Starting from a place of risk avoidance leads to somewhat limited possibilities. That line of thinking leads to ignorance breeding ignorance. Regardless of whether you trade or sell widgets, risk avoidance can lead no further than mediocrity.

 

Dylan continues to learn and look for ways he can take control of his own investments. His take on the economy: things do not look great. Dylan believes equity prices are overvalued and expects equities to pull back at some point, but like every other investor, he just does not know when that may happen. His question to Tom was, how can he get short the market? (Incidentally, this is setting off alarms that I probably need to get long… it’s not personal, Dylan!)

Tom did not disagree with Dylan’s market sentiment, but what really got Tom going was the mere fact someone as intelligent as Dylan doesn’t know how to get short. It's not a question of intellectual ability, but rather a result of litigation and liability avoidance that best explains the genesis of Dylan’s question.

We operate in a financial system with an infrastructure that is predicated on avoiding legal or regulatory liability. As a result, the products available for investing and education offered in finance all begin from a starting point of “don’t take risks that lead to liability.” Dylan’s question is a symptom of the problem.

When we reverse engineer a process, our potential is limited to whatever we’re reverse engineering. We cannot take apart a car then put it back together and end up with a boat. Instead, we end up with the same car and never broaden our thinking to consider what other modes of transportation we could create.

Closed-end, passively managed funds are low liability products. We are told to put our money in them not because they will offer the greatest returns, but because they are perceived as low risk products. Until that mindset changes, our potential to better manage our own finances is limited.

The “tastytrade way” includes some different takes on investing. We embrace risk. We see risk for its potential, not for its liability. “Because this is how it always has been,” is not an acceptable answer. We know individuals have more potential than liability imposed limitations allow.


Josh Fabian has been trading futures and derivatives for more than 25 years.

For more on this topic see:

Truth or Skepticism with Dylan Ratigan: June 9, 2016