Monday, January 12, 2009

My portfolio

Some folks may have missed my December 30, 2008 post alerting readers that I had altered my portfolio in time for the tax deadline. I dumped all my 2x inverse-leveraged ETFs and instead sold short the 2x ETFs. I did this largely because the 2x inverse ETFs were acting like large put contracts with time decays. By shorting the "bulls" rather than buying the "bears" I get to make all the money from the declining market and also capture the time decay properties at the same time. You can check that post for more information.

My portfolio as it stands now:
Short UCC - the 2x retailer index
Short SSO - 2x the S&P 500
Short TNA - 3X the small caps! - this is a smaller "fun" position. This is the one that will probably have the highest return because it is crazy, but I wouldn't recommend putting serious money into it. 3x funds are dangerous.
March $25 puts on XRT - These are puts on the retailing index XRT. These are contracts that give me the right to sell XRT for $25 in late March. XRT currently sells for $20.30, and I anticipate this going down.

I expect the market to fall quite a bit from here, and I will hold all of these positions until it does. I suspect that sometime around late June, 2009 I will be closing out these positions and finally buying stocks again for the first time in 20 months. Once I do this, I will probably not short anything again for two decades.

Earnings season is here, and it will be bad. It is time to make money. I took a big hit on the bizarre and illogical runup we've had since Thanksgiving, but these positions have already made some of that back. The market had risen 25% since November 24th. It is now only up 16% since then, and I suspect that over the next two months the market will be dismal and these positions will be serious moneymakers. I will have levered gains on the market dropping 25%.

Just as important, all the things I want to buy will fall in price during that time as well, so you get to make money on both sides. You end up owning way, way more stock with more money at a cheaper price than if you simply went long today.

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