Tuesday, October 14, 2008

Investment Disclosure

I said in an earlier post that in this environment I would only make investments in extreme circumstances. The overall market rallying 13% in 27 hours certainly qualifies. I don't understand why every stock in the market is rallying because of this bizarre bank deal. Why is Chipotle up 10%? Is the Treasury bailing out burritos?

Today, I have made two new investments. I have shorted the S&P 500 retail index, and I have taken an aggressive position in shorting the entire S&P 500.

1) S&P 500 Retail Index (XRT): I think this thing will perform poorly over the next quarter. Christmas sales are going to be down anyway, but on top of that they will be compared to a year ago when people were still pulling equity out of their home ATMs. The comps will be just horrendous. XRT is a good way to short a whole basket of retailers quickly. I think that is a pretty good move heading into the Christmas season, and today and yesterday's rallies are a good chance to get in.

2) S&P 500 (SSO): This is a fund which replicates the S&P 500, but does so in a way that whatever the S&P does, this goes twice as far. If the S&P 500 moves up, this moves up twices as far, if it moves down, this moves down twice as far. We will see the Dow hit 7,500. This rally is temporary. By shorting SSO, I am saying that I expect the S&P 500 to fall for the rest of the year, and my short position will fall twice as fast.

I've never made investments in index funds before. I've never traded ETFs, I've never traded mutual funds, nothing. But these circumstances call for diverse holdings and a macro-economic outlook. Both of those things are usually the exact opposite of what a value investor should be doing, but these are unsual times.

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