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The "air" started to drain from the bubble this week, and while I knew what I wanted to do, the execution proved difficult.
My last post proved "scary psychic" as the following morning, Elvis left the building...
An utter novice at this shorting game, I had to guess what would be an appropriate strategy for exiting the frothy speculative positions, and hedging the remainder with SDS purchases to maintain some form of balance. The rules prevent us from fleeing in panic, and the volatility of the up and down swings suggests a slow exit for fear of some massive swing in the opposite direction.
The "frothy" portion of the portfolio was the tech stocks. I unloaded all of the VMWare and 1/3 of the EMC stock Wednesday morning before the contagion spread to the Nasdaq. Following the sale I added a position in ADM (great earnings report) and bought 1500 SDS (S&P 500 short).
With the Nasdaq starting to deflate on Thursday, I sold another 1/3 of EMC and added 2000 more SDS. The lesson learned was that not all shorts are equal, and discovered that I could get short positions on additional indices. "JAudio's" post on shorting the market showed me some of the others available. I dipped my toe in the water with a QID purchase, nothing excessive - just enough to learn how it behaved.
Additional small trims were necessary to keep the overall fund within the SLO rule set. I made small sales of POT and MOS to accomodate all the SDS purchases. By Friday's close I had purchased 4500 SDS and 500 QID, and sold all but 1000 shares of EMC.
The result was close to what I was looking for - by the end of the week the combined portfolio was down $10,000. I had hoped for "break-even" and this was close enough.
My thanks to Jonathan Coyle (Jaudio) for helping me learn some new tools available.
This week I learned I had the discipline to leave cash on the sidelines, and learned some additional options available when markets go south with a vengeance. I avoided the mistakes I endured in the last tech bubble, being emotionally tied to a stock and holding it far longer than I should. Babies are always thrown out with the bathwater, great companies and great earnings are ignored when the crowd stampedes for the exits.
That's what they mean by a "great buying opportunity" - if you rode all your stocks down and lack cash on the sidelines, it's an opportunity to "sell something you lost money on - to buy something you may lose more money on" - that's why I didn't recognize it the last time.
Pain makes the lesson permanent, and I am slowly (painfully) learning what not to do.
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Comments (3)
Thanks for the shout out. My portfolio has been ravaged big time, but it is starting to turn the corner. There are a few Short ETFs that I was not allowed to buy, but there are more than enough out there to diversify short. Check out Proshares website for more info. Of course, I would never load up totally on the short side in the real world, but this virtual roller coaster has been fun. I've voted on several of your posts, and though I have not bought or sold on your advice, it is insightful nevertheless. Thanks.
Posted by Jonathan Coyle | November 10, 2007 5:34 PM
"...and though I have not bought or sold on your advice, it is insightful nevertheless.."
Whew, thank god - that means we're still friends. If anyone out there IS buying on my advice, " I pity the fool.." as Mr. T used to say.
My thanks for your help J. Coyle - I expect I'll hear your footsteps shortly.
KB
Posted by Keith Barton | November 10, 2007 7:27 PM
If you have the time, I'd love to hear a post on "how to short" ... instinct suggests there are a million ways to do it, and some may be better than others.
I'm still a rookie at this, and am learning the hard way. Likely there's multiple strategies as well as multiple products - the "how" may be as important as the "what."
Luck to you, kind sir.
KB
Posted by Keith Barton | November 10, 2007 7:40 PM