Shorting, Holding, or Folding?
Posted by Frugal on March 21st, 2007
Stock market is zooming after the Fed meeting. Looks like my expected market fall is going to be delayed. However, I still expect the market to fall later this year.
Since I was caught unhedged this time, if the stock market goes back up, it will be good news for my portfolio. I still have a couple of outstanding short positions that I have not covered. But I don’t worry too much about them. I would gain a lot more from my long positions than losing money in shorts.
In any case, I have liquidated almost 100% of my general stock market holdings, and have built up my cash position to 26% of my liquid portfolio. It is a lot of cash by any standards, but it is my way of keeping my sanity in this volatile market, since my regular income is relatively small compared to my portfolio.
So let this Goldilock story continues. We will see how it will turn out. I guess Robert Kiyosaki is really bad at his timing. I remember a study done related to smart & dumb traders. The most reliable information among all traders is actually from the dumb traders because they ALWAYS do the wrong thing at the market turn. So if you simply do the opposite of the dumb traders, you will statistically gain over time, 
.
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March 21st, 2007 at 5:42 pm
Hi Frugal,
I’m confused about a few points:
1. You said you liquidated 100% of your stock market holdings, yet you will gain more from long than short positions. Are you referring to your company stock, or are you still holding other stock?
2. What do you mean you were caught unhedged? You mean you don’t have puts or short positions? Because your heavy allocation to PM seems to be a hedge.
3. You have high net worth already, why not go with a more conservative asset allocation rather than shooting for high outperformance with concentrated (risky?) positions?
Thanks!
March 28th, 2007 at 8:52 pm
I’m a college student who just started getting “serious” about investing over the last year and have been trying to find strategies and methods that can work in this current stock market. Getting started last year was really great in that almost any strategy yielded some pretty comfortable returns. I actually did beat the three major market indices by quite a bit one of my portfolios and just about tracked the S&P with another portfolio (to a comfortable 15.5% return over a year). Unfortunately, in this current market, I’ve been caught trading a lot more than I would like trying to properly time the market. I guess I’ve learned my lesson. Maybe I’m a dumb trader, but I just can’t help but think that there must be some combination of shorting and holding that would allow you to play the current market. Or, maybe it’s just best to drop out and wait for a confirmed trend. Parts of me wish I did. The last month wiped out much of my gains in one portfolio and have left me treading water in the other.
April 1st, 2007 at 8:46 am
Dan,
I doubt that you can find a golden trading recipe anywhere. If there is such thing, it will change with time for sure. And only a small percentage of people will figure it out only at certain time period.