Fairport Women

Rebuilding Home: Pig or Hog?

By Deborah Feldman

“Are you a pig, or a hog?” – I remember the first time I heard that phrase – it was the lead-in question on a test that I was given at a seminar on investing. At the time I took it, I was a recent widow and didn’t know much about investing. I was trying to learn as much as I could about making money in the shortest amount of time. As I look back, I can’t believe how naïve I was and that I actually thought this was a good plan; but I did, and so did 10 other women who were in my situation: alone, scared and with no life compass.

The purpose of the question was to help assess my attitude towards the risk/reward aspect of investing – at what level would I be satisfied with enough? I’ve always been a pretty cautious person – most of my answers on the test indicated that I was not a big risk taker. I’ve written about my “Money Rules” in previous blogs and rule number 11, “Never invest in anything that you don’t understand,” made me answer most of the questions in a way that would only produce results in the lowest possible risk level. My friend Jeanine, however, was going for the gusto – her results indicated that she had an aggressive risk profile. She loved the concept of leverage. Stock options were exciting to her, and it didn’t come as a surprise when she called me one day to tell me that she was ready to find what she called a “go-go” investment manager.

Jeanine’s goal was to make the largest amount of money in the shortest amount of time, and she found an advisor who specialized in options trading. She was very excited when she called me to tell me that she opened an account with $100,000 and that she planned on making enough money trading options to pay for her new kitchen and a new car.

Her first investment was an OEX call option contract. While I understood the concept behind options trading, investing in this manner was definitely not appropriate for me. At the time I felt it was too complicated and risky. The way Jeanine was investing was more like gambling, not investing for long-term results. Her “investment” was essentially a bet that the OEX stock index, which was trading at $650, would be trading at $690 about 90 days later. To her delight 85 days later, she was, as they say at the Chicago Board Options Exchange, “in the money!!!” Her beginner’s luck prompted her to “let it ride” on other contracts, and when she made even more money, she rolled it into several other derivative investments. Our friends all thought that she was an investing guru. After several months she had made more than enough money to pay for her new kitchen, an upgraded car and then some! We were impressed and overjoyed at her good fortune!

I’m not sure who coined the phrase “what goes up must come down” or who to credit “pigs get fed, hogs get slaughtered,” but Jeanine didn’t purchase the new car or remodel her kitchen. Instead, she continued to roll her money into more options contracts. Her final OEX and derivative purchases expired worthless as the stock market entered into what we now know as “the burst of the tech bubble.” All the money she made was lost in a matter of months. We had many sad, sad, late-night conversations about what might have been…

This story doesn’t end on a sad note, however. Even though she experienced a monetary loss, she still had other money to invest as well as several years to save more money to add to her portfolio.  The OEX/derivative trading experience made her realize that a more thoughtful, goal-oriented, investment plan would make more sense. Together we created a portfolio strategy that would address her current and future goals and we continue to monitor it today. 

She has three “buckets” of money: her “current money” that she pays expenses from; her “serious money” that is allocated for her future; and her “fun” money that she limits to an undisclosed, smaller amount that is “invested” when she makes her yearly trip to Las Vegas! She has even come to respect what she calls the “boringness” of the plan!

For more insight from Deb, you can read the previous issue of Rebuilding Home here, or stay up-to-date on new issues by following Deborah Feldman’s blog on LinkedIn.