22 Things I Learned About Investing In 2022, Part One

2022 was an excellent year for me. OK, I didn’t make as much from my investments as I did in 2020 or 2021—who did?—but I did make 22% on my equity investments. Considering I started the year with $4.7 million in my family’s various cash and retirement accounts, I’m delighted with the result.

But more important than how much I earned is how much I learned. Was this a better year than most? I don’t know. I learn a lot every year. But with every lesson I learn, I realize how stupid I was the year before.

So here are some things I learned in 2022, in no particular order at all. This article will discuss seven things – the other 15 will be for Parts Two and Three.

1. Put options are extraordinarily expensive.

It’s not easy to tell whether an option is fairly priced, but there are some good formulas out there. One is the Black-Scholes formula, another is the binomial price formula. Personally, I like to buy options at a steep discount to prices determined by those formulas. But with puts, that’s almost impossible in today’s market.

Let’s look at an example. On Dec. 21, I wanted to buy some March out-of-the-money puts on Beyond Meat (BYND). The stock price was $13.26 and I was looking at an expiration date 86 days away. So I was looking at options with $12.50 and $10.00 strikes. The historical volatility of BYND was 97.3% and a 3-month T-bill yielded 4.25%. It wasn’t hard to do the math: The Black-Scholes price given those inputs was $1.98 for the $12.50 strike and $0.87 for the $10 strike; the binomial prices were $1.82 and $0.73. Yet the going prices for these puts (taking the midpoint between the bid and the ask) were $3.25 and $1.85! That’s extraordinarily expensive! I would never pay anywhere near that much! Compare those prices to the call options on the same stock. The Black-Scholes price for a $15.00 call was $2.03 and the binomial price was $2.21. And the call options were priced at only $1.23.

Finding a bargain in puts is really hard work….