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

To: Esteban who wrote (47)	11/8/1997 12:50:00 PM
From: Pancho Villa	Read Replies (3) \| Respond to of 346

To Esteban and All. My dear friends hope you learn something from my personal experience! Esteban, I think you are 100% correct if your orientation is geared towards short term hedging/market timing. I was considering SPY's as a more long term investment vehicle. Now on a different subject, let me tell you an interesting story [IMO]. For about 16 years I invested following classical investment finance theory: buy and hold markets are efficient kind of approach, a you cann't beat the market kind of platform. "Just pick your risk level. Market timing is not possible...were my mottos. I must say that during this period with mainly actively managed fidelity and templeton funds and a few favority stocks [I was skeptical about active management but my view is that there was some upside potential in the managers I picked]. With this strategy, I was able to do pretty well. Average annual return of appx. 15% through 95 which easily beats the index. I used to look at my account stattements at the end of the month, did not care what happened to the market on a day to day basis. Made adjustments about one a year. Never sold a winning stock unless the fundamental changed in a negative direction. About two years ago, following Vinik's screw up at Magellan; I told myself, I have an MBA in investment finance, a PhD in operations research, I should be capable of doing better than this dummies! So I converted slowly all the funds into stocks and have done even better than before! I still maintain the academic view of matters for the most part I am a professor, not in the field of Finance though, but I find myself slowly drifting towards becoming a trader and a market timer. SI and lower commissions have to do with this. Also, we tend to confuse active management of investments with frequent trading. Look at Buffet the guy is studying stock most of his waking hours but he buys and hold. IMO, driffting towards trading/market timing IS NOT GOOD! one should trade in the periphery of a portfolio but there must always be a core long term hold portion [which does not mean you may not give it a shot at trading volatile long term holdings] the more decisions you have to make (i.e., if one becomes a trader)the less time per decision you can afford so your batting average may go down from 60/40 (60% right 40%. Assuming you work hard and have above average skills inpicking stocks!) to somethiing more like 50/50 and the comission houses win, not you. Also, if on average you end up with reduced market exposure due to market timing attemps, then your performance suffers. I have been lucky [yes, pure luck] to have done well using the "buying the dips" approach; when the market tanks I buy and leverage myself up to 30% (more is dangerous) and then "the can't sleep at night syndrome hits" (i.e., when I think the market is to high) I cut margin and short. Well this buying the dips BS ain't gonna work for ever! so I came up with an idea ladt September 30. The last time I decided to An interesting experience. Good luck Pancho