This post deals with my side speculation fund, not my investments. You shouldn’t have a speculation fund unless you have short-term emergency reserves, little or no debt, fully funded retirement accounts and the lifestyle you want. In fact, for a vast majority of people, I think it would be completely inappropriate unless you love the financial markets and they provide you deep satisfaction.*
Woke up this morning to find that one of my speculative accounts was down $50,000 and due to the trading strategy, it has only four months remaining before it becomes a permanent loss. So, in sixteen weeks I’ll have either made a nice chunk of change or I’ll have lost that amount. All of that beautiful gambling money … gone. Let’s just say I’m not terribly optimistic it will work out in my favor but you never know.
It reminded me of when Charlie Munger, after he had become very, very rich, saw Berkshire Hathaway lose $250 million or so in no time on an airline investment Warren Buffett had made and Charlie described the feeling of watching all of that beautiful money just disappear right in front of your eyes… Even though it won’t do any damage to a healthy business in the long-run, it isn’t pleasant.
(Don’t cry for me … I’m a big boy and I can take it. Molly informs me that anecdotes like this will make my biography believable. Otherwise, it will have just been an obnoxious direct upward ascent that will demotivate, rather than inspire people. I told her the rare loss is fine but I’d prefer to make the mistakes up through creative editing so I can keep the money and still inspire, LOL!)
Anyway, I was talking to my dad about it because he has his own side accounts and I joked that today, anyone who talks to me in the office is likely to hear:
* Many of you know that I run a bit of my private capital like Benjamin Graham, who said you should have separate accounts for your speculations that are not part of your “investments” proper, using them solely for pure entertainment with the full knowledge they could pay off big or be wiped out entirely. Graham pointed out, as has Buffett, that this is neither illegal nor immoral as long as you accept the fact it is not investing.
For example, the extremely risky gamble I took on BP options I told you about a few weeks ago are not even remotely appropriate for anyone else and I knew they might go to zero but they are a tiny portion of our overall net worth. Even though I occasionally dabble in this sort of thing, like Buffett with his copper futures back in the 1960’s and 1970’s, I favor sweeping any gains into the permanent investment and always playing with the same amount of gambling money so the risk doesn’t grow beyond a set amount each year.
