Plan C: A Contingency Plan for the Contingency Plan

I mentioned a while back that I had recently set up a portfolio targeting worksheet in Excel comprising of a scenario analysis that outlines my profit objectives at key market levels (52 week high, 50% of 52 week high, all-time high, etc). To alleviate my fears, I also calculated potential losses at the 52 week lows as a way of showing me that the worst is possibly over.

The more I think about it, the more I feel it is an over-simplified view of equity trading. With so many factors beyond our control, we really should be thinking of a contingency plan for the contingency plan.

I laugh about it now, but AIG was part of my portfolio recovery plan. I added a 300 share position in AIG right prior to its recent reverse split fiasco. From a position worth three figures, I was hoping to grow to a profit objective approaching five figures.

So was this realistic? At the time, it truly was. I could see AIG going to $32.25 from my $1.41 entry level. Now, after its reverse split, who would ever buy AIG at $621.80?

I'm definitely not an expert and you'll notice that with my bimbo posts here. But if we look at risk:reward from this perspective, shouldn't we be asking ourselves one critical question: if we set ourselves a risk:reward ratio of 1:10 or 1:5 or even 1:3, are we realistically going to achieve our target limit?

So how do we factor that into the equation? And if there are no guarantees in trading, how do we create a Plan B or a Plan C?

Because after all is said and done, our well-thought out plans could still end up being up in the air.

This AIG position is so small that I shouldn't lose any sleep over it. But then I would rather have placed this money in my Hermes Kelly/Birkin/Lindy Fund.