The Mark To Market Gamble

I have my modest portfolio of stocks and mutual funds on the stocks app that came with my iPhone, which I check compulsively during the day. Those up for the day show up in green; those down are red. Most of you have the same app, but you are probably more rational about the way you react to the greens and reds.

I understand and agree (in my head) with the point, often emphasized by Warren Buffet, that the reds may be thought of as buying opportunities. Reds create bargains and give you more for your money than greens; so feel good about the bargains—the multiple opportunities to get in on the ground floor. Greens, logically, are only good at the end—whenever that is—when it’s time to cash in.

The above makes sense to my head, but other body parts react differently. I like greens better than reds, period. Therefore, I don’t like what happened to my JP Morgan Chase and some other bank stocks reacting in sympathy—red all over the place. On the other hand, my head tells me this is a buying opportunity. Maybe the smart move is to double down. I haven’t decided yet.

I guess you might say that my iPhone is marking my portfolio to market instantly and continuously. That’s okay, but I still must decide when to realize a loss or gain. I must confess: that’s my weakness. When they go up, my instinct is to let the gains build. When they go down, contrary to my expectation with I bought them, I’m inclined to wait for the inevitable rebound.

What struck me about Jamie Dimon’s announcement of a $2billion or so loss was his clear statement that it was a “mark to market” loss. In other words, it hadn’t been realized yet and it might get worse. Left unsaid was that it might also get better. The press has focused on the former possibility, but not the latter. Yet, the latter would be consistent with the rationale of taking the position in the first place.

So, while I must decide if and when to realize the loss, Jamie is deciding the same thing. Call it double jeopardy. I hope he doesn’t give in to the pressure out there to cave in no matter what. $2 billion, or $3 billion, or $5 billion is big in my world, but not his. These amounts are still fairly modest given the size of his balance sheet. It should be a normal business decision, and it could go the other way. But, either way, government investigations and Congressional testimony, when there is no reason to suspect wrong-doing, is destructive to confidence in our banking and free enterprise system. When will the bank bashing for political reasons stop? I like greens better than reds, but I pay my money and I take my chances. Mark to market is a journey, not a destination.

 

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  1. George Fuget says:

    Mark to market is a journey not a destination is true. the problem with this truism is another truism, everything starts NOW. If JPM,s two billion loss were a profit the profit woulld have been realized in a nano-second and we would never have heard of it. Since it is a loss it is simply marked to market in hopes that it will recover. Thus these sophisticated knowledgable investors have done what every odd-lotter has done for centuries. Capped profits and let losses run. A strategy that ultimately leads to disaster.If the bank wasn’t required to mark to market we would not hear of it until the loss was finally realized at 10 billion or 100 billion and Dimon was begging for Government help.
    George Fuget