I can't tell you how many times I have been woken up in the middle of the night by an investor who was sleepless over a position that was going the wrong way.

Gold was down $50, the Euro was spiking two cents, or the stock market was enduring one of its periodic heart attacks.

Of course, my answer is always the same.

Cut your position in half. If your position is so large that it won't let you sleep at night on the bad days, then you have bitten off more than you can chew.

If you still can't sleep, then cut it in half again.

Which brings me to an endlessly recurring question I get when making my rounds calling readers.

What is the right size for a single position? How much money should they be pouring into my Trade Alerts?

Spoiler alert! The answer is different for everyone.

For example, I will not hesitate to pour my entire net worth into a single option position. The only thing that holds me back is the exchange contract limits.

But that's just me.

I have been trading this market for nearly half a century. I have probably done more research than you ever will (I basically do nothing but research all day, even when I'm backpacking, by audio book).

And I have been taking risks for my entire life, the financial and the other kind, quite successfully so, I might say. So, me taking a risk is not the same as you taking a risk.

Taking risks is like drinking a fine Kentucky sipping bourbon. The more frequently you drink, the more you have to imbibe to get a good buzz.

Eventually you have to quit and start the cycle all over again. Otherwise, you become an alcoholic.

So you can understand why it is best to start out small when taking on your first positions.

Imagine if the first time you went out to drink with your college dorm roommates and you finished off an entire bottle of Ripple or Thunderbird? The results would be disastrous and nauseous, as they were for me.

So, I'll take you through the drill that I always used to run beginning traders at Morgan Stanley's institutional equity trading desk.

You may be new to investing, new to trading, and find all of this money stuff scary. Or you may be wary, entrusting your hard-earned money to advice from a newsletter you found on the Internet!

What if my wife finds out I'm doing this with our money?

YIKES!

That is totally understandable, given that 99% of the newsletters out there are all fake, written by fresh-faced kids just out of college with degrees in Creative Writing, but without a scintilla of experience in the financial markets.

And I know most of the 1% who are real.

I constantly hear of new subscribers who are now on their 10th $4,000 a year subscription, and this is the first one they have actually made money with.

So, it is totally understandable that you proceed with caution.

I always tell new readers to start out paper trading. Virtually all online brokers now have these wonderful paper trading platforms where you can practice the art with pretend money.

Don't know how to use it?

They also offer endless hours of free tutorials on how to use their platform. These are great. After all, they want to get you into the market, trading, and paying commission as soon as possible.

You can put up any conceivable strategy and they will elegantly chart out the potential profit and loss. Whenever you hit the wrong button and your money all goes "poof" and disappears, you just hit the reset button and start all over again.

No harm, no foul.

After you have run up a string of two or three consecutive winners, it's now time to try the real thing.

But start with only one single options contract, or a few shares of stock or an ETF. If you completely blow up, you will only be out a few hundred dollars.

Again, it's not the end of the world.

Let's say you hit a few singles with the onesies. It's now time to ramp up. Trade 2, 3, 4, 5,10, 50, or 100 contracts. Pretty soon, you'll be one of the BSD's of the marketplace.

Then you'll notice that your broker starts following your trades since you always seem to be right. That is the story of my life.

This doesn't mean that you will enjoy trading nirvana for the rest of your life. You could hit a bad patch, get stopped out of several positions in a row and lose money. Or you could get bitten by a black swan (it hurts!).

Those of you who have been following me for 10 years have seen this happen to me several times and now know what to expect. I shrink the size, reduce the frequency, and stay small until my mojo comes back.

And my mojo always comes back.

You can shrink back to trading one contract, or quit trading altogether. Use the free time to analyze your mistakes, rethink your assumptions, and figure out where you went wrong.

Was I complacent? Was I greedy? Did hubris strike again? Having a 100% cash position can suddenly lift the fog of war and be a refreshingly clarifying experience.

We all get complacent and greedy sometimes. To err is human.

Then reenter the fray once you feel comfortable again. Start out with a soft pitch.

Over time this will become second nature. You will know automatically when to increase and decrease your size.

And you won't have to wake me in the middle of the night.

Good luck and good trading.

 

Look Out, They Bite!

The team fought their way up two flights of stairs in pitch-blackness, dispatching several Al-Qaida fighters along the way.

A tall figure emerged in the green glow of the night vision goggles. It hesitated. Two shots were fired, and the body hit the ground.

That was how Navy Seal Team Six member, Mark Owen, described the last seconds of Al-Qaida leader, Osama bin Laden, in the raid on his Abbottabad, Pakistan compound.

I can't tell you how I met Owen, except that the circumstances are classified, and it took place at an undisclosed location. A number of terrorist groups are seeking retribution for the raid, making Owen and his teammates prime targets.

He and his family now live in the witness protection program buried deep somewhere in the U.S.

Owen isn't his real name of course, but a nom de guerre. In fact, I can't even tell you what he looks like. His prosthetic makeup and wig were so convincing, I doubt his own mother could recognize him.

But there was no doubting the bone-crushing handshake of a Navy Seal.

Spending an hour with "Owen," I learned several fascinating details about the raid. Just before launching, the team was told there was a 70% chance the Pakistani Air Force would shoot them down on the way in.

There was also the possibility that their top-secret stealth helicopters would crash on a ground-hugging flight through the mountains on the darkest night of the month. Every man was given the option to pass on the mission.

Not one did.

However, that didn't stop them from joking among themselves about the suicide aspects of their assignment.

What guts!

What was the inside story of the raid? The most wanted man in the world, the author of the 9/11 attack that killed 3,000 at the World Trade Center, used "Just for Men."

That was the brand of the hair-coloring agent the Seals discovered in the world's greatest terrorist's bathroom, used to make him look younger than he appeared.

Some of the seals speculated he did this to cut a more threatening figure in his online propaganda diatribes. Others said it was because he had two wives at the site.

The discovery of bin Laden's secret fortified compound was the result of a decade of tireless investigation by CIA analyst, Maya Lambert. Her role was portrayed in the 2012 film, Zero Dark Thirty, with much embellishment.

The U.S. torture of suspects probably slowed down the hunt, rather than accelerate it, because a glut of false information obscured valuable tips. People will say anything to stop the water boarding, right?

I would.

In the end, it was a junior CIA analyst's trolling through 10-year-old archived data gathered in Morocco that uncovered the crucial clue. That was the name of Ibrahim Saeed Ahmed, who turned out to be bin Laden's personal courier to the outside world.

Constant National Security Agency monitoring of his mother's phone line in the Persian Gulf led to Ahmed's location in Pakistan. He was then discretely followed to the mysterious compound in Abbottabad.

Bin Laden successfully hid for so long because he had fallen far off the grid of modern civilization. He never left the building, and didn't use cell phones or the Internet. Trash was burned on site.

His sole means of communication was via flash drives and DVDs physically carried by Ahmed on an infrequent and unpredictable basis. Bin Laden had effectively jailed himself for five years to stay under the American radar. How ironic.

Since there was no means to verify the identity of the compound's occupants before the raid, the Seals were the only option. Maya Lambert personally saw them off on their departure from an Eastern Afghanistan base. She too was committed to the mission to the very end.

Even when the helicopter in which Owen was riding crashed because of freak lift conditions, the mission went ahead. Since their carefully crafted and much practiced plan fell apart, they improvised on the spot, a mandatory Seal quality.

They professionally and methodically breached the compound's outer wall and blew some steel doors off their hinges before they reached their third-floor destination.

Owen went to great lengths to explain how the civilians on the site, including bin Laden's own family members, were kept out of harm's way.

After dispatching their target, the Seals quickly photographed him, took a DNA sample, and uploaded it via satellite link to Washington D.C. Confirmation came back in minutes.

They had gotten their man.

Before the team cleared out, they bagged every possible item of intelligence value. There was so much material that they ran out of bags to carry it. Computers were smashed open and the hard drives pried out to save on space and weight.

Analyzed back home, this data revealed that several new attacks on the United States were in the planning stages.

After blowing up the remains of the crashed helicopter, the entire team piled into the remaining operational one, with only minutes of reserve fuel left. A much-feared counterattack from the Pakistani military never appeared.

After further identification, bin Laden was buried at sea from a U.S. aircraft carrier in the Indian Ocean.

The success of the raid has done much to alter the discussion on the future of military forces, in the U.S, and around the world.

It turns out that it is strategically and tactically advantageous, and much more cost efficient to field a small number of super warriors, such as the Seals, than a large number of cannon fodder.

Every general and admiral I know, and there are quite a few, would love to junk expensive, antiquated Cold War weapons systems whose sole benefit is that they create jobs in battleground congressional districts.

The Army still buys useless, unprotected, IED vulnerable Humvee's because they are built in Florida, a major swing state in the past six presidential elections.

The Air Force has more wheezing, ancient, fuel-inefficient C-130's than pilots to fly them (we're now on upgrade number 22) because they were assembled in Georgia, the home state of former Speaker of the House, Newt Gingrich.

Oh, and the manufacturer, Lockheed Martin (LMT), made sure to buy parts supplied by all 50 states to make it politically "kill proof."

Better to spend money on training, cyber warfare, drones, and Special Forces, which will be essential to fight the wars of the future.

"The greatest threat to national security is wasting money in the defense budget," one brass hat told me, with some irritation.

In fact, the Seals, and the Army's Delta Force are so effective and destructive that they could well replace entire divisions of the past. It's a matter of hundreds doing the job of tens of thousands.

Owen went into great detail to explain the incredible difficulty of Navy Seal training. Only a small fraction succeeds at the 24-week Basic Underwater Demolition/Seal (BUD S) program.

The majority "ring the bell," give up early, and are reassigned elsewhere in the military, without shame.

Owen says he was trained to "eat the elephant one bite at a time," and described how he struggled to get through a half year of torture a half day at a time. "You wake up hoping to make it to lunch without quitting. Then at lunch you focus on getting to dinner without giving up. You then repeat this every day until you graduate."

Owen spoke of being dumped a few miles offshore and told to swim home in the icy Pacific. Classes would link arms and lie in the surf for eight hours to get accustomed to hypothermia.

They were tied up and thrown in a swimming pool for "drown proofing." For good measure they would then have to push a bus uphill, or repeatedly hoist a telephone pole over their heads.

Modern Seals cannot only jump out of a plane at high altitude and blow up anything, they can also hack into computers, disassemble cell phones, and track you down online, no matter where you are.

Spurred on by my Dad's tales of the old Underwater Demolition Teams (UDT), with whom he had experience during WWII, I once thought about applying to the Seals myself. But in the end, I passed. I didn't think I could make it through the training. There are not a lot of things I won't try, but this was one.

Because of their prolonged and extreme training, the Seals always get the toughest missions. Owen also participated in the rescue of Mark Phillips, the captain of the containership, Maersk Alabama, kidnapped by Somali pirates.

The cost of these accomplishments is high. Owen held up his cell phone and said it still contained the numbers of 40 close friends killed in action. He will never delete those contacts.

The Seals' focus on teamwork and leadership is so legendary that it has become an area of interest by American corporate management. Seals will volunteer for once unheard of 10^th, 11^th, and 12^th tours to Iraq and Afghanistan, not because of any extreme patriotism, but because they want to be there to support their buddies.

Unsurprisingly, the divorce rate among Seals is about 90%.

Because of this spectacular record, the Seals are shouldering an ever-larger share of our defense burden.

Their numbers have expanded greatly in the past decade. I can't tell you how many Seals are in action today because it is classified, but it is a much larger number than you think.

One of the greatest honors I have received in writing this letter is when I was invited by Seal commanders to attend a BUDS graduating class in Coronado, Calif.

Despite receiving many medals and commendations, Owen comes across as humble and self-effacing. It turns out that the braggarts and big talkers don't make it through BUDS training.

The son of Christian missionaries in Alaska, Owen is now retired from the forces and is trying to get his life back together.

On complaining about neck pains after his helicopter crash, Owen said the Veterans Administration sent him home with a one-year supply of Motrin. After a hedge fund manager friend volunteered to pay for a private specialist, he was told his neck was "broken" and sent into surgery the next day.

That sheds some uncomfortable light on the recent VA scandal.

When my precious hour was up, I thanked Owen for his service and wished him well.

Owen has published his amazing account of the Abbottabad raid in his book "No Easy Day." It is a real page-turner, partially ghost written by a journalist friend. To purchase the book at discount Amazon pricing, please click here.

 

 

It's All About Discipline and Teamwork