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Strategies & Market Trends : Roger's 1998 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: Bald Man from Mars who wrote (4238)	3/6/1998 7:43:00 AM
From: Pancho Villa	Read Replies (1) \| Respond to of 18691

>>If I have 10,000 in stocks, but since they are marginable, I can actually buy up to 20,000. So am I 100% long (since all the 10,000 is in stocks) or am I just 50% long (since I can margin it up to 20,000) Am I confused<< (sorry lot's of typos grammar problems but I cannot put anymore time into it now) Yes, at least according to the way I look at things. Your portfolio net worth is 100%. For example, if you are 60% into equities and 40% into cash/bonds, you are 60% long. If you are fully into equities you are 100% long. Now let's talk margin: If you are 100% long and you leverage yourself and borrow let's say 30% of your portfolio's net value and put that into equities then you are leveraged and show 130% long! IMO using leverage at this point is foolish. Under more favorable market conditions, some people say it is a good idea not to go over 30% margin if you want to sleep well at night. In occasion, I have been up to 50% leveraged but start sleeping less right away so I cut down. Now let's talk short. Suppose you are 100% long and you short shares with a value that is 30% of your portfolio's net value then you have a net exposure of 70% long (100% long - 30% short). One strategy that some smart people follow is to index yourself at a worlwide basis (through index funds or a variety of instruments like SPY's, WEBs or if you have the dove buying a representative sample of stocks directly). Let's say you index 100% of your portfolio into equities (again a very bullish strategy which would be OK only if your investment horizon is 10 years or longer). Then a possible strategy could be to use margin (you use your index holdings as colateral) let's say 30% to buy the stocks that since you are so good at picking stocks you know are undervalued; also, in parallel, since you are so hot at picking longs you should also be capable of picking overpriced stuff/dogs so you go ahead and short 30% of your portfolio's net worth. Your long exposure is now 130% (100 indexed and 30% from margin equities) but your net long exposure is 100% (130% long minus 30% short). If you are a wizzard at picking stocks in the LONG TERM (not in a day, not in a week, not in a month, possibly in a year but maybe even longer) you will beat the market because your long picks will go up and short picks will go down so you will achieve above market returns. If you cannot do better than picking the stocks randomly, then IN THE LONG TERM your longs will cancell your shorts and assuming your margin interest is equal to the interest the broker pays you on the short account (unfortunatelly they pay you less, for big guys, however, these are pretty close) then you just perform like the market. If however you are an expert at shorting winners and picking loosers (what seems to be happening to us in the short term) then you may experience what some of us experienced yesterday!:) Notice that in a single day/week/month/ anything can happen. How good a stock picker you are can only be proven long term, this is usually several years. At SI, however, long term seems to be at most a quarter! That is why you have guys like Jeff something getting mad at me because BFIT does not turn around in a dime and starts going down the very day he shorts it! Like if stocks were suppose to know what the nice guys are doing and take sides with them right away! Pancho Hope this helped