Bookkeeping: Adding Back to Ultrashort Technology (REW)

Another case of better to be lucky than good, I cut back my Ultrashort Technology (REW) last Friday, writing

I am looking at these poor technology stocks and their charts look like the financials did about a month ago. Maybe they have further to go down but some of the valuations are getting to a point of ridiculousness, and they are due for at least some bounce sooner or later.

I still think we are in a greater bear market, but just like the financials, homebuilders, and retailers can rebound off very oversold levels these stocks just look pathetic, so I think the "easy money" has been made for this round.

If this was more of a hedge fund environment, in fact I'd probably buy a bunch of technology stocks to try to flip out after they bounce 5-10%, but since that is not the mandate for a mutual fund I am simply going to move to the sideline and into cash.

Since I am not watching the market minute by minute, I did not have perfect timing, selling this down in the mid $74s (it peaked at $78 that day) but conceptually I think I got it right. I did not expect this move to happen so quickly - literally it has been 2 days. We've seen a nice rally in these tech "beta" names and this Ultrashort dropped from a peak of $78 Friday to $70 this morning. And many of the underlying stocks (aside from Microsoft (MSFT)) which is moribound) have bounced the 5-10% I was looking for, so I am going to get back into this name here in the $71s. (taking it from 0.7% to 2.3% of portfolio). So this is a quick 5% move and I lowered my cost basis, and if I were watching things hour by hour I could of done even better, lowering my cost basis closer to 8% or so. But conceptually it played out as anticipated.

Baidu.com (BIDU) does report tomorrow, and could light a fire under the technology names and this could prove to work against me. That happens. However, high beta stock, high value, in this market - I am taking the safer way out and assuming a sell off. So aside from adding to this Ultrashort I also cut back my smallish Baidu.com position below 1% by selling here in the mid $260s. I do expect great numbers out of Baidu.com but it's just a matter of the overall market environment, not the company itself.

Again, everything I am doing is with a conservative tact and I do expect to leave money on the table because by being "safe" I am by definition going to miss out on the upsides when they do happen. But the greater probability in bear market is not the upsides, but the downsides. So I want to protect capital throughout. As investors we are trained for bull markets, so my contention is one must simply throw out convention in this type of market and think opposite to how we are trained over the years (when 85% of the time we are in bull runs). Eventually, when we do one day turn back to a bull market, these conservative moves will be "wrong", and I will trail the market for a short time, while the market turns into a new bull and I still live under the assumption of existing bear. But when a true bull market appears it will be a lengthy move and missing the first 2-3 weeks of it won't hurt much in the long run. Especially if we limit losses by some degree during the bear.

Long Baidu.com, Ultrashort Technology in fund; no personal positions