MC, I sincerely appreciate your word of advice, a caution note is very helpful when my model is working so well (I bought several hundred contracts of QQQ May 39 puts average $2.05, as I mentioned in my other posting a week ago, as well as shorting RIMM, SOHU, etc), and that's what a friend should do.
First of all, I have to admit that I was fooled by Mr. market for couple weeks early this year, and had a few small miss-steps. I was swamped by the enthusiasm around ALVR, WiMax and EONC, and made some relatively small purchases of those stocks at high prices. But after it went nowhere on the positive recommendations by media, I start to realize this excitement could be a trap, and when it started to trend down, I started selling. My year 2000 experience (too late to sell) is also a big contributor to the sell decision. So I sold most of ALVR starting at 15, and as low as 12. Given I have only 20% long position now, I think I have escaped the big trap if the market continue to go down.
Secondly, I agree with you, and I have been managing OPM very conservatively, without shorting those individual high volatility stocks such as RIMM, SOHU, CA, PCSA. That portfolio is 80% cash now waiting for opportunity to go long. I still keep several personal accounts that I test and fine-tune different investment strategies, and I did short those stocks and buy QQQ puts there. I have developed 10 disciplines in past 5 years regarding shorting, such as only have very diversified small positions in each stock to reduce risk. I have keen interest in studying short since it is very closely related to market top, and very helpful to determine the top. Short squeeze (as we saw in TASR, RIMM, ZIXI) is the most obvious sign of extreme speculation, and market most likely top when those bubbles burst, as we saw in past couple weeks.
Regarding my "black box model" - I am referring to a very specific model that I developed over the years to determine a market top. You may have seen I turned bearish in late 2003, then a reversal. Those were the minor signals, just to tell me to be careful and nimble. There was never a "sell-off" signal until April 23, 2004 the day after Microsoft reported earning. That's why I sent the email "We are approaching a serious sell-off" on 4/19, and notified investors on 4/24 regarding the confirmation reading of the serious sell-off. This model's last "Self-off" signal was March 2002.
In the war of money, I use different weapons in my arsenal depends on the market situation. For example, I am a hard core value investor when value is easy to find, such as putting 25% of my money in ALVR when it was trading at 1.86 with $3.3 in cash, no debt, and I went to China to see their operation and talk to customers, know they are the market share leader in a potentially explosive industry. You may remember I told you ALVR was my number one holding in a post on this thread on Feb 18, 2003. The positive development keep coming in 2003 and I was able to hold on due to the model had no top signal, and those leaders normally continue to run in a bull market. When it comes to Q1 of 2004, there is no value in the market and I don't do value investing any more trying to pick the "relatively undervalued stocks", because past experience taught me those 80 cents dollar could easily become 50 cents dollar in a down market. I hoarded cash in the conservative portfolio, and shorted QQQ and some individual stocks in aggressive portfolios. In the overvalued market, I give more weight to technical analysis, and several models including that "market top model". I know I am trying to do something that seems impossible but I simply liked the challenge, and so far I am sitting on over 200% return in 2003 and a positive 2004, if market continue to go down as my model told me, I will continue make money while it go down. I have done some very difficult things before, including scoring the highest in China's SAT in a city with 1M population and being the only high school graduate (in that city) admitted to one of the most prestiged university in China - Tsinghua Univ. in Beijing. Later in college I was honored as one of the most outstanding student and reported as a cover page story on Beijing Daily, as well as China Youth Daily and other media. I like competition and challenge, especially in a fair one such as US stock market, and I could potentially be on something big here.
I hope you don't see me as arrogant or bragging, I am trying to be as sincere and honest as possible since you are giving me a very sincere advice.
Good luck investing in the tough 2004!
Steve168 |
