In every great crisis there is great opportunity. Two weeks ago we bought UltraShort ETF's and returned 40% within a week. Whilst fortunate, it wasn't luck. It was judgement. Judgement based upon probability.
As you may have seen in a previous post, we succesfully shorted the Russell 2000 Value Index and the Dow Jones Basic Materials Index. We went in, made a profit and left. Veni, Vidi, Vici. We came, we saw, we conquered. On to the next thing.
My point is this; because a market is negatively volatile and over emotional, it doesn't mean that you have to be part of its collective defeatism.
One of the reasons why I have not posted for 11 days is that there has been so much incorrect and misleading information in this event driven market, that the smart thing was to not commit to any particular position. I was predominately in cash, so therefore my market view was neutral. I wanted to observe.
It was only when the Chicago Board of Exchange Volatility Index which considers above 30 as volatile started registering 55+ that we shorted the Russell 2000. I believe that in a credit crunch, mid-caps will always have greater liquidity issues than the big corporations. So we went in with (depending on the clients wishes) between 10 & 20% of total portfolio value.
The trick was to sell whilst the market was still going down. A weekend is an eternity in this toxic environment, so Friday seemed apt. It also proved fortuitous.
There are going to be other times to make money in this recession. Again, we will refuse to get caught up with market hysteria and will look for opportunities that present themselves rather than chase that which cannot be caught.
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