<one must have a plan for things going wrong before they do.
tops can never be pinpointed with precision since by definition, they can occur only once (let's leave lucky guesses aside), and manic blow-offs usually tend to defy even the best reasoned analysis. per experience though, the best time to prepare for the end of the party is while the party still appears to be in full swing, not when everybody realizes it's over. the time window between blow-off tops and subsequent crashes has imo become much shorter these days than it used to be (probably due to instant communication) - to wit, look at the Nasdaq implosion in April of 2000: there was a single warning shot on Aril 4 when the index declined by over 600 points, only to recover the entire loss on the same day - that was on a Wednesday. Thursday and Friday it rose a bit, but fell short of the previous high, and the following week it crashed (down 34% in one week).>
This has been my strategy, albeit a painful one. I just wish I felt more sure that the top was coming within a matter of weeks rather than months from now. Much of that belief stems from what appears to be continuing weakness in the US consumer, although some recent data has me second guessing that.
I think Heinz is corrrect, though:
the best time to prepare for the end of the party is while the party still appears to be in full swing, not when everybody realizes it's over.
you must plan for the top before it arrives, especially when you're in the middle of a global blowoff. The reversal will likely be swift, and if you don't have your plans laid out ahead of time, you won't have time to figure it out while it's occurring.
Personally, I have about 40% shorts on housing and finance including brokerages, another chunk I'm building against emerging markets and retail, and the remainder are started positions against deep cyclicals and tech. They are nearly fully hedged at this point to avoid being run over, and I hope to be able to ditch the hedges once the uptrend breaks.
Foolish?
BC |
