Where there is Risk there is also Reward:
Will he/she go short instead of long, place a hedge, use a derivative, put in a stop loss in or make a short term trade move to protect your stock portfolio in this volatile market? If not, you’re working with the wrong person. There is a very large California Money Manager that will sector rotate for clients based on the hot and moving sectors that his research team has chosen. I won’t go that far…….I am a firm believer in asset allocation as a foundation to your portfolio, but if you think Europe may have a two year or three year recession then why not under allocate slightly to your European ETF’s, Stocks, or Mutual Funds. When I say under allocate I mean 5% to 10%. I don’t mean taking them out of the mix all together. Stay committed to your long term investment plan, risk tolerance profile, Investment Policy Statement and make small changes when necessary.
Going Short:
An easy way to open up shorts on a market sector is to use Proshares a company that distribute ETF’s. Some popular ones are SDS, DXD, TWQ. These open up double and triple shorts on the S&P 500, Dow Jones Industrial, NASDAQ, respectfully. So you basically short the entire large cap US Market. Another way is to buy Puts if you believe a sector or stock is overbought. Eventually someone will make millions of dollars by shorting gold. So many people and governments have been fearful of the stock market, the economy, the politicians and business that they have invested in gold. Gold has run up to new market highs. But highs don’t continue forever contrary to popular belief. As a friend of mine says “the gold party will be broken up like a cheap high school party on a Friday night when your parents come home unexpectantly.” The question is when. Until when is insight people will keep hedging due to their fear with gold. Why go short to begin with? Because when stock markets are in decline you can make a ton of money.
It is a real shame that consumer confidence is gone. We won’t have a real turn around in this economy until we can get it back. We need the underemployed and unemployed working, a firm tax cut and regulation cut for small businesses and spending to happen. People need to be buying from retailers, car dealers, home builders and investing in their future and right now this just isn’t happening due to fear of the unknown. Is this a double dip recession as the chatter indicates….probably not but we do have a clear lack of consumer confidence. Paired with a jobless recovery and an astoundingly anemic housing market in most of the country. There are still areas of the nation where housing prices keep rising. What do you need to do right now to stay the course? Buy US High dividend paying stocks, hire the right money manager for your risk tolerance and situation. Make some small changes with short, limit orders, derivative and stay the course with the proper plan. This lack of consumer confidence will end and things will return to normal or as Bill Gross of Pimco Investments says “The New Normal”.