I think that a ~10 % short portfolio, when the market is above PE 20, should be a prerequisite for any prudent investor who (on somewhat good grounds, since that bull market may keep going for a while, especially when it's gov't-subsidized) wants to stay in the market.
Remember, to get anything out of your general market shorts, you have too be in them before everyone gets it. If you get in when everyone believes it's a crisis, you're too late; there's no foresight left to gain from. You have too see the crisis coming.
However, shorting a specific stock is tricky, especially if you're a "cult company". I started shorting TSLA seriously around the peak in August. From looking at several other stocks in "complete bubble mode", nothing would have indicated that the stock would have another rally. I still believe in the "play" though, and added to my short. The key, I believe, when it comes to shorts, is patience, even more than with normal value plays (although the time period may be a little shorter, your losses will be way more severe). If nothing has changed, and it keeps going down, you have to believe in your judgment, even though the market has gone even more crazy. The key ground rule is 'never make a single short a large part of your portfolio'.
P.S. A long/short strategy has never looked more compelling, in my mind, since the lion's share of the market looks waaay overvalued, and a big part of the rest of it looks way undervalued. |
