Sam Burns – Understand What You’re Really Betting On

My Worst Investment Ever Podcast

BIO: Sam Burns is Chief Investment Strategist at Mill Street Research, an independent investment research firm based near Boston, MA. For 25 years, he has focused on global asset allocation and quantitative stock selection, primarily for institutional investors.

STORY: Sam decided to short-sell options that went horribly wrong after the Russian default. Even though he knew how options work in principle and that he could lose money, Sam didn’t have a plan for what if some geopolitical event happened, causing the market to fall suddenly. And so he lost a whole lot of money in the trade.

LEARNING: Understand what you’re really betting on. Every option trade is about volatility. Have a plan for what could go wrong and what you’ll do about it before you look at the headline to see what’s happening.

“There often are hidden drivers of an investment that are not what you think they are.”

Sam Burns

Guest profile

Sam Burns is Chief Investment Strategist at Mill Street Research, an independent investment research firm based near Boston, MA. For 25 years now, he has focused on global asset allocation and quantitative stock selection, primarily for institutional investors. After spending many years doing research at firms like Oppenheimer & Co, State Street, Brown Brothers Harriman, and Ned Davis Research, Sam founded Mill Street in 2016 to be able to bring all of his best work together and offer it to clients without any constraints or conflicts.

Worst investment ever

Sam had been trading options for a while, mainly from the long side, buying puts and calls, which, at the very least, has a limited risk aspect since you can only lose what you put in. At some point, Sam decided to try short-sell options, which went violently against him.

This was in August 1998 when the Russian default set off a chain reaction of problems and Long-Term Capital Management blew up. Even though he knew how options work in principle and that he could lose money, Sam didn’t have a plan for what if some geopolitical event happened, causing the market to fall suddenly. And so he lost a whole lot of money in the trade.

Lessons learned

• Every option trade is about volatility.
• Have a plan for what could go wrong and what you’ll do about it before you look at the headline to see what’s happening.
• Ensure you’re capitalized well enough to handle or ride through ups and downs and drawdowns.

Andrew’s takeaways

• Understand what you’re really betting on.

Actionable advice

Make a point to think through what’s behind an investment and understand the other things moving simultaneously that might explain the movement of the asset you’re interested in.

Sam’s recommendations

Sam recommends listening to or reading people who are practitioners involved in markets day to day rather than journalists, who, though they do a great job, a lot of them write for a different reason than to make you a better investor.

No.1 goal for the next 12 months

Sam’s number one goal for the next 12 months is to try and stay on the right side of the macro picture.

Parting words

“Have a plan.”

Sam Burns

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• How to Start Building Your Wealth Investing in the Stock Market
• My Worst Investment Ever
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• Transform Your Business with Dr.Deming’s 14 Points

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