It Pays to Underthink

Everyone has probably met someone who suffers from the tendency to overthink everything in life.

Standardized examsYou know, these are the people that are obviously very bright, but often get paralyzed at the prospect of making a decision. These are the very same people that do poorly in school and especially on standardized exams because they begin to read so much into the question at hand and begin to see so many rational explanations for the questions that they are unable to choose from among he options.

These are not the people that you want to be air traffic controllers.

That’s very different from someone wo is just too stupid to correctly choose from among the options. You know, the kind that have their name stenciled in at the parking lot of the COPS studio, often have tattooed knuckles and don’t do terribly well when there’s alcohol on board.

These are also the people that you do not want to be air traffic controllers.

For the former group, options especially limit their ability to act. When faced with a multiple choice question with four of 5 options, they always see two or three that are very reasonable choices and they just can’t pull the trigger to commit to a single answer.

Interestingly, they tend to do well on the kind of standardized exams that include such choices as; a,b and c are correct; b and d only are correct, such as found in medical, dental and law standardized examinations. They also do well on essay format exams because they can map out their thought processes, despite frequently never answering the actual question.

By the way, in none of the above scenarios was I referring to myself, although I like being at a stage in life that I don’t really have to think anymore.

For the most part it’s now auto-pilot. It’s either “all of the above” or “none of the above” for me.

I challenge myself each morning by choosing which tee shirt and coffee mug combination will help me to start the day. Together with Dilbert, The Altucher Confidential and The New Tork Times Obituary pages, I have my rituals highly defined.

Rituals are important. They offer a chance to go through the motions and make it look as if you’re actually an active participant in life.

At the end of each year I go through a couple of additional rituals.

Although Sugar Momma and I donate to charity all year long, there’s something extra enticing about December 31st, as the clock is ticking away and conspiring to delay for a year the chance to get personal gain from doing something good.

So it was off to Goodwill to make one last donation for the year. As an added bonus, closets were cleaned out, a semblance of organization made a temporary appearance in the house and that also made us feel good.

On the way home, I decided to do yet another ritual and that was to purchase my annual tax preparation software.

A one time addicted Best Buy patron, I rarely go into the store anymore, other than to pick up something that I may have ordered on-line. But since I was in the neighborhood, I thought “why not.”

The reason “why not” became clear when it had only one copy each of TurboTax Basic and Deluxe available. Although I didn’t need more than a single copy, neither of those versions would do it for me. I checked the aisles, but the usual display stands stacked with the tax software were missing.

“I guess they’re not in yet,” was the sales associate’s disinterested response.

Odd, since this was my yearly Best Buy ritual, just trying to squeeze in yet another tax deduction.

Against better judgment, I went next door to Office Depot, usually a place entered only out of desperation.

Not exactly a dynamic retailer, but they were stacked with every version of TurboTax that was available in the known universe in the aisle display that I was always accustomed to finding.

Of course, then came the Amazon check and sure enough, I was able to get it for 25% less, or the same price that both Best Buy and Office Depot were asking for the Deluxe version. And so out the door I went and just placed the order with Amazon before even firing up the car engine.

Although a bit of software doesn’t mean very much, I can’t help but feel that on this one, the pessimistic chatter may be right. Best Buy may be a retailing dinosaur, just seeking to find its final resting place.

The last minute rituals were now out of the way, but just a day earlier, I went through the other ritual.

That’s the ritual that I enjoy practicing, although the opportunity doesn’t present itself every year.

If you are a reader of Barrons, and I am not, you may have seen the article this Saturday that referred to the winning strategy of selling call options:

“The simple strategy known as the “buy-write” or “covered call” was proven in 2011 to make a silk purse from a sow’s ear.”

If you read this blog, you know that I readily admit that I’m not very good with idiomatic expressions and adages, but I think I know what that one means after having read the article.

I have to thank one of my Twitter followers, Michael Scally for sending me the link. How can you not like a Twitter person who lists his geo-locations as Houston, Texas and Padua, Italy?

What I especially agreed with is the Barrons characterization that the strategy was “simple”, as in no thought process really involved.

How can you not like that?

How ironic. Whereas those that over-think get bogged down when there are too many options, an investment strategy that focuses on options is actually very straight forward and simple, according to the fine headline writers at Barrons.

If I think back about 25 years, I actually did subscribe to Barrons. In fact, other than reading Alan Abelson’s column each week, if I recall, there was only one other section that ever held any interest for me and that was buried deep into the paper.

In barely a column’s worth of type each week there would be some sort of summary of call and put writing statistics. I think that I actually first learned about the covered call strategy from Barrons, although I’m not certain. Whatever it was, it did take about 20 years to ever do anything about the fascination with renting your shares out to some unknown greedy stranger.

Maybe even a stranger with a pony-tail and a doppleganger

But that philosophy has been very good to me. Not only has it helped to protect the value of my portfolio from me, but it also engendered the Option to Profit book, the blog and the ability to park my scrawny ass on the La-Z-Boy.

With all of that extra time now available to me, since there is no work commute, nor work, I can agonize over my tee shirt and coffee mug selections, instead.

But back to the ritual.

Despite an absolutely unchanged S&P 500 for 2011, it was time to do some end of the year selling to take some strategic tax losses.

How great is that?

As much as I hate taking losses and recognize that I typically only throw in the towel on poorly thought out decisions to purchase technology stocks, I don’t mind the end of the year variety losses. This time it seemed that it was opportune to shed some Goldman Sachs and Alcoa shares, but I wouldn’t be shocked if I found myself buying them back in a month.

For me, it’s akin to my overall philosophy on taxes. I don’t mind being in the highest bracket, as long as it means that I made enough to be in that bracket. That’s a fairly small trade-off.

Paying alot in taxes can only be reflective of good fortune or not understanding the tax code.

And so, I like being in a position to have the option to sell shares at a loss to help offset the years’ capital gains, which, coincidentally have greater value if you do happen to be in the highest tax brackets.

What a great system.

By the same token, though, I’ve never really understood why charitable contributions provide greater benefit to those in the highest tax brackets. A $100 donation when in the highest federal and state brackets may end up only costing $55 or so, whereas for someone in the lowest brackets, that same $100, which also represents a much larger portion of overall annual earnings, may cost $90.

Off topic?

I suppose, but that incongruity does make charitable donation a no-brainer if you’re fortunate enough to be in that so-called 1%.

Although, I do have to admit that in going through the clothing items for donation, I did uncover a few tee-shirt gems that I rescued for myself. They had been in Sugar Momma’s collection. I justified de-selecting them by thinking of it as being similar to the tax benefit derived from their donation. I just took my cut from the top, rather than waiting for it to trickle down in the form of a lower tax bill.

With end of the year rituals resolved, it was time for the beginning of the new year rituals.

Setting goals and objectives.

My goals this year are all related to expansion. I’ll keep the objectives to myself.

I believe that as I expand my tee shirt and coffee mug collections I’ll have to put less and less thought into what the days’ choice should be. Less thinking.

Happy with 2011’s results, I have a good feeling about 2012, and expect to do some portfolio expansion, but resolve to not overthink the trades.

Again, less thinking

I’ll try to remember that profits are good and losses are bad and act accordingly.

Increasingly, I’ve come to believe that by reflexive call writing near the stock’s purchase price, particularly with weekly options, there is relatively little risk and a reasonably defined income stream.

Thinking? Not so much.

I’ll stick with my list of Old Reliables. They’re pretty boring, but I’ve never been a fan of momentum, anyway, as my La-Z-Boy is cruising along at just the right acceleration.

Here’s to wishing that everyone has a year devoid of active thought processes, yet culminating in joy and happiness.

In the meantime, I’m already making plans for end of the year donations to Best Buy. It looks as if they made be in need.unless they rediscover their lost rituals of price, selection and servce.



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