As we talked about 'risk of ruin', i would like to share a risk of ruin calculator here. Please punch in your accuracy, R:R, MM approach and financial ruin number (the max DD at which you will throw in the towel). It will give the probability of your risk of ruin. It was given to me by my friend and i do not know the author of this document.
Story for the day:
John's father was a broker in ML and he shared a good story to John about how businessmen think in difficult situations. It is always wise to think on how to come out of a situation with minimal damage (rather than getting bogged down by it)
Here the story: He had a large client who was wealthy, stubborn, gutsy and would not get out of his oats position because he felt they were too cheap. He had two million bushels of oats at $1.5/bushel and he did not get out by the contract expiry(and conseuently, took delivery). So, he was no longer on margin and had put $3 million to take delivery. So he asked John's dad to be on a lookout for a good bid to sell the oats in the cash market, but none of the big boys(neither General Mills nor Quaker Oats) seemed interested. The markets traded in consolidation for a few months.
Fast forward few more months..There was a big drought that happened in US in 1988 (https://en.wikipedia.org/wiki/1988–89_North_American_drought). Due to this drought, the oat crops in Dakotas(both North and South), Wyoming, Minnesota and Wisconsin were devestated. The futures traded upto $4 per bushel and one of the large processors gave a call to John's dad about buying oats. So, he called his client to see if he's willing to sell 2 million bushels for $4 per bushel but the client refused. He quoted $4.4 per bushel(remember, it is 40 cents more than the futures price) and it was a take it or leave it offer. The processor guy accepted it right away and paid $8.8 million to this client. The client cleared a cool 5.4 million dollars as profit.
When John's dad later asked the processor on why he was so quick to buy the oats at record high prices, he told this to him - ' I had the choice of closing down the mill and putting 300 people out of work because i dint have any oats to make oatmeal, or pay the price and jack up the price of 1 box of oats by 10 cents. What you would have done?" Fair question.
Long story short, this is how businessmen think in any situation - keeping the risks at bay and taking control of the situation. Are we traders doing the same while trading? Its an importaint point to ponder
Story for the day:
John's father was a broker in ML and he shared a good story to John about how businessmen think in difficult situations. It is always wise to think on how to come out of a situation with minimal damage (rather than getting bogged down by it)
Here the story: He had a large client who was wealthy, stubborn, gutsy and would not get out of his oats position because he felt they were too cheap. He had two million bushels of oats at $1.5/bushel and he did not get out by the contract expiry(and conseuently, took delivery). So, he was no longer on margin and had put $3 million to take delivery. So he asked John's dad to be on a lookout for a good bid to sell the oats in the cash market, but none of the big boys(neither General Mills nor Quaker Oats) seemed interested. The markets traded in consolidation for a few months.
Fast forward few more months..There was a big drought that happened in US in 1988 (https://en.wikipedia.org/wiki/1988–89_North_American_drought). Due to this drought, the oat crops in Dakotas(both North and South), Wyoming, Minnesota and Wisconsin were devestated. The futures traded upto $4 per bushel and one of the large processors gave a call to John's dad about buying oats. So, he called his client to see if he's willing to sell 2 million bushels for $4 per bushel but the client refused. He quoted $4.4 per bushel(remember, it is 40 cents more than the futures price) and it was a take it or leave it offer. The processor guy accepted it right away and paid $8.8 million to this client. The client cleared a cool 5.4 million dollars as profit.
When John's dad later asked the processor on why he was so quick to buy the oats at record high prices, he told this to him - ' I had the choice of closing down the mill and putting 300 people out of work because i dint have any oats to make oatmeal, or pay the price and jack up the price of 1 box of oats by 10 cents. What you would have done?" Fair question.
Long story short, this is how businessmen think in any situation - keeping the risks at bay and taking control of the situation. Are we traders doing the same while trading? Its an importaint point to ponder
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