Warning: Declaration of action_plugin_safefnrecode::register(Doku_Event_Handler &$controller) should be compatible with DokuWiki_Action_Plugin::register($controller) in /home/public/dw/lib/plugins/safefnrecode/action.php on line 14

Warning: Declaration of action_plugin_blog::register(&$contr) should be compatible with DokuWiki_Action_Plugin::register($controller) in /home/public/dw/lib/plugins/blog/action.php on line 0

Warning: Declaration of action_plugin_blockquote::register(&$controller) should be compatible with DokuWiki_Action_Plugin::register($controller) in /home/public/dw/lib/plugins/blockquote/action.php on line 0

Warning: Declaration of action_plugin_include::register(&$controller) should be compatible with DokuWiki_Action_Plugin::register($controller) in /home/public/dw/lib/plugins/include/action.php on line 0

Warning: Declaration of action_plugin_popularity::register(&$controller) should be compatible with DokuWiki_Action_Plugin::register($controller) in /home/public/dw/lib/plugins/popularity/action.php on line 0

Warning: Declaration of action_plugin_redirect::register(&$controller) should be compatible with DokuWiki_Action_Plugin::register($controller) in /home/public/dw/lib/plugins/redirect/action.php on line 0

Warning: Declaration of action_plugin_captcha::register(&$controller) should be compatible with DokuWiki_Action_Plugin::register($controller) in /home/public/dw/lib/plugins/captcha/action.php on line 0

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656
Hedging US stock holdings [ClearOnMoney]
Top

Site

About
Contact

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656
Sitemap

Profile

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656
Trace:
Hedging US stock holdings

Reference

Main
Updates
Schedule

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656

Warning: preg_replace(): The /e modifier is no longer supported, use preg_replace_callback instead in /home/public/dw/inc/auth.php on line 656
Investment

Hedging US stock holdings

4 Feb 2010 by Jim Fickett

On Wednesday I took a position in Proshares S&P 500 ultrashort (1% of the portfolio), hedging part of my stock holdings. I am not necessarily predicting a real correction immediately, but feel it is likely enough that I would like to begin lightening my net bet on US equities.

It is often remarked that “timing the market is a mug's game”. Yes and no. On the one hand, no one can consistently call the tops and bottoms; that is true. On the other hand, some people do seem to be fairly successful in missing the big drops (e.g. Roger Nusbaum and Anthony Bolton); in being more fully invested on the way up than on the way down (e.g. Jeremy Grantham); in choosing sectors appropriately for different parts of the business cycle (e.g. Felix Wintle); or in buying things when they are cheap and sitting on cash when everything is overpriced (e.g. Warren Buffett).

The rise in US equities since Mar 2009 is almost certainly a bear market rally. Not that the recovery is an illusion; rather that stocks have gone up as if we were already in a strong recovery, while in fact recovery has barely begun, and will be slow and halting. There are many very serious problems that still need to be resolved:

About the time scale. I admit that I thought the rally did not have much further to run even last summer. But that was on the basis of fundamentals, which the market can often ignore for a very long time. This last week was the first time the mood changed significantly. It was quite notable that many pieces of good news (e.g. the announcement of high growth in Q4 2009 GDP) resulted in market drops. The general mood seemed to be that we had gotten the best news we were likely to see for a while.

Looking forward, if the news is indeed treated more realistically, it will likely become apparent to more investors that we are in for a long, slow grind of a recovery. And that is fairly likely to result in a real correction (perhaps between 10% and 20% down) sometime in the next 2-3 months. (I base that time frame on the planned end of quantitative easing, plus forecasts of foreclosures, unemployment, and GDP.)

I am not so much predicting a drop as saying it is a likely contingency that requires planning.

Since I put considerable effort into finding investments that I like and want to hold for the long term, rather than sell stocks when I think we are at the top, I prefer to buy the inverse ETF SDS (Proshares S&P 500 ultrashort). The risk in this approach is that holding SDS long-term can result in losses just from noise (more on this will be coming in the regular commentary). In order to keep that holding period short, my strategy is, (1) wait until the market mood is such that there is a real possibility of a drop (i.e. now), and (2) as the probability of a drop increases, phase into a more substantial position (later).