WealthEsteem.org :: Psychology of the Deal

I just realised I had a copy of Options as a Strategic Investment (2nd Edition) on my bookshelf. Doh! I first read it years ago when Australian options markets were not as liquid for small investors.

I have some light bedtime reading coming up. That link is for a Google search in case you’ve never heard of the book. I have an old edition and I’ll probably buy the fourth edition. The basics of option trading haven’t changed.

I’ll let you know if I change my trading strategy as a result of re-reading this essential tome. But isn’t it interesting that I forgot I had it handy?

I caught myself making a dangerous forecast this morning. CNBC’s anchors were speculating on the length of the war in Iraq. I expect a short war and my attitude was reflecting it. “No way this thing will drag on for months”, thought I.

How many times do I remind myself to deal what what is and not with what should be? My investment decisions are now made expecting a short, sharp conflict while having a contingency plan should the war drag on.

Contingency plans are a pain. But when the excreta hits the air moving device — execute your plan, don’t wonder “what do I do now?”.

Last week I was talking to an couple with a nice portfolio of investment properties and direct shares. They had just financed their latest acquisition after a mountain of hassles.

For smart people they were stuck in an eighties view of finance. They called their bank and got rejected. They then called a friend’s finance broker and were slowly getting rejected (their impression). At this point they had two hits on their credit rating and were running out of time to settle. They pulled back and started again with full disclosure with a new bank.

Here is what I do.
1. Get a copy of my credit rating. Get your own file from Baycorp Credit Advantage in Australia.
2. Document everything – income, expenses, tax returns, accountant’s letters.
3. Ask the financier for an indicative approval based on these disclosures. Explicitely I do not sign the privacy release until they’ve indicated they like the loan. It should then be a mere formality.

Go in informed and prepared. Less stress, more profits.