#710 - How Do You NOT Lose Money In The Stock Market?

The "Daily Call" From Option Alpha

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “How do you not lose money in the stock market?” Well, it’s basically impossible not to go through some potential drawdown over a long period of time. Even cash loses money. When you think about investing, you think to yourself, “Well, if I’m not going to lose…” The only way not to lose is just not to be even involved in the market, but that would mean that most of your money is sitting idle in cash and you’re going to lose purchasing power just due to inflation. If you accept now the possibility that anything you do has risk, even cash, even gold, even just money under your mattress, then you should be willing to accept risk that aligns with your overall goals. We know that we’re going to go through periods where we lose and where we have drawdowns. I think Charlie Munger famously said in the 2008-2009 crash, “If you didn’t lose 30% or 40% of your account, you didn’t know what you were doing.”

And while I agree to that to some degree, I think that in many cases, it’s probably an over-exaggeration that many people should blindly just follow where the indexes and markets go. I think you have to take calculated risk. I think with options, especially the leverage and the risk management controls that options allow you to have, you’re going to go through periods of drawdowns, but you can keep those drawdowns to a very minimal amount and you can control risk much better. That doesn’t mean you can’t avoid risk. It doesn’t mean that you definitely will not lose money in the markets. It means that you can control how much money you lose and how much money you’re risking and have a better position, so that if the inevitable black swan happens which it will again and again in the future after that, you have the ability to keep the lights on and to keep enough capital available to keep trading. Hopefully that helps out. As always, if you guys have any questions, let me know and again, never forget, your life should have options because options give you freedom. Until next time, happy trading.