Overture
Action!
How I Beat the S&P Average by 56 Percent in 2008
In the 1962 movie Lonely are the Brave, Kirk Douglas stars as Jack Burns, a cowboy who won’t accept the changes of the modern-day world. George Kennedy plays the mean jail guard, Deputy Gutierrez. Burns protects his friend Paul Bond, played by Michael Kane, from the sadistic Gutierrez, and the jailer turns his hate to him. When Gutierrez demands his name, Burns says happily, “John W. Burns.” That night Gutierrez calls his name menacingly from the far off entrance to the cellblock, “John…W…Burns.” In his cell, Burns starts preparing for the beating he knows he is going to get, tearing small pieces from his shirt, and stuffing them up his nose and under his lip. When his cellmate asks him what the hell he’s doing, Burns replies calmly between bites of his shirt, “Nose of mine cracks easy. Man’s going to give me fair notice, no reason I shouldn’t prop it up a little.”
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I have been investing in the stock market for thirty-five years and in the real estate market for twenty-five. In 2008, when almost every other investor got crushed, and even the Wall Street “experts” were down by almost half, I was up 17 percent—beating the S&P Average by over 50 percent. I made some good trades during 2008, but most of that 50 percent “beat” was made before the stock and real estate markets rolled over. I did it by seeing the danger coming and taking steps to protect myself—you might say I stuffed a little of my shirt up under my lip. This book is the story of how I did it and how you too can do it in the future.
Reminiscences of a Stock Market Flea Description:
Reminiscences of a Stock Market Flea takes us on an investing adventure spanning more than three decades; from the dog days of Dow 800 in the late 1970’s, through the roaring eighties on Wall Street, the crash of 1987, the historic bull market lead-up and subsequent crash of 2008, the generational bottom in March 2009 and the Federal Reserve pumped recovery since. A chemist, technical writer and novelist the author’s world travels and extensive options trading have made him a different kind of business writer – an easily understood one.
James J. Houts demystifies trading and with a little Hollywood magic transforms a bewildering, sometimes incomprehensible subject into an entertaining read. He startles us with the slap-in-the-face assertion that everyone should save 25% of gross earnings; then provides the method of doing just that – without an unacceptable hit to lifestyle. He surprises and entertains us by exposing the animal nature of trading and the primitive impulses that drive our trades. “You are your own worst enemy,” writes the author, “but trading like a flea can protect you from you.”
On the options market:
In 1970 the movie Patton was released. Directed by Franklin J. Schaffner, the film won eight Academy Awards, including the award for best picture. Perfect casting made the screenplay, written by Francis Ford Coppola and Edmund H. North, come alive. Patton was played by George C. Scott, Omar Bradley by Karl Malden, and British general Bernard Montgomery was ably portrayed by Michael Bates. German field marshal Erwin Rommel was played by Karl Michael Vogler. The movie opens with Patton giving a speech to his men, a real speech given in England on May 31, 1944, standing in front a gigantic American flag that fills the screen behind him, ivory pistols at his side he growls, “Now I want you to remember that no bastard ever won a war by dying for his country. He won it by making the other poor dumb bastard die for his country.”
The author makes the connection to trading options:
No statement could apply better to the options market—options are a zero-sum game, for every winner there is a loser. It is war. It is the option trader’s job to make “the other poor dumb bastard” lose his money. Patton also said, “A good solution applied with vigor now is better than a perfect solution ten minutes later.” He could have been an options trader. This is a much better way of stating my first rule of trading: don’t be slow.
Risking only tiny portions of his net worth at any one time, moving in and moving out quickly – quick and small are hallmarks of the stock market Flea – the author’s trading was up 17% by the end of 2008, beating the performance of the S&P average by 56%.
Aware we were living through a historic moment in market history, the author documented every trading day: the trades he made, the protection he used, the political theater, the crushed companies and wiped out investors; recording his reasons for taking the positions and making the trades as he made them – right or wrong. His trading log and market newsletter would become the basis of the Stock Market Flea series of books. Here is the story of how the author traded Apple and the wider markets for the five years it took to again reach historic new-highs and where he is currently positioned for the next market implosion.
