For all the chat about not trying to time tops or bottoms, actually the bottoms comments are unwarranted in the past few years. Timing bottoms is very easy, so far after 2009. You just buy. The average span of selloffs is measured in 1-2 months – not exactly the most trying of circumstances.
But trying to spot the top is almost impossible. The rallies have been so fast, so ferocious, and so long winded that any attempt to short them is simple folly. In hindsight, I would point out that the most severe broad market selloff in a century, beginning sometime between 2007 – 2008 and largely hitting its nadir in 2009, was an equivalent buying opportunity, in terms of raw patience, as shorting the two major rallies off the bottom, first in 2009, then mid-2010. And from 2011 the market has been hit with only ripples, that make it terribly impossible to short the indices.
Which is subsequently why I’m not trying to be short here. A healthy cash position augmented with some mild hedging is the way to go. I may be months early to the selloff, but am betting that at this stage, even foregone gains or some mild gross loss being carried is minimal next to the pain that could be experienced from overconfidence here. And the rewards from being able to buy a bottom are much greater than dumpster diving through whatever picked over scraps I can find.
Whenever we should get a selloff, provided it doesn’t carry with it ominous, new developments, I will then allocate some capital. And the 9th floor shall be all the better for it.If you enjoy the content at iBankCoin, please follow us on Twitter
What do you think of short euro and long the dollar as a hedge? Thought being, a shift into liquidity (flight to quality) occurs if the market does turn south.
Well, I have 30%-ish pure cash, and one of my hedges is EUO, so I’d say I like that idea very much.
Whenever we should get a selloff, provided it doesn’t carry with it ominous, new developments
Problem with that is in order to get said selloff most likely there needs to be some ominous developments.
Well, any selloff is likely to be justified by participants – it’s Europe, it’s the Fed, it’s energy prices, …
But I’d feel pretty comfortable buying into any of these “packaged” reasons, because I don’t believe any of the mainstream arguments are going to collapse the system. There will be consequences from them for sure, but I think I have a good handle on what those consequences will be and can play the field.
But if the next selloff should carry new developments that I don’t understand, I would feel compelled ot take pause.
Cain, I share your vision on this…so long as Ben keeps the free money flowing, we dip and bounce ever higher.
Death to the fixed income crowd!