I’ve been thinking about this post for several weeks, I’ve been reluctant to commit to writing because it may be volatile.
Let me start off by saying this is a strictly a question about investment strategy. I don’t care what your politics are and I don’t want to know. That being said, here goes . . .
I first voted in 1968. I’ve been politically engaged ever since. That makes me a pretty old guy. I have never witnessed anything like what’s going on in the political arena as what is going on right now. My experience as an investor is far less. Yes, I dabbled in the market during the dotcom bust, but I had little to lose at the time. In 2008, the damage was more serious, but not devastating.
From what I’ve read on this board, many folks here seem to think the market is largely disengaged from politics. That may be true to some extent, but I’m of the opinion that an extreme political event will negatively impact the market. It really doesn’t matter much what the event is, I won’t speculate and I’m not asking anyone else to do so. All I am suggesting is that such an event is highly likely.
My question is this: In the event of a sudden and severe market downturn, I don’t want to just insulate myself from large losses (although that would be a minimal requirement). I want to profit from it. We all know that there are ways of generating returns no matter which way the market goes, but I am woefully short on strategies that can be put in place in advance in that no one knows when such an event may take place. However, I think it’s inevitable.
GTC stop-loss orders are not a good strategy for a number of reasons. At best they may limit one’s losses to some extent, but there’s no way to profit from them. They are also very cheap as they don’t cost anything unless they execute.
Buying puts doesn’t seem worthwhile either. Puts on what? Options are wasting assets, I think not well suited to a what if hedge for and event that might occur who knows when. Seems like one could spend a lot of money buying puts that never materialize in a gain.
So far, the best thing I can come up with is shorting the S&P or some other index. Probably not too expensive and it doesn’t have an expiration date. I’ve not really looked into this.
Some of you that have been actively engaged in investing a lot longer than I must have some strategies to deal with this. Saul, what did you learn from 2008? What would you do differently the next time around? How will you make this work to your advantage when the next meltdown comes?
A lot of folks who are regulars on this board have a lot more experience than I, I would like to hear from you on this topic.
Thanks in advance - And remember, no political discussions, please keep it to investment strategies.