I greatly appreciate your posts and your opinions regarding shorting the market. I also believe this is probably the only way to profit in the short term in this volatile time. I would like to get your opinion on my individual situation, mainly to make sure I don't do anything drastically stupid! I realize you're not my financial advisor but I'll take your opinion for what it's worth.
I'm a young engineer currently employed at a stable public utility. I make a pretty good salary and I am debt free. All of my money outside of my retirement accounts is in cash or CD's. I am looking to buy a house sometime in the next year and I intend to keep enough cash set aside to make a minimum 20% downpayment. I will also keep some cash set aside for emergencies. I am thinking of taking the remainder, a fairly large chunk of cash and buying either SDS or SH shares. This is mostly a speculative play since I would be looking to liquidate my position within 12 months. I could afford to lose this money, although it would hurt of course
. I have been pretty adamant talking with others about the market and how I think it's still heading lower and I figure now it may be time to put my money where my mouth is. I'm just wondering if I'm too late in trying to catch the downside. Any thoughts?
I should be asking you for advice as it sounds like you are doing everything right.
I do not believe it's too late to catch a lot more downside and one only has to look at the news (while ignoring the talking heads) to see that housing is still in its downward spiral with commercial real estate and consumer credit following close on its heels. After that we have to deal with all this debt that will surely drag down growth for years, if not decades to come. None of this is my opinion, btw, it is all fact that you can easily verify. As well, you can do some simple research on the long term mean average of the stock market to see that it is still over
its fair value and can be expected to fall well below it.
Having said that I would love to see you not
speculate with your money but if you do have some that you can afford to gamble with then I would suggest SDS, but I would buy close to a short term high. Friday (11/29/08) would have been a good day and even today should still put you in a good position, IMO, but don't chase the market, it will
come back to you, so buy after we've had a big up day or a few good days in a row. Volatility is the key to the market right now so be patient and don't get greedy.
Having said that you should have a strategy to sell before you buy. The market has never moved straight down in all its history so if you catch a 10% move in the market, which is a 20% profit with SDS, I suggest you sell out and wait for another move up while setting that 20% on the sidelines to put towards your house or savings. At some point the market will turn and you need to have a strategy in place so that you are well positioned before
it happens. Investing any profits long the market could be an excellent long-term strategy. I actually think that dollar-cost-averaging into the market from here could be a good strategy as long as you are disciplined and spread out the investment over at least 2 years, but that's a longer-term strategy.
Keep this in mind: bulls make money, bears make money, pigs get slaughtered. (don't get greedy)