Seeking Alpha

That was some wild ride in the market Wednesday. The type of crazy up and down we have seen in the market this month has been getting crazier, the VIX closing at 29.02 notwithstanding, which I take as symptomatic of a bear market...along with lots of other things.

I have disclosed some of the luck I have had over the last few months in the portfolio so it is right to disclose that the last couple of days I have lagged noticeably, due mostly (well I think mostly, anyway) to the pasting taken in the foreign markets plus dollar appreciation. Additionally the names I own that are higher beta (which includes a couple of foreign stocks) have also been pasted.

Obviously lagging for two days means nothing but it is a microcosm for longer periods of time. I say this a lot, but it bears repeating: A normal money manager, and also individual investor, will have periods where they beat the market and periods where they lag. Lagging now and then, at a minimum, is part of the equation, it goes with the work.

I posted before about mentally preparing for a bear market. Well you should mentally prepare to lag the market as well. I don't sweat lagging the market as I know it will happen now and then if not more. From where I sit, if I can smooth out the ride when there is turmoil I will be quite pleased.

Hopefully I am conveying a lack of emotion after a couple of relatively poor days the same way I do after a couple of good days.

I took a little more action Wednesday during the last hour (you know, the most important hour of the day). I went back into the double short ETF -- the UltraShort S&P 500 Proshares (SDS) or the UltraShort QQQ Proshares (QID) -- with about 40 minutes to go at a price of $65 (I sold at the open on Tuesday at $71.35) and I also sold an industrial stock with a little more beta that quite a few, but not all, clients owned.

I will say I went back in quicker than I expected, but I am convinced this is a bear market, and I would rather be wrong in the direction of lagging a rally.

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This article has 5 comments:

  •  
    Roger, question for you on the UltraShort ETFs. Have you read this:
    etf.seekingalpha.com/a...

    Given the arguments here, do you think it might make more sense to be short the leveraged long ETFs instead of going long the leveraged short ETFs?
    2008 Jan 25 05:48 AM | Link | Reply
  •  
    L-S Guy: it's a great question. Try posting it on Roger's blog (click on "Visit Author's Site").

    IMO the two are close to equivalent when the market is dropping; shorting the ultra-longs is worse when it's going against you.
    2008 Jan 25 01:16 PM | Link | Reply
  •  
    i have read that article. i can't refute it. there are flaws in the products but they capture the effect of reducing portfolio volatility which has mattered as the cycle has been ending. When the next cycle starts the need for the hedge ( as I see it) will then diminish.

    when the next cycle starts to get long in the tooth there might then be a different way to hedge but personally i have no complaint with out the double short has behaved.
    2008 Jan 25 03:00 PM | Link | Reply
  •  
    The SA editors added the comment about QID, I have never used that fund.
    2008 Jan 25 03:07 PM | Link | Reply
  •  
    Seems like everyone agrees the bear market is here and piling into (ultra-short) ETFs. Contrarian position would be either a) no recesion and no bear market, short the shorts, or b) minimal growth and sideways trading range for a year or tow so both long and short investors get nothing.
    I tend to favour option b.
    2008 Jan 25 07:32 PM | Link | Reply
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