Wednesday, June 9, 2010

How Low Can We Go?

It's easy for human beings to conceptualize the infinite potential for gains. "If I buy this stock for $36/share", we dream, "it could go to $100, then a million, then a billion," and so on..."

Why is it so hard to comprehend the same unbounded realm with regard to loss?

Not comprehending the infinite distance to zero is a critical failure of our human imagination. "If I have a million dollars, that is all I can lose," we rationalize, "my losses are always limited to what I can understand."

That is so wrong.

Your potential losses are just as infinite as your potential gains. If I have an airplane and a boat, and I lose the plane, I am limited to sailing. If I lose the boat but still own my car, I am limited to driving. If I lose my car and have a bike, I am limited to riding. If I lose my bike and own a pair of shoes, I can walk. If I lose a shoe, I will hop. If I lose my other shoe, I will fashion a pair of shoes from scraps. If I can't find canvas, I will use cardboard. If I wear the soles of my feet raw, I will crawl. If...

Astute readers may sense infinite opportunity here, as it pertains to shorting. But the real purpose of this post is to get you thinking about the infinite potential of your life to change, especially if you fail to imagine the possible.

One exercise we should accomplish is to imagine that the money in our wallet represents our last few dollars on Earth. How do we act? How close can we get to that mindset? The closer we can get now, the father away zero will be.


  1. You're very optimistic in your negativity. I think this is a brilliant article. This will have to go in your book: "The Essential FDRAlloveragain"

  2. Regarding FDR's post title......

    Have you been listening to Ludacris' "how low can you go" lately???

  3. I don't see very many who are too concerned with this question, either philosophically, or more importantly for practical reasons of self preservation. Mostly I see "a bounce will come at (fill in S&P value of choice)" or "if the (fill in market of choice) reaches such and such level bears are in trouble."

    I have a bearish bias and read a lot of so-called bear commentary and it seems to me there are a lot of bullish bears, many trying to technically justify a sharp enough or large enough rally, perhaps in order to re-establish short positions (which were cast aside in frustration between March and the end of April). That "perfect" entry point is now a moving target and about as elusive as the Holy Grail as the market stair steps its way towards an answer to your question.

  4. Shall we do the limbo?


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