Comments on Fund My Mutual Fund: Short Exposure Update

Hi, if you click on the label cloud for each you w...

2008-01-27T21:00:00.000-05:00

Hi, if you click on the label cloud for each you will see old posts for both.

SKF is a bet against financial stocks I began making in August. It hurt me early in the fund as the financials ignored the bad news and kept going up as the market was drunk on the kool aid of Fed cuts. So it worked against me in late August through September, before the market "faced reality" and this turned into a winner October forward. I don't think the disclosure game is over in financials and I expect consumer loans, car loans, student loans, and higher grades of mortgages to continue to implode. Hence financials continue to be a risk. Even with the Fed bailing them out. That said, the easier money was probably already made in Oct - Jan.

SRS is a way to bet against commercial real estate. In a slowing economy led by a consumer slowdown, this will hurt the rental rates for office space, retailers etc. So I can target more specific niches.

SDS is a bet against the S&P 500. I am more against small caps than large caps. The large caps at least have international exposure which can help them to some degree. Most small caps are stuck to the US consumer... so I have been using TWM instead of SDS - and while all move the same direction, the small caps have been the weakest by far since August. I expect this to continue as smaller companies don't have the benefit of export sales (usually). Even the TWM is not perfect - I'd rather have something short say the smallest 3000 companies of the Wilshire 5000, but this is the best instrument I have available.

Ah, this cleared up what questions I had. I still ...

2008-01-27T20:15:00.000-05:00

Ah, this cleared up what questions I had. I still think that within a short term period of weeks they would still be fairly close to reflecting double the gains or losses but I see your point. Thanks for clearing that up.

Also, why did you decide to go with SRS and SKF instead of more REW or SDS? Is this just a short bet you've made for the portfolio? I noticed you had little financial exposure already so I wasn't sure if it was supposed to be a hedge. Thanks in advance.

Hi, here is an article that probably better explai...

2008-01-27T19:48:00.000-05:00

Hi, here is an article that probably better explains how Ultrashorts work, and why its not truly double leverage

http://seekingalpha.com/article/35789-the-case-against-leveraged-etfs

It works on a 2x effect on a daily basis but not over time. Further when I state 20.5% I am speaking of the % of the fund devoted to that position.

Foremost, I appreciate your analysis that you do d...

2008-01-25T23:40:00.000-05:00

Foremost, I appreciate your analysis that you do daily and find you to be a very intelligent and educated investor. Many of the stocks you are interested in I also find myself either watching or owning in my own portfolio. However, I do have one question.

In this recent update you noted that you had adjusted your short exposure up to 20.5%. However, all of these are UltraShorts (reflecting 2x leverage). In essence, wouldn't your true short exposure simply be 41% with you only needing to put up half of that in cash to gain such exposure? Either way, I think upping the exposure is a smart move but I'm just wondering if it is me or you that has misunderstood the effect of the UltraShorts here.

Keep up the good work!