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Strategies & Market Trends : Shorting SPY for fun and profit. -- Ignore unavailable to you. Want to Upgrade?

To: Esteban who wrote (37)	11/8/1997 1:37:00 AM
From: studdog	Read Replies (1) \| Respond to of 346

Esteban, FWIW I am now net short, but only a little bit. I still hold stocks I think have significant longterm potential, Even if they may go down shortterm. ( I hold IOM, COMS, RAIN, SBUX, TWRI, SPYN, and a couple of others). I also have a fair amount of cash, and am net short with my SPY's. (and a small AOL short). We'll see what happens. It feels good to have little exposure to the market right now. Karl

To: Esteban who wrote (37)	11/8/1997 1:44:00 AM
From: studdog	Read Replies (1) \| Respond to of 346

Check out this great strategy from Roger's Short Picks: I like it. If and when I ever feel like going long again this is how I think I will do it. <<< Karl and ALL: A different twist on Spiders. One possibility is the following strategy 1. Pick the percentage of your equity portfolio you want to index (e.g., 50%). Costwise, SPY's are a bit cheaper than an index fund and if you are dealing with a taxable account you have the advantage of not buying into the capital gains of the fund. The rationale for indexing some of your equity portfolio is that you believe that the market is fairly efficient even though stocks like ZITL, ACLY do exist. Another reason for indexing which I find even more important is that I like to diversify across industries. The tion/diversification across industries is important to me as I tend to concentrate my actively managed investments in industries I like/know about while putting no money in industries that have done extremely well such as regional banks, brokerage houses, large drug companies to name a few. By indexing I grab some of this action. 2. Invest the balance of the equity portfolio (50% in this example) in longs you believe are under priced. This of course implies you believe you posses some stock picking skills and that you do not believe the market is as efficient as the wise guys say. (IMO the market is about 90% efficient in time and space. In time, the market PE multiple is right about 90% of the time. IMO we are going through some of the 10% of the time the market is inefficiently priced of course on the up side. In space, I believe that at all times about 10% of the stock universe is priced wrong and people who work extra hard can find some of these) 3. Use margin to sell short a percent of your portfolio close to the percentage in 2. above. This again assumes you have believe you have skill in picking over priced stocks. This is a reasonable conclusion that follows from 2. Above (i.e., if you believe you can tell what is cheap you should also be capable of telling what is expensive). If it turns out you are a great stock picker [on both sides long and short] you will make a bundle and achieve extremely impressive risk adjusted returns due to the fact that your net market exposure is only 50%. If it turns out you are not good at stock picking (i.e., you can do no better than throwing darts at the newspaper to pick your long and shorts). You won't hurt yourself much as the return from your longs should cancel out your loss in the shorts and you end up with risk adjusted return that is in line with a 50% market exposure (i.e., you don't beat on the market but the market does not beat on you either) This neat idea is not an original one. It belongs, as far as I can tell, to Professor Sharpe at the U. of Chicago. You can read about this one and many others in the book "Investment Gurus" by Tanus (sp?). The book presents an excellent collection of opinions from some of the best active money managers including Lynch, Price etc. As well as the brightest minds in academia including Sharpe, Fama and others. I consider it a must read for active investors. Pancho>>>