Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
I have a strong hunch that the stock market will not see a 1,000 point drop followed by a rally in the last hour.
Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
It's good old fashioned market timing which is usually (but not always) a losing bet. Whether or not it's "rational" is really an opinion question and you'll get various responses. In regards to the numbers, logic, odds, etc. you are more likely to lose than win any time you go down the market timing path.
Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
How did it turn out? Did you short the market?
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
no offense meant, but where do you see yourself on the following market timing graph:
then there's this reminder to focus on the long term rather than the short term (graphics not to scale )
then there's this reminder to focus on the long term rather than the short term (graphics not to scale )
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Ha! I've never seen that one before and I love it.arcticpineapplecorp. wrote: ↑Fri Jan 28, 2022 12:54 pm no offense meant, but where do you see yourself on the following market timing graph:
(the other one is a good practical reminder too)
Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
S&P 500 opened the week at 4,356.32, closed at 4,432.00. Not a good week to short. Care to spin the wheel again?
Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
I'll take Hunches for $1000, Alex.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Steve321 posted initially just before the market opened on Monday. The black line shows this week's performance for SH, an ETF that shorts the S&P 500, in black; versus VOO, the ordinary long S&P 500 index ETF, in brown.
Now, he didn't talk about amounts. I'm guessing, but I don't know, that the hunch was not merely that stocks would do badly, but that they would do very badly--that there was a good chance that this week was the start of, or the continuation of, a major crash.
I hope that Steve321 will literally begin to keep a "hunch diary." He should write down his hunch that stocks would do badly. If he thought so, he should write down a second hunch: that something big was going to happen this week.
Of the two, I think it's more important to record the failure of the second hunch. Nothing much happened this week, one way or the other.
Now, he didn't talk about amounts. I'm guessing, but I don't know, that the hunch was not merely that stocks would do badly, but that they would do very badly--that there was a good chance that this week was the start of, or the continuation of, a major crash.
I hope that Steve321 will literally begin to keep a "hunch diary." He should write down his hunch that stocks would do badly. If he thought so, he should write down a second hunch: that something big was going to happen this week.
Of the two, I think it's more important to record the failure of the second hunch. Nothing much happened this week, one way or the other.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
He did say a week which, technically, ends during premarket Monday or postmarket Monday, depending on when he acted on his hunch.
Let's wait to hear from him and see how he did
Looking at that chart, it does appear that he was definitely in the money until say 3:00 pm or so. So ain't too shabby lol.
Let's wait to hear from him and see how he did
Looking at that chart, it does appear that he was definitely in the money until say 3:00 pm or so. So ain't too shabby lol.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
As Agent 86 would say, “Missed it by THAT much!”perfectuncertainty wrote: ↑Fri Jan 28, 2022 3:56 pmIf you shorted at the open on Monday and exited at the close on Friday, you lost 2.3%
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
You’re asking what’s wrong with risking your money based on a hunch, which is a feeling or a guess. I’m guessing you also have a hunch about the answer or you wouldn’t be asking. Whatever you decided, remember you can’t know with any certainty what the market will do, so whether your plan worked or not, it was all about luck, just luck.steve321 wrote: ↑Mon Jan 24, 2022 7:58 am I understand that stocks are a good investment in the long term. The longer the time Horizon the higher the probability that they will increase in value, and do better than bonds say. However, the shorter the time horizon, the more uncertain it is which way they'll go. And over a very short time horizon like a week, the probability that stocks will go up is just basically 50%. So if you are short the S&P for a week, you have the same probability of making a gain as when you are long (leaving aside expenses).
I know have a strong hunch that stocks will do badly for the rest of the week. So is there anything very wrong or irrational in selling my S&P500 ETF and buying an ETF shorting the index that I'll hold for the coming week?
Last edited by Fallible on Fri Jan 28, 2022 5:39 pm, edited 1 time in total.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
It's twice as bad: the OP was considering selling their S&P 500 ETF and buying a short ETF, so they would be 4.6% worse than doing nothing.perfectuncertainty wrote: ↑Fri Jan 28, 2022 3:56 pmIf you shorted at the open on Monday and exited at the close on Friday, you lost 2.3%
Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
The snarky replies here while on brand miss an important question—when did OP execute his entry and exit?
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
OP was last active on Tue Jan 25. It sounded more like a thought experiment. We may never know.
Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
This is a terrible idea, OP. Stay the course. Remember what Jack Bogle instructed us: don't just stand there, do nothing.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Call me a critic but isn't shorting ultimately a form of timing the market by definition and thus not a BH investment strategy?
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
In another thread I pointed out that you can be right about some group of businesses (marijuana-related) having a bright near-term future and still be wrong in thinking that stocks in those businesses will be a good investment.
On a similar note, it is possible to be right that "sooner or later a crash is coming and it may be terrific" and be wrong about a hunch that a particular week is the week it begins.
More generally, if you look seriously at the numbers, the difficulty of profiting from anticipating crashes becomes evident. The timing needs to be surprisingly precise. "It's obvious that it gotta happen soon" is not enough. Here's a chart of URPIX, a short S&P fund and one of the oldest short funds I know of, and it was not all that easy to make money in it, even during 2008-2009. You would have had to time the purchase and sale pretty well:
Source
There were 273 overlapping six-month periods in the data I used, and the fund would have lost money in 209 of them. Unless your hunches really were better than luck, you would have been fighting three-to-one odds.
And after 2009 opportunities were rate. From 2009 through the present, there were 115 overlapping six-month periods and the fund would have lost money in 106 of them, 92.2% of the time. You really had to call the time correctly--or be lucky against twelve-to-one odds.
On a similar note, it is possible to be right that "sooner or later a crash is coming and it may be terrific" and be wrong about a hunch that a particular week is the week it begins.
More generally, if you look seriously at the numbers, the difficulty of profiting from anticipating crashes becomes evident. The timing needs to be surprisingly precise. "It's obvious that it gotta happen soon" is not enough. Here's a chart of URPIX, a short S&P fund and one of the oldest short funds I know of, and it was not all that easy to make money in it, even during 2008-2009. You would have had to time the purchase and sale pretty well:
Source
There were 273 overlapping six-month periods in the data I used, and the fund would have lost money in 209 of them. Unless your hunches really were better than luck, you would have been fighting three-to-one odds.
And after 2009 opportunities were rate. From 2009 through the present, there were 115 overlapping six-month periods and the fund would have lost money in 106 of them, 92.2% of the time. You really had to call the time correctly--or be lucky against twelve-to-one odds.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Hi, I do not know how to buy puts or selling calls; does it depend upon the ETF you have? I have 2 ETFs bought on the London Stock Exchange for the S&P: SPXP and CSP1 I am not sure whether puts and calls can be bought/sold and how? If you can point out some reliable information for beginners in this field it would be greatly appreciated.SagaciousTraveler wrote: ↑Mon Jan 24, 2022 8:08 am You may be right. The market Is ugly right now.
If you feel strongly and won't be deterred, are you interested in the following, Instead of using your entire S&P 500 ETF proceeds?:
-Sell a percentage you feel comfortable with and buy puts. That way if you are wrong, you aren't wrong big and with your entire portfolio.
-Its not the same as shorting but if you want to earn some income in a down market, can you sell calls against your current ETF holding? I can't begin to tell you how far out or what strike price but if you are rights you earn some income while the market goes down and if you are wrong, you still get the income and sell your ETFs at a higher price.
Just my thoughts.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Update
I didn't short the market, the reason being that most of my investments in the S&P500 are in a taxable account: selling everything would have resulted in high taxation. Selling just a bit and shorting the S&P with that would have been just messy since I would effectively be neutral with a part of my investments plus long with the rest.
So I am going to look into puts and calls and stuff like that for the future; it looks like a better way to proceed.
I didn't short the market, the reason being that most of my investments in the S&P500 are in a taxable account: selling everything would have resulted in high taxation. Selling just a bit and shorting the S&P with that would have been just messy since I would effectively be neutral with a part of my investments plus long with the rest.
So I am going to look into puts and calls and stuff like that for the future; it looks like a better way to proceed.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Did you suffer a small typo, nisiprius? If investor thinks the S&P will go down over the next period of time, why invest in UPRO? Is not UPRO a 3x S&P 'up bet'?
Perhaps SPXU, 3x S&P shorted ETF would be more appropriate if betting the market will go down.
Perhaps SPXU, 3x S&P shorted ETF would be more appropriate if betting the market will go down.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
I would advise you to learn about options and whether they are right for you. Your account needs to be approved for options trading and the stock/etf needs to have options available, which most do.steve321 wrote: ↑Mon Feb 07, 2022 1:20 amHi, I do not know how to buy puts or selling calls; does it depend upon the ETF you have? I have 2 ETFs bought on the London Stock Exchange for the S&P: SPXP and CSP1 I am not sure whether puts and calls can be bought/sold and how? If you can point out some reliable information for beginners in this field it would be greatly appreciated.SagaciousTraveler wrote: ↑Mon Jan 24, 2022 8:08 am You may be right. The market Is ugly right now.
If you feel strongly and won't be deterred, are you interested in the following, Instead of using your entire S&P 500 ETF proceeds?:
-Sell a percentage you feel comfortable with and buy puts. That way if you are wrong, you aren't wrong big and with your entire portfolio.
-Its not the same as shorting but if you want to earn some income in a down market, can you sell calls against your current ETF holding? I can't begin to tell you how far out or what strike price but if you are rights you earn some income while the market goes down and if you are wrong, you still get the income and sell your ETFs at a higher price.
Just my thoughts.
With that said, the above options I listed for you were in leu of you selling everything and going short. I do not trade options for my accounts and do not advise it.
Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Did you look back and determine what the outcome would have been if you had shorted the market as planned?
More hunches?So I am going to look into puts and calls and stuff like that for the future; it looks like a better way to proceed.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Please let us know how you do.
Rather than short, I would rather just sit out and do nothing. For example, those not invested in 2022 have not lost any money, while most of those invested are down YTD. You have the potential to lose money by shorting.
Rather than short, I would rather just sit out and do nothing. For example, those not invested in 2022 have not lost any money, while most of those invested are down YTD. You have the potential to lose money by shorting.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
SP500 did not go down week of 1/24-1/28. It dipped but came back Friday.
sp500
1/24 open 4356
1/28 close 4431 Fri end of week
2/4 close 4500
From Yahoo Finance:
Time Period:Jan 23, 2022 - Feb 06, 2022Show:Historical PricesFrequency:DailyApply
Currency in USD
Date Open High Low Close* Adj Close** Volume
Feb 04, 2022 4,482.79 4,539.66 4,451.50 4,500.53 4,500.53 3,673,700,000
Feb 03, 2022 4,535.41 4,542.88 4,470.39 4,477.44 4,477.44 3,596,830,000
Feb 02, 2022 4,566.39 4,595.31 4,544.32 4,589.38 4,589.38 3,777,170,000
Feb 01, 2022 4,519.57 4,550.49 4,483.53 4,546.54 4,546.54 3,796,450,000
Jan 31, 2022 4,431.79 4,516.89 4,414.02 4,515.55 4,515.55 4,001,950,000
Jan 28, 2022 4,336.19 4,432.72 4,292.46 4,431.85 4,431.85 3,936,030,000
Jan 27, 2022 4,380.58 4,428.74 4,309.50 4,326.51 4,326.51 4,074,330,000
Jan 26, 2022 4,408.43 4,453.23 4,304.80 4,349.93 4,349.93 4,046,270,000
Jan 25, 2022 4,366.64 4,411.01 4,287.11 4,356.45 4,356.45 3,989,420,000
Jan 24, 2022 4,356.32 4,417.35 4,222.62 4,410.13 4,410.13 5,172,540,000
*Close price adjusted for splits.**Adjusted close price adjusted for splits and dividend and/or capital gain distributions.
sp500
1/24 open 4356
1/28 close 4431 Fri end of week
2/4 close 4500
From Yahoo Finance:
Time Period:Jan 23, 2022 - Feb 06, 2022Show:Historical PricesFrequency:DailyApply
Currency in USD
Date Open High Low Close* Adj Close** Volume
Feb 04, 2022 4,482.79 4,539.66 4,451.50 4,500.53 4,500.53 3,673,700,000
Feb 03, 2022 4,535.41 4,542.88 4,470.39 4,477.44 4,477.44 3,596,830,000
Feb 02, 2022 4,566.39 4,595.31 4,544.32 4,589.38 4,589.38 3,777,170,000
Feb 01, 2022 4,519.57 4,550.49 4,483.53 4,546.54 4,546.54 3,796,450,000
Jan 31, 2022 4,431.79 4,516.89 4,414.02 4,515.55 4,515.55 4,001,950,000
Jan 28, 2022 4,336.19 4,432.72 4,292.46 4,431.85 4,431.85 3,936,030,000
Jan 27, 2022 4,380.58 4,428.74 4,309.50 4,326.51 4,326.51 4,074,330,000
Jan 26, 2022 4,408.43 4,453.23 4,304.80 4,349.93 4,349.93 4,046,270,000
Jan 25, 2022 4,366.64 4,411.01 4,287.11 4,356.45 4,356.45 3,989,420,000
Jan 24, 2022 4,356.32 4,417.35 4,222.62 4,410.13 4,410.13 5,172,540,000
*Close price adjusted for splits.**Adjusted close price adjusted for splits and dividend and/or capital gain distributions.
Last edited by arsenalfan on Mon Feb 07, 2022 6:53 am, edited 1 time in total.
Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
The problem with shorting stocks or anything that you think or even know are over valued, is that you never know when it will correct. Instead it could keep climbing and you could end up with margins calls and eventually have to give up before the correction occurs.
You had those guys in The Big Short that figured out the a number of subprime home loans are in danger of defaulting but the eventually collapse took longer than expected and they almost had to give it up before cashing in big. A case where they were right but they could have gone bankrupt if timing worked out differently.
Kind of like leverage, it works great when it is in your favor but when things collapse it can be painful.
Things like stock options can mitigate the max out of pocket loss (assuming you are buying them and not selling them).
Out of all of the somewhat common ways of investing (stocks, funds, etfs, options, futures, metals, etc.) shorting is something I've never even tried.
You had those guys in The Big Short that figured out the a number of subprime home loans are in danger of defaulting but the eventually collapse took longer than expected and they almost had to give it up before cashing in big. A case where they were right but they could have gone bankrupt if timing worked out differently.
Kind of like leverage, it works great when it is in your favor but when things collapse it can be painful.
Things like stock options can mitigate the max out of pocket loss (assuming you are buying them and not selling them).
Out of all of the somewhat common ways of investing (stocks, funds, etfs, options, futures, metals, etc.) shorting is something I've never even tried.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Let’s hear from the OP. It has been two weeks since the original post and the market has been all over the place. Did OP short the S and P? Is he already in and out?
What’s up?
Out here in BH land we want to know. You make a post and get replies. Did it influence OP?
Or did he miss the short by waiting, as the market careens back and forth.
I would think a short would be very time dependent and on a small amount of time, not a hold sort of investment.
What’s up?
Out here in BH land we want to know. You make a post and get replies. Did it influence OP?
Or did he miss the short by waiting, as the market careens back and forth.
I would think a short would be very time dependent and on a small amount of time, not a hold sort of investment.
Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Shallowpockets wrote: ↑Mon Feb 07, 2022 7:00 am Let’s hear from the OP. It has been two weeks since the original post and the market has been all over the place. Did OP short the S and P? Is he already in and out?
What’s up?
Out here in BH land we want to know. You make a post and get replies. Did it influence OP?
Or did he miss the short by waiting, as the market careens back and forth.
I would think a short would be very time dependent and on a small amount of time, not a hold sort of investment.
steve321 wrote: ↑Mon Feb 07, 2022 1:23 am Update
I didn't short the market, the reason being that most of my investments in the S&P500 are in a taxable account: selling everything would have resulted in high taxation. Selling just a bit and shorting the S&P with that would have been just messy since I would effectively be neutral with a part of my investments plus long with the rest.
So I am going to look into puts and calls and stuff like that for the future; it looks like a better way to proceed.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
OP, it seems like your "hunch" was incorrect. How are you going to account for this possible flaw in your investment philosophy going forward?
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
The market was up 2.3%. Shorting was down 2.3%. I suspect the op would view this as losing 2.3% if he had succeeded in executing the trade. That's incorrect. The opportunity cost was an additional 2.3% and on net he lost 4.6% vs staying the course. That's 4.6% that is not recoverable. If the investment was a sizable percent of lifetime net worth and earnings, he would forever be 4.6% poorer and have 4.6% less spending in retirement.
I'm sure a justication or modification to the original premise will be forthcoming. Such as not executing until Tuesday. Or holding until if/when the market crashes again. Are hunches rollable from week to week?
I'm sure a justication or modification to the original premise will be forthcoming. Such as not executing until Tuesday. Or holding until if/when the market crashes again. Are hunches rollable from week to week?
Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
steve321 wrote: ↑Mon Jan 24, 2022 7:58 am I understand that stocks are a good investment in the long term. The longer the time Horizon the higher the probability that they will increase in value, and do better than bonds say. However, the shorter the time horizon, the more uncertain it is which way they'll go. And over a very short time horizon like a week, the probability that stocks will go up is just basically 50%. So if you are short the S&P for a week, you have the same probability of making a gain as when you are long (leaving aside expenses).
I know have a strong hunch that stocks will do badly for the rest of the week. So is there anything very wrong or irrational in selling my S&P500 ETF and buying an ETF shorting the index that I'll hold for the coming week?
Some thoughts:steve321 wrote: ↑Mon Feb 07, 2022 1:23 am Update
I didn't short the market, the reason being that most of my investments in the S&P500 are in a taxable account: selling everything would have resulted in high taxation. Selling just a bit and shorting the S&P with that would have been just messy since I would effectively be neutral with a part of my investments plus long with the rest.
So I am going to look into puts and calls and stuff like that for the future; it looks like a better way to proceed.
1) Rational is investing using a strategy with a positive outcome when the odds are in your favor. You've identified that strategy in your first two sentences.
2) Hunches are by definition irrational. They're emotional.
3) Selling out your complete position to make a short-term bet based on emotions is irrational.
4) You ultimately didn't follow through on your plan, and it turns out that your hunch was wrong. Your conclusion - figure out how to more tax effectively execute the emotional strategy that didn't work in the first place. That is irrational.
If you're going to adopt an irrational approach, you should at least implement it in a rational way.
Do you want to get rich, or do you want to get rich quick? Why not try both paths? It doesn't have to be one or the other.KIRK: Mister Spock.
SPOCK: Captain.
KIRK: There's really something I don't understand about all of this. Maybe you can explain it to me. Logically, of course. When you jettisoned the fuel and ignited it, you knew there was virtually no chance of it being seen, yet you did it anyhow. That would seem to me to be an act of desperation.
SPOCK: Quite correct, Captain.
KIRK: Now we all know, and I'm sure the doctor will agree with me, that desperation is a highly emotional state of mind. How does your well-known logic explain that?
SPOCK: Quite simply, Captain. I examined the problem from all angles, and it was plainly hopeless. Logic informed me that under the circumstances, the only possible action would have to be one of desperation. Logical decision, logically arrived at.
KIRK: I see. You mean you reasoned that it was time for an emotional outburst.
SPOCK: Well, I wouldn't put it in exactly those terms, Captain, but those are essentially the facts.
First, set up a plan that you know will work. Create an investors policy statement to document what you will do, and why you will do it that way. Stick to the plan. Automate it so that the plan is funded with every paycheck, without you needing to take any actions. Now when the market drops, you will buy more shares. Rebalance once a year or so.
Once that's in place, you can identify resources that you might use to to shoot for the moon. A common suggestion here is to limit your "play account" to 5-10% of your portfolio. This is that portion of the portfolio where some Bogleheads will do some very un-Boglehead things, like play with options, buy Bitcoin, practice market timing, buy individual stocks, etc.
The idea is to allow yourself to indulge in higher risk (but potentially higher rewarding) activities, but doing it in such a way that you will still achieve your objectives if those bets don't pay off.
Do your research and document your results. If you believe the S&P 500 is going to drop in the next week, how did you come to that conclusion. Then write it down. Note the S&P 500 level at the date and time you're making the prediction. Then come back in a week and document the result. Were you accurate? What happened during the week that influenced the result? How would you make a better prediction?
Before you engage in tools like options, you should learn more about them. Buying puts and calls are very cheap ways to make a lot of money, but most expire worthless (meaning you lose all the money you used to buy them.) You have to be right on the direction of the market AND predict the correct timeframe. The longer the timeframe, the more expensive the option.
I'd also suggest finding a way to paper trade your positions. You can test out your strategies before you execute them with real money. Make sure they have a chance of working before you commit to them.
Does this take time? Are you worried about paralysis by analysis? Not to worry - the whole time you're figuring it out, you should still be steadily plugging away at your automated Boglehead index fund investing strategy, building your portfolio. The bigger you build your portfolio, the larger the play account you will eventually have to work with.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Just be aware that you're basically trolling this forum with these type of posts whether you realize it or not. It's like marching into an AA meeting with a case of beer in your arms.steve321 wrote: ↑Mon Feb 07, 2022 1:23 am Update
I didn't short the market, the reason being that most of my investments in the S&P500 are in a taxable account: selling everything would have resulted in high taxation. Selling just a bit and shorting the S&P with that would have been just messy since I would effectively be neutral with a part of my investments plus long with the rest.
So I am going to look into puts and calls and stuff like that for the future; it looks like a better way to proceed.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Shorting is a bad idea, because the cards are stacked against you.
Both inflation and earnings growth work against you.
If you're using a short ETF, volatility decay (and to a small extent, the expense ratio) also works against you.
Everyone who is interested in keeping the economy going and growing also works against you.
And the shorter the time horizon (like a weeK), the more randomness dominates. Even if you're correct that stocks are overvalued - that could go on for years. So it's basically a roll with the dice, but with all the above factors giving you bad odds.
Both inflation and earnings growth work against you.
If you're using a short ETF, volatility decay (and to a small extent, the expense ratio) also works against you.
Everyone who is interested in keeping the economy going and growing also works against you.
And the shorter the time horizon (like a weeK), the more randomness dominates. Even if you're correct that stocks are overvalued - that could go on for years. So it's basically a roll with the dice, but with all the above factors giving you bad odds.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Interested in OP's thoughts on being wrong...to the tune of about 3% of his money. Sometimes losing a bet is worth the money if it teaches you correct investment principles. May be money well spent.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Steve321 ought to start his hunch diary, if he hasn't already, and record this one, with the date, as a hunch that turned out to be wrong.
I don't think so. I didn't say anything about UPRO in the post I think you're referring to, I showed a chart for URPIX. ULPIX and URPIX are leveraged mutual funds. ULPIX is 2X long S&P 500, URPIX is 2X inverse S&P 500. The problem with all the 3X products is that they have relatively short histories and, in particular, their history doesn't include any bear markets. The histories for ULPIX and URPIX do.
Last edited by nisiprius on Mon Feb 07, 2022 12:30 pm, edited 1 time in total.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
If you want to tactically short the market for one week, just hold something like SPXU (-3x SPX).steve321 wrote: ↑Mon Feb 07, 2022 1:23 am Update
I didn't short the market, the reason being that most of my investments in the S&P500 are in a taxable account: selling everything would have resulted in high taxation. Selling just a bit and shorting the S&P with that would have been just messy since I would effectively be neutral with a part of my investments plus long with the rest.
So I am going to look into puts and calls and stuff like that for the future; it looks like a better way to proceed.
Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
yes but don't all the above factors (except perhaps volatility decay, which I have got no clue about) work against you in the long term? In the short term it just seems random, so a hunch might be a good thing to follow.alpine_boglehead wrote: ↑Mon Feb 07, 2022 11:15 am Shorting is a bad idea, because the cards are stacked against you.
Both inflation and earnings growth work against you.
If you're using a short ETF, volatility decay (and to a small extent, the expense ratio) also works against you.
Everyone who is interested in keeping the economy going and growing also works against you.
And the shorter the time horizon (like a weeK), the more randomness dominates. Even if you're correct that stocks are overvalued - that could go on for years. So it's basically a roll with the dice, but with all the above factors giving you bad odds.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
I don't understand how the first part of your sentence implies the last.
Instead I prefer: In the short term it just seems random, so don't bet on the short term.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Yes! And I am starting to think that I am a person that enjoys alcohol in a social setting, but is not an alcoholic, and I just walked into an AA meeting where people are binge drinking and it looks like there are a lot of good reasons for joining in! Bogleheads -gateway drug to options? Maybe if weren't for nisiprius!Escapevelocity wrote: ↑Mon Feb 07, 2022 11:00 am Just be aware that you're basically trolling this forum with these type of posts whether you realize it or not. It's like marching into an AA meeting with a case of beer in your arms.
Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
OP could look at this thread:
viewtopic.php?f=1&t=370029
Where the poster lost the bulk of his savings making emotional moves and playing with options. That is the most likely outcome here.
viewtopic.php?f=1&t=370029
Where the poster lost the bulk of his savings making emotional moves and playing with options. That is the most likely outcome here.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
The randomness does not totally dominate. Both the mean and median week sees stock market gains. Shorting is taking a bet with the odds stacked against you. Why would you take a bet where the odds were stacked against you unless you had a lot more hard evidence the odds had changed. Like insider information. Or you're a congressman or federal reserve board member with the power to move markets (and the moral turpitude to act on it).steve321 wrote: ↑Tue Feb 08, 2022 2:45 amyes but don't all the above factors (except perhaps volatility decay, which I have got no clue about) work against you in the long term? In the short term it just seems random, so a hunch might be a good thing to follow.alpine_boglehead wrote: ↑Mon Feb 07, 2022 11:15 am Shorting is a bad idea, because the cards are stacked against you.
Both inflation and earnings growth work against you.
If you're using a short ETF, volatility decay (and to a small extent, the expense ratio) also works against you.
Everyone who is interested in keeping the economy going and growing also works against you.
And the shorter the time horizon (like a weeK), the more randomness dominates. Even if you're correct that stocks are overvalued - that could go on for years. So it's basically a roll with the dice, but with all the above factors giving you bad odds.
Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Why wouldn't you just short enough S&P 500 futures contracts to undo all of your long exposure, and then get whatever additional short exposure you wanted? This way you wouldn't have to sell your holdings (which might have gains in taxable), don't pay the ETF fees (trivial over a weeek but still) and whatever gains you do get once you close the contract, have better tax treatment (60/40 lt/st vs 100 st)? You don't even have to think about volatility decay that way either.
Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Taxes. Do you have to pay any when selling ?steve321 wrote: ↑Mon Jan 24, 2022 7:58 am I understand that stocks are a good investment in the long term. The longer the time Horizon the higher the probability that they will increase in value, and do better than bonds say. However, the shorter the time horizon, the more uncertain it is which way they'll go. And over a very short time horizon like a week, the probability that stocks will go up is just basically 50%. So if you are short the S&P for a week, you have the same probability of making a gain as when you are long (leaving aside expenses).
I know have a strong hunch that stocks will do badly for the rest of the week. So is there anything very wrong or irrational in selling my S&P500 ETF and buying an ETF shorting the index that I'll hold for the coming week?
"Hunches" ain't that rational either.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Do you understand what you're writing?
Short-term is inconsequential even if you're right, because the movement won't be much.
If you repeatedly short the market in the short term, that's same as shorting in the long term - a bad idea.
Last edited by Marseille07 on Tue Feb 08, 2022 2:28 pm, edited 1 time in total.
Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Well, I just sold $6000 of Microsoft in a taxable account, based on my strong hunch lunch.
Stilton, port and sardines can lead to odd behavior.
Stilton, port and sardines can lead to odd behavior.
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Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
He's going to use puts instead! That should take care of the "I can't actually predict the future" problem...happyisland wrote: ↑Mon Feb 07, 2022 7:45 am OP, it seems like your "hunch" was incorrect. How are you going to account for this possible flaw in your investment philosophy going forward?
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
If one has to ask Bogleheads, I doubt shorting is suitable.
This is a risky, contrarian strategy. One is going to need a contrarian attitude, high confidence, and an exit plan.
This is a risky, contrarian strategy. One is going to need a contrarian attitude, high confidence, and an exit plan.
Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Yes, hunch = irrational
Re: Shorting the S&P for a week: please tell me if there is anything irrational in my reasoning
Without a doubt, every post of this type invariably results in several "peer pressure" posts suggesting options...Gracie77 wrote: ↑Tue Feb 08, 2022 6:53 amYes! And I am starting to think that I am a person that enjoys alcohol in a social setting, but is not an alcoholic, and I just walked into an AA meeting where people are binge drinking and it looks like there are a lot of good reasons for joining in! Bogleheads -gateway drug to options? Maybe if weren't for nisiprius!Escapevelocity wrote: ↑Mon Feb 07, 2022 11:00 am Just be aware that you're basically trolling this forum with these type of posts whether you realize it or not. It's like marching into an AA meeting with a case of beer in your arms.