This was in a daily Zacks newsletter that I subscribe to. It’s supposed to be a “long term hold newsletter”, which for Zacks means 6 months to a year. The quote says it all.
Saul
Late yesterday I moved to “cover” our (2X) short position on the Russell 2000. The quick trade keeps my track record at 100% in terms of market timing. That is to say that 100% of the time I have made the wrong call trying to time the market with a short position to protect the portfolio. We took a small loss there, and while I am not overwhelmingly bullish I (don’t) want to keep that short on the books.
That is to say that 100% of the time I have made the wrong call trying to time the market with a short position to protect the portfolio.
While I’m assuming this was meant to be a cautionary tale about market timing from my vantage point it is anything but.
Hedging risk in a portfolio isn’t about market timing it is about managing risk.
To argue that the hedge wasn’t necessary in hindsight, therefore the attempt at timing was bad, is the equivalent of someone stating because they didn’t get sick their timing was off when they purchased health insurance.
The author asserts that his intent was timing. If you wish to re-interpret his stated intent, I guess it’s your prerogative, but when someone comes out and says “My timing was bad - as always” and you turn around and say “his attempt to diminish risk via hedging was appropriate” we kind have two different stories going on. The author’s and yours.
That is to say that 100% of the time I have made the wrong call trying to time the market with a short position to protect the portfolio.
While I’m assuming this was meant to be a cautionary tale about market timing from my vantage point it is anything but. Hedging risk in a portfolio isn’t about market timing it is about managing risk.
This wasn’t meant to be a cautionary tale, just a true accounting of what the newsletter author wrote. It illustrates how hard it is to guess what the market is going to do.