ARCANE: Midseason thoughts and how to Deal with losses [Non Spoiler!]

I started the series liking the sisterhood between Powder and Violet.
I especially resonated with Powder’s ingenuity and young raw talent. I found her innovative and determined spirit very inspiring. But as her crazy started to show I lost touch with her motivations.

Young Powder from ARCANE Netflix series

I believe all these draw parallels to our investing journey. When we are consumed by greed and laziness our actions looks nonsensical and we loose touch with our actual goals.

So before you spiral into craziness, I hope this article helps you deal with ”losses”. When the market turns bloody red, be sane and consider your actions objectively.

Long Term Investment Loss
For a longer-term well thought out investments, the paper ”losses” might be a buying opportunity
-Refer to your Due Diligence
-Review your valuation model
e.g. reconsider your rate of free cashflow for Discounted Cash flow model
I do not want you to delude yourself and buy every dip. Have a planned entry price and apportion your cash. Consider selling puts strategy to buy the dip.
Now have you considered that your thesis might be wrong, or maybe there wasn’t even a thesis for investing in that stock. This is where we will consider the second type of losses.

Short Term Momentum Trade Losses
For short term trades, it is good practice to have strategies to take profit and cut losses. After all, you only entered with little actual thesis.
For such losses, cut it early especially if you are trading high PE stocks. A good gauge would be 7% or 10%. Note a cut loss strategy without a take profit strategy is setting yourself up to only selling at a loss. Don’t be the one to buy high sell low. Straying away from the topic of loss. If you want to ensure continued exposure on crazy trades, consider taking profit for the initial investment and letting the rest ride it out. This way, your maximum loss is 0%.

There are some kinds of losses that are inevitable.

Losses From Asymmetric Bets
An asymmetric bet, trade, or investment is when the potential upside of a position is much greater than its potential downside.
For instance, if you invested $200 into bitcoin in 2019 for around $3000 at its peak.
It is important to note that such investments have substantially greater upside than losses but the probability of losses is very high. As such the expected return should be seen as 0. This means that you only invest the amount of money you are ok loosing 100%.
This concept applies to call options. I believe call options are extremely dangerous. Money put into these should be considered lost forever . (just the mindset)

This is a healthy mindset when dealing with options or asymmetric bets. If you are 100% ok with losing ALL the money you invest, go for it! Now, if you find yourself depressed from making such trade when you see losses, then you should avoid all such trades alltogether until you have the discipline only to invest what you can afford to loose.