Friday, 5 June 2009

Shorting The Stock Market



Since the stock market is getting a little bit too euphoric to my taste I decided today to "Short" the market.

What does that mean? well, trying to make money when the stock market is falling.
i.e when the market fall by -1% you make +2%... It's a "contrarian" view.

Obviously there are risks, if the bet is wrong you will lose twice as much the market gain.

So how do you short the market?

Well if you live :

In sweden you could buy : XACT Bear

In Paris or Europe you could try BX4 or BXX

In the US you could try QID

Obviously, you should be aware that these instruments are very speculative and could be use to protect your portfolio in case of a market correction.

The question is to know when to short because if you have the wrong timing or have wrong position you could lose big. The best is to use those intruments when you have a clear bubble...as in 2000 or 2007.

So today I'm betting for a short correction -10%? then the market will resume higher.

Obviously you should have clear stop-loss to minimize losses in case of a wrong bet.

For fun :
1- The best indicator to short is clearly when Nordea announces new funds, usually it is about 1-2 week before the fund collapses. They did the same thing with the Russian Fund, new European Fund...and now they have announced not long ago, index linked bond related to energy (petrol etc..)...indeed banks are here to make money and not to make their customer rich...

2- When Kauppalehti says that it is a good time to buy and that the media/economist are repeating that we will have a V shape recovery and that it is a very good time to buy (as they will not tell you that when the market is "cheap" as in March,but instead highlight the losses and "stock market crash" to scare you off)

More seriously (?, as if the previous paragraph was not?):

1- They are some indicators that give you the pulse of the market i.e when the market gets over optimistic or pessimistic, have a look to the following market sentiment - equity put/call

2- You should buy shares when the market is highly pessimistic and sell when it becomes euphoric...the same apply for the housing market and the reason I created this blog in 2007 when I clearly detected housing market euphoria and wanted to share that information with people - personally I decided not to buy at that time and as you may now, my target is to buy in 2011-2012, when price become reasonable - of course I am referring to the capital region as I think some region in Finland are already very cheap.

Last but not least:

You should never speculate more than 5%-20% (depending of your risk appetite and capability to digest total losses) of your total assets as you want to minimize losses if you got it wrong.


What are your views?


Disclaimer: this is not a recommendation to buy such products and you should take all the responsibilities in case of losses. What has been said about Nordea is a joke as I believe that they are not involved heavily in the Baltics and do care about making money. Please see an adviser, doctor, psychiatric and avoid bankers before taking any financial investment.

6 comments:

kultamine said...

In US you can also consider shorting with DOG (shorts Dow30) or PSQ (shorts QQQ ETF(Exchange Traded Fund). Quick way to make some bread or lose your shirt, so only take to the table what you can afford to lose.

HousingFinland said...

Hi Kultamine,

I agree that these instruments are mainly speculative one and if it goes in the wrong direction, without cutting you position (stop-loss), you could lose big...So do only those type of trading with in mind clear threshold of loss and gain and be prepared for that.

There are plenty of ETFs (FAZ for short financial and its contrary FAS for long etc...etc..)and index that allow you to short but only use the one that are liquid (check the daily volume, at least a million of transactions).

Nevertheless you should only use those instruments when you have either a peak of optimisms or pessimism...

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