Short Exposure Update

As mentioned the past few days, rallies are not to be trusted in bear markets, and "buy and hold" really doesn't work. Each rally will bring you in, and then crush you. Over time this just saps your will. I speak from experience.

I had hoped we'd rally to at least early next week, and then most likely a sell off on the Fed meeting but it looks like we cannot even hold a rally that long. This action in Microsoft (MSFT) is simply troubling - if you cannot buy a company that shot the lights out and expect gains, what can you buy?

Anyhow, I positioned the fund as I had hoped to have it positioned around next Tue-Wed. Since things just don't seem right, I went back to about a 20% short exposure which is how I entered the month of January. However, I cut back these positions much too early about the 2nd week of January and got hit with the brunt of the selloff last week with very little insurance. One misstep like that wasted away about 4 weeks of good work. This time around I plan to just sit with this short exposure to help offset damage to long positions in case of a selloff. Here is how I currently have it set up:

UltraShort Real Estate (commercial) 4.4% of fund
UltraShort Financial 4.3%
UltraShort Russell 2000 4.2%
UltraShort Technology 2.7%
UltraShort Emerging Markets 2.5%
UltraShort China 2.4%

In total about 20.5% exposure. I don't have cash up to the level I was hoping (20%) because we turned direction so promptly, but at least now I have some insurance. It won't offset the type of damage we saw last week (when individual long positions were being hit for 10-12% a day) but it will help. It is just very difficult to be long anything right now as the rallies are very short in duration and unless you time it perfectly (which is nearly impossible) you won't have success.

And if the market goes up? I'll be happy to lag the market upward for now, as I am confidant that when we eventually turn back to a real bull market the type of stocks I own will out perform. I just do not want to give back 6 months of hard work and out performance in a span of a few weeks like we had been doing the past 2 weeks. So hence this positioning which will continue for the foreseeable future.

I am just wondering what the next catalysts are? The government is running out of bullets. What else can we bail out, send checks to, or shelter from? At some point we have to face the music. I think all of Washington just wants to make sure it is after November 2008.