a few minutes. Happy Memorial Day Eve!

-ERD50

Thanks for sharing your thoughts and here's hoping you enjoy the BBQ and brewskies!

Dixonge: I appreciate you sharing your experience. It's resulted in a very interesting discussion. Wishing you and yours a very happy holiday.

 

[dixonge]

I hope you don't take this the wrong way, but in an attempt to learn something from this "post-mortem", it appears to me that you simply made a trading mistake. If I am understanding you correctly, you "lost track" of your positions and didn't roll them all. When you discovered the one you neglected to roll, you took a chance that it would settle out-of-the-money. In doing so, you exposed yourself to a gap open, and it went against you. That is different than the strategy failing. Had the options expired at the close (1085), we wouldn't be having this discussion, and you would be setting up credit spreads for the next 60 days. The lesson I would take away from this, is that you can't expose yourself to overnight risk when a cash-settlement occurs at the open.

As I mentioned, this was just a straw, not the sole incident. Before that Friday I had been occasionally rolling positions out andn forward to minimize losses. They ended up being rolled a second time, and then closed out as the market slide intensified, not to mention the infamous Thursday bounce. The net result of this is that I gave up all of May's gains, then April's, then started working on March. The 'lessons' were numerous. BUT - the net takeaway for me is that this is not a workable long-term strategy for me.

Right now I need something that I don't have to babysit. I work during the day, often driving all over the county. I can't monitor and react to intraday shifts if volatility is high. And after retirement, I will be spending a lot of time boondocking and hiking. Last week's vacation reinforced just how many places have no cell signal, not to mention data connections. So no. This is not the strategy for me.

 

[FIRE'd@51]

Dixonge, The only thing I have to say is that there is a reason the MM are trading these small spreads with you.

I'm not sure what you mean by this. The market-maker isn't taking the other side of dixonge's trades because he thinks that's the better side to be on, as you are implying. If he were, he'd be playing the same game with the same long-term expected return - only the payoff pattern would be reversed - many small losses and a big win thrown in every now and then; and he wouldn't be in business very long. The reason the MM is filling dixonge's orders is because that's his business and he has the inventory/order-flow to do so. He's making his money on the bid/ask spread, not by betting against dixonge. If you were to look at his trading book at the end of each trading day, it would be delta neutral, or very close to it.

 

[FIRE'd@51]

Right now I need something that I don't have to babysit. I work during the day, often driving all over the county. I can't monitor and react to intraday shifts if volatility is high. And after retirement, I will be spending a lot of time boondocking and hiking. Last week's vacation reinforced just how many places have no cell signal, not to mention data connections. So no. This is not the strategy for me.

I can appreciate this, and think this may be the main lesson learned from this thread.

Successful options trading strategies similar to the one you were employing require a lot of detailed attention to monitoring/trading your positions, especially during expiration week. This is ultimately the source of any edge over the "house odds" that we calculated earlier in this thread; and like most things in life, it requires skill and hard work to develop, assuming it can be developed at all. Any "alpha" generated should be viewed as compensation for this effort, and one is not guaranteed to receive it anymore than one is guaranteed to become a major league baseball player by spending a lot of time trying to become one. Some people are born with the skill set, concentration, nerves, etc. to become good traders. Most aren't. If you don't have (or want to spend) the time required to do this, then these strategies are really no different from gambling, as over the long-term you will earn the expected return, which in this strategy is relatively low (~ 3% annually on employed capital) because of the "tail risk".

Again, dixonge, thanks for a very stimulating thread.

 

[wcv56]

Stock Options Trading Strategies, Options Trading Success, Secrets of Trading Stock Options: TerrysTips.com
I use to get adverts from this options trading letter but never tried it.
I dabbled in the normal market trading myself for some years with good and bad results. Finally I got smart and said this stuff really does require alot of know how and education that I have spent not much on other than magazines and internet free itnernet research.

I have done all the mutual fund stuff, closed end funds and common stuuf most do
but no type of options trading really never got interested in them enough to study them. I found out by trail and error probably the best I could do was learn how to make more from my work and save more, I have always been kind of ok at saving
even though I never made much in my younger days.

I got myself to where I was an accredited investor status by no easy means and then thought what do the big guys do. Then and only then did I realize, that yes it is true many spend 100's of thousands getting education and years of experience to become profitable in the markets some of the time and hopefully
most of the time! Now what is my chances of holding down a full time job that has
nothing to do with stock markets doing as well as these professionals do. Answer was probably seldom if never....

Through all the trail and error and alot of research and reading which funds were the best and that brung me to read more on fund managers. In this I started realizing the best fund managers with the big guys were starting their own funds which are called hedge funds. The guys with the big bucks do it so I figure that is about the best proven way to make money in the markets is if I do it to.
I read a few hours a day on stocks and markets just because I have done it for the last 15 years and the last 5 years as more of a hobby than investor other than a few $50K to 100K quickies when markets really tanked I would pick up a old
divy payer that just got way to cheap for some quick cash (hold for less than 1 year profits "much less mostly" ). GED and UTF provided a couple good trades for me last year but only because I would not mind holding them long term at the dividend rate they would pay me at the cheap buying opportunity that presented itself. I sold them when the gains reached more than 3 or 4 years of dividends. I guess it may of been luck of time when markets tanked in 09 and I was going back to work too and I just happen to have to much cash sitting around from selling a house that I hadn't put into one of my hedge funds.

The best most of us joe six packs will be able to do in the markets is find good fund managers and hone our savings skills... JMHO, it is not a skill that most of us hard working middle class will ever be good at without spending the big bucks to get educated and experience like the professionals do and many of them don't do so well too! Past performance does not indicate future gains.....

 

[kcowan]

...I guess it may of been luck of time when markets tanked in 09 and I was going back to work too and I just happen to have to much cash sitting around from selling a house that I hadn't put into one of my hedge funds.....

Yes me too - cash from selling two estate houses and no value stocks ready to plunk the money into. One thing I have learned is that it is OK to not be fully invested. That lesson has been the most valuable and one that no fund advisor will give me.

Sure I might pass up some short-term gains, but I might also pass up some big time losses.

 

[wcv56]

Here is what one of my fund managers said to me on 27 May 10
Our largest holding other than cash is VIX and the Yen.
(QOUTE)
I think we often get it into our heads that we need to 'do something' -- especially when markets are volatile. When it comes to existing positions, I think sometimes the best move is no move at all. And when it comes to new money, my belief is that that you really have to focus on your top top ideas -- after all, you can't bet on everything -- rather than just buy "AOT" (any old thing) because we feel an urge to be proactive.

 

[dixonge]

The strategy: an update

One thing that you have to look at when you 'retire' early is the worst-case scenario. For most, this involves simply going back to work, assuming you can still find a job. It is one of the things that helped us finally quit our jobs, the realization that we could probably always find work again. We have marketable skills.

The best-case scenario is to retire early but with a steady income in place that doesn't require you to exchange hours for dollars. This may be a retirement fund, or general investments, or a business you don't have to actually work for. I think most in this forum are shooting for that best-case retirement nest egg that throws off sufficient income and is immune to market downturns.

In-between these extremes is a grey area. As we initially envisioned it, we were shooting for a hybrid version of the best-case scenario but knew that if it didn't pan out that within a couple of years we would need to shift strategies. Our ideas, from best to worst, looked something like this:

1 - investments
2 - passive income online
3 - freelance work of some sort
4 - housesitting (not income, but big savings on expenses)
5 - Caretaker position (think running a vacation rental property/bar)
6 - Unconventional job that pays basics (NGO, etc.)
7 - Move back to the states and work for park service
8 - Move back to the states and find a 'real job' in our previous fields

Right now we are at #3 on this list. After years of frustration we've proven that the 'internet marketing' strategy is a complete crap shoot. I could write volumes on this. Yes, a few get lucky for a time, but 98-99% never succeed.

At some point last year I fixed a friend's web site, for pay. Then she referred me to another site. I attended a web developer conference back in the States, then we went to Central America. Eventually things came to a head. To go farther south meant higher travel expenses and sporadic internet time. We finally decided to return to Mexico and do what needed to be done.

Over the last few months I made more money than the previous two years combined. It was a long-overdue revelation. The old concept of exchanging time and experience for dollars was revealed to have relevance even in today's high-tech, nomadic world. I go online, I bid for jobs, I do the jobs, I get paid. I'm now part of at least one 'boutique' web agency, and my co-workers are in Merida (Mexico), Utah and Tennessee. When I do our monthly net-worth spreadsheet the balance actually climbs a bit, or at least stays steady. I'm still on the computer a lot, but now I can show something for it.

In one sense, I feel stupid for not figuring all of this out earlier. It would have saved a lot of heartache. But in another sense, we are following a path we anticipated. It's somewhere between Plan B and C, but it's not anywhere near Plan H. It feels like we've finally settled into a working pattern.

We're renting a nice apartment in San Cristobal de las Casas for about $265/mo. I broke down and bought a Dell desktop w/ large-screen monitor. When the internet gets flaky, I walk a few blocks to a coffee shop or restaurant and work from there on my $200 laptop. When we're not working, we get to stroll a beautiful Colonial city with modern conveniences and hundreds of places to eat.

So that's the update. Sorry for resurrecting such an old post, but a few may have been wondering about us, and some may not have read it yet, and I hear it's fairly entertaining.

 

[ERD50]

Thanks for the update!

Sounds like things are working out pretty well for you, and you don't sound like the type that would happy with the conventional way of doing things anyway.


As far as heartaches, what's the saying 'experience is something you gain right after you really, really needed it'?

Every set-back comes with experience that the wise person will draw on to take them forward. Learn and move on!

Good to hear from you - ERD50

 

[Onward]

Thanks for the update. That's an interesting list.

Shouldn't "move to a cheaper city/country" be on it?

Ecuador and Thailand, for example, are generally cheaper than Mexico.

 

[dixonge]

Thanks for the update. That's an interesting list.

Shouldn't "move to a cheaper city/country" be on it?

Ecuador and Thailand, for example, are generally cheaper than Mexico.

We moved from the States to Mexico, so that took care of the vast majority of the difference right there. Yes, there may be cheaper countries, but there's an offset from the initial cost to get there. As finances stabilize and I get my freelancing business built up, we're definitely not opposed to checking out Ecuador...

We have a few friends whom we met in Mexico who really like Thailand, so we get regular cost of living info from there. It's on our list.

 

[kcowan]

We live in Mexico and we know many people who work on the Internet. Some are even doing technical support for stateside companies. One of them we placed because DW was a retired headhunter. Now her organization has grown to 4.

Many web developers too. Many Mexicans with good English skills.

And lots of semi-retired executives who stay in touch. What a difference in 10-15 years. I remember staying in touch with a daily LD call.

 

[rayvt]

Just to summarize the endpoint, in case dixonge's website goes dark.

His site is Vagabondians | Escape Normal, Explore Your WorldVagabondians | Escape Normal, Explore Your World The About Us has this bit about his options experience:

This time I tried options. ... I started over again at the beginning of 2009 with a strategy of option spreads, seemingly much safer, with much lower risk and a nice moderate goal of 2-3% gains on each trade. There was a setback in August, but I attempted to adjust the strategy and the balance eventually recovered.
And then came April and May of 2010. Without going into great detail, I had several positions which lost a medium amount of money and then ended up in a position where we lost nearly 1/3 of our nest egg in a split second. <;;em><;;strong>It was a mind-numbing, tear-producing punch in the gut.<;;/strong><;;/em>

 

[dixonge]

Just to summarize the endpoint, in case dixonge's website goes dark.

Ray - what are you trying to say?

My site will never go dark. For comparison's sake, I have another domain, mainly for genealogy, that I've owned since 1998. We're out here for the long haul.

Having said that, uh ... thanks? ... for reminding me of my all-time low-point in investing. Now I need a drink...

 

[dixonge]

We live in Mexico and we know many people who work on the Internet. Some are even doing technical support for stateside companies. One of them we placed because DW was a retired headhunter. Now her organization has grown to 4.

Many web developers too. Many Mexicans with good English skills.

And lots of semi-retired executives who stay in touch. What a difference in 10-15 years. I remember staying in touch with a daily LD call.

Wow, you're all the way on the other side of the country! *waves*

 

[papadad111]

no desire to hijack this thread... but panhandler income had me do a little research:

Do panhandlers make more than you do? | KOIN.com

https://www.kickstarter.com/projects/88234666/exit-ramp-a-case-study-of-the-profitability-of-pan


Apparently there are some states that allow panhandling, other states (or cities) strictly forbid it.

I've always wanted to see what I could collect on a saturday in December with the christmas flow traffic at an exit ramp..... then donate my take to a local reputable charity or play secret santa for a day. thank god i dont have to panhandle...

 

[kcowan]

Wow, you're all the way on the other side of the country! *waves*

There is no bad part of the country. Just some dangerous drug states, but out of all the states, perhaps 6 are not perfect.

 

[dixonge]

A brief update:

After a 90-day return trip to visit family/friends in the States, we have returned to the Lake Chapala area of Mexico and are renting an apartment in Ajijic. San Cristobal turned out to be a bit too cold, a bit too wet for our tastes. In addition, many of the friends we had made moved on to other places in the world. So far, we have a great view of the lake (largest freshwater lake in Mexico) and perfect views of each day's sunset.

I'm still building web sites. In 2014 I cut our withdrawal rate in half. This year's goal is to shrink it to as close to zero as possible. New actual retirement date is 2017, by which time it may/may not be actually 'early' depending on who you're comparing to...

 

[REWahoo]

Here's another update to this old thread. We don't often know when an early retirement fails to thrive, but this one certainly did.

Third, Glenn has been extremely busy. He has worked 40-50 hours a week on web development for the last 18 months. The money was ok, and it helped pay the bills, but it left little time or energy for our own site.

Fourth, and finally, big changes are afoot! Glenn and Dixie have decided to go back to the States and finish out Glenn’s pension vesting. He’ll still be working 40 hours a week, but when he retires he will get a decent amount of money every month, long after he stops working. Going back to a ‘real’ job isn’t what we had intended, but thirty years from now it’s very likely that we will appreciate the extra income

An update - Vagabondians