Still Waiting For The Third Time Down
January 3rd, 2008 by 
reality
Last month I said “Third time’s the charm.” So far, no third time down although it is looking a bit weak. The economy is tanking fairly quickly and we are moving into warning season. Hopefully things will perk down a little in the next couple of weeks. As you can see, I’ve really whittled down the sector shorts. While they’ve paid for my drawdown on the tech stocks, they’re fairly inefficient in terms of bang for the buck, the index options are much cheaper per unit of delta. So now I’m hoping for the kill in tech as the truth about the shopping season and the semi business comes out.
| Measure | December | YTD | Inception |
|---|---|---|---|
| Absolute Performance | (1.6)% | (3.1)% | (8.1)% |
| Relative Performance | (1.3)% | (18.8)% | (23.2)% |
Relative performance is based on Fidelity Magellan, FMAGX. Inception refers to reporting on the blog, and is based on the close of 2005.
12/31 portfolio.
| Asset class | % Allocated | Comment |
|---|---|---|
| Energy | 0 | |
| Absolute Return Funds | 0 | |
| Market Timing - Bear | 18.05 | Inverse funds and put options equiv. to 200% short (basis total equity). Overall, counting the sector-specific shorts, I’m about 300% short. |
| Market Timing - Bull | 0 | |
| Metals & Mining | 0 | |
| Real Estate | 1.39 | Put options on S&P Financials ETF (XLF) |
| Tech | 0 | |
| Fixed Income | 73.24 | Mostly T-bills, 2-year bonds, and a small long bond position. Also some WHOSX (Treasury-only fund). About half of this is in Canadian T-bills. |
| Cash | 7.32 |
Posted in * Portfolio changes, Asset Classes, Strategy & Scenarios | 
January 4th, 2008 at 7:32 am
it appears you may get your wish today.
Several times since 2004 I have thought - “surely this must be a top”. Yet QQQQ’s have doubled in that time. ($25 to $50)
I wonder if now, we’ve seen the top. And how low is the bottom - for stocks and houses?
Or will we be at $60 in May (when we’re supposed to sell in May and go away)
January 4th, 2008 at 9:13 am
You got your xmas a little late. (better late than never)
“Tech sector bathed in red; Intel downgraded”
http://www.marketwatch.com/news/story/tech-sector-bathed-red-intels/story.aspx?guid=%7B67E80EED%2DB073%2D442C%2D9EA4%2D82949F0962C8%7D&tool=1&dist=bigcharts&
I’ve found the most difficult part of trading is knowing when to close the position. Opening a position is rather easy. Knowing when to take profits or stop losses is much more difficult. Warren B and all of the buy and holders avoid this problem by mainly buying.
Have you read anything valuable that covers this topic?
January 4th, 2008 at 2:08 pm
You must have done well today, reality! I have actually significantly lightened up on my puts today, mustn’t get piggish on the short side. Bear markets tend to have violent dead cat bounces and I believe we’re shortly due for another, similar to the one in mid-December. The catalyst will probably be a surprise rate cut next week. Needless to say, a bounce will be a great opportunity to put on fresh shorts.
January 5th, 2008 at 8:36 am
Sorry for the delay in the comments. I have to moderate or the blog would be flooded with spam. We lost power in the storm and are still without internet, I’m at a local cafe that has service.
I lightened up too, fortunately before we lost power. A bounce is a reasonable expectation.
Research shows that the exit is the most important part of any trade. It is possible to trade profitably with random entries given proper money management and exit strategies. Most good trading books will deal with this aspect.
January 6th, 2008 at 5:46 am
Yikes, hope you stay safe and things return to normal.
January 9th, 2008 at 9:19 am
Well, my bravery evaporated and I joined the t-bill club this week. Yes, I should have done it last fall and kept my gains but I still believed in the Santa Claus rally then.
Anyway, now that I have capitulated I am sure that everything will go up (except for interest rates) since I usually do the wrong thing at the wrong time.