"Ah, such a despairing unrealized loss!" If you were to exit, how would you handle it.
Hello, this is Shimoyama.
Recently, in Europe
there has been no shortage of news about the explosive spread of the coronavirus.
Why is that?
Why in European countries has the infection spread so explosively?
I think there are various reasons, but
one possible factor is “habits.”
For example, in Western countries there is no habit of wearing masks,
nor a habit of taking off shoes indoors.
In movies you often see scenes of lying in bed with shoes on,
and as a Japanese person,
that’s hard to imagine.
Also cleaning habits.
They don’t completely neglect cleaning, but,
from what I’ve heard,
for example, in France, cleaning at schools is done by custodians,
and students don’t clean themselves.
In Japanese schools there are cleaning periods as a matter of course, but
such periods are basically not present there,
so the idea of “cleaning” may not be as ingrained.
Walking through Italy, France, and Spain, you see dog feces here and there….
Also, eating habits seem to be related as well.
Bread is eaten almost daily by hand.
Many people bite into apples with their hands, too.
Moreover, when you go to restaurants,
there are often no oshibori (wet towels).
Therefore some Japanese living in France
would say that “I always carry wet wipes in my bag.”
but
eating with unwashed hands may not be related to the spread of infection.
And habits drilled into us since childhood
don’t vanish easily.
So
some say, “If it warms up,
the coronavirus will naturally subside.”
But there is a possibility
that it may take longer than expected to die down.
Especially Britain isa noteworthy case.
As I write this
In the UK, unlike other Western countries, the government is reluctant to contain the virus as a nation as a whole.
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The British government worries that strict restrictions might be introduced too early
and citizens will eventually lose patience,
which could coincide with the peak of the outbreak,
and some public health experts also question this view.
(Quoted fromhttps://www.bbc.com/japanese/features-and-analysis-51894727
)
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There was also a story that in Britain
the idea was
“Instead of blocking the virus,it might be better in the long run to build public resilience.”
This is a tale I heard from friends living in Europe.
When I hear these kinds of things, especially for Britain,
the future is uncertain.
And, the economic losses that come with it
how far they will spread…
With novel viruses, no one can know.
Therefore, if you trade stocks you should stay vigilant
and prepare for all possibilities.
“The stock prices won’t fall that much, surely.”
This kind of weak reasoning should be discarded immediately.
A crash no one imagined has already happened.
Everyone feels that “there are no guarantees in the market.”
The Bank of Japan, the Federal Reserve,
and central banks have issued various measures, but
how effective they are…
the more they ease, the more the severity of the situation is highlighted,
which is undeniable as well.
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“Despairing unrealized losses!” Shimoyama, how would you handle it?
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Now, as of today,
there are people whose unrealized losses are so large that they cannot cut them without cutting too much.
There are those who feel they have to endure even more…
and feel their resolve fading.
“Shimoyama, if you were in such a situation, what would you do?”
People sometimes ask me this, but
in my case,
I only trade with a “margin trading” position, so I’ll speak from that basis.
For readers who have followed this newsletter consistently
this will be familiar, but
it’s important, so I’ll say it again and again.
First of all, hold a short position equal in number to your long position,
and make it a hedged position,
to stop losses from increasing further.
I basically do not cut losses.
When I say this,
some people think,
“But as soon as you short it, it might rebound
and the low-area short would remain,”
and they hesitate to short.
“If it falls I’ll want to buy.”
Indeed, that feeling is not hard to understand.
The moment you short, if the Nikkei stock average rebounds by 1000 or 2000,
you’d feel you made a huge mistake.
“Wow, I misjudged it. I fought fear and held the short.”
Also, many people become unable to act as unrealized losses grow second by second.
Many people cannot do anything.
Why do they freeze?
One theory is
that it is due to an ancient human instinct to survive.
It is said that
we evolved to evade predators,
There were three ways to avoid being torn apart by lions or tigers: a) run away as fast as possible,
b) fight back as fiercely as possible,
c) stay still.
The option to not move exists because
staying still might allow you to go unnoticed.
Humans and other animals have a keen ability to track motion,
and even at the edge of their field of vision they sense it acutely.
So when danger is near, staying motionless can save your life.
Tari Charlotte
“Why Facts Do Not Change Minds” (Shojyosha Co., Ltd.)
August 30, 2019, First Edition, First Printing
P.86-87 quote
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It is extremely difficult to resist instinctive actions.
However, that does not mean you should do nothing
and simply watch losses grow.
“In a crisis, there is a possibility you may freeze.”
Understand this in advance,
and prepare countermeasures.
Pre-ordering is one possible tactic.
When facing unexpected unrealized losses, the key is
to prevent the situation from worsening.
And from that state, to rethink and rebuild.
In my case,I aim to generate profit from another position,
and reduce the fixed unrealized lossesbit by bit.
Think of it as
a situation where you avoid increasing debt,
and you work another job to gradually repay it.
For example, if you hold a 24,000 yen long position and a 17,000 yen short position,
you would aim to reduce the gap of 7,000 yen unrealized loss gradually.
If you have no extra funds, it’s tough…
but if you can add positions,
you could aim to take 1,000 yen profit seven times
or 500 yen profit fourteen times,
in short, aim to earn more than the unrealized losses.
I won’t go into how to repay the unrealized losses here, but
I hope you can use this attitude as a reference to survive in the market
Experiencing enormous losses that defy imagination
is something even the greatest investors go through.
What distinguishes winning traders from losing traders
is whether they can apply that experience next time.
I sincerely hope you continue to make wise choices.
With that, thank you for reading until the end today as well.
Keizo Shimo-yama
