It was December 13, 2003, and I was stil…
It was December 13, 2003, and I was still a wet-behind-the-ears hedge fund manager, just into my fourteenth month in business, when the news that the US had captured Saddam Hussein hit. It was a weekend and the markets weren’t closed, but my cell phone was going crazy with texts, the best one being from a fellow hedge fund manager that simply said, “Turn out the lights, the party’s over.” We were both very long and strong and bullish at the time and that was his way of saying essentially that the bulls had won.
The futures were through the roof as the shorts scrambled to cover and the long-only money managers who had money on the sidelines went scrambling to get some exposure. I had been on a huge tear heading into the year end and I was already and was closing out the year on a high note and I figured my friend was probably right — the bulls had won.
As a hedge fund manager I was paid once a year for my performance, and being just two weeks away from the end of the year and with some big gains for the year on the sheets, I’d been scaling into short hedges and trying to minimize my exposure to the markets’ ups and downs to close out the year. But seeing those futures locked higher and seeing the stocks I’d been selling start to run without me on that Monday morning — I broke from my plan (breaking my “discipline trumps conviction” rule that you see me write about all the time) and stopped trying to hedge with new shorts or sell oversized longs.
Instead I sat there watching the 3%, 5%, 10% gains I had in many of my stocks just disappear. I let some huge gains that I should have been locking in just go up in smoke. Granted, I was still very bullish and pretty darn long overall, and I still ended up with a very good 2003. But it was an important lesson learned that every trader needs to think about as we head into the markets on Monday with the futures up huge on the news that the US has killed Osama Bin Laden. Here’s a chart of the futures from Sunday night showing the spike that hit when the news of OBL’s death hit:
The news is great and in the medium-term, the elimination of the man largely behind 9/11 and much terrorism around the world will be a positive for our society and our economy and therefore the earnings power of our stocks and therefore the stock prices themselves. But I wouldn’t expect the markets to just rally to the moon without a little pullback, fading and new found fears driving stocks and volatility in the markets…sorta like always, you know?
Stay focused and most importantly — stay disciplined!
