Well, of course my best advice is to pay Rich to consult you on this decision. He’s far smarter on investing that us, plus he’s licensed to advise in these areas.
I also like this advice which another replied to this thread:
“Pick a low cost indext mutual fund and then dollar cost average over the next 15 months.”
To the above great advice, I would add:
1) Don’t buy a mutual fund; instead go with ETF for the lower fees
2) Expect the US market could easily fall another 10% but don’t let that rattle you or keep you from dollar-cost-averaging.
3) Do NOT buy energy stocks!
I cannot recommend my portfolio to you unless you can handle A LOT of risk.
Today I took some profits and cut in half my aggressively bearish position on the US markets (which was a 2X leveraged inverse ETF fund against the S&P500) That left me with still a 30% position in that ETF “SDS” (same 2X inverse position on the S&P500) and also I kept the 5% put option position on the S&P500 and NASDAQ which I bought when those indexes were 13% higher two months ago. As mentioned, I fully expect the US stock markets will fall at least another 10% from here, probably within 9 months. However, I felt it was best to take some profits and not be too greedy. When the US stock markets have fallen another 10% from here, I absolutely will close my bear positions and again go long the stock markets. Personally, I’m not bullish on US markets even after we pass thru the recession. So in the next 18 months whenever I think I see the bottom in overall stock markets, I’ll be more inclined to take long positions in overseas markets (Asia).
I kept my short oil index position currently about 7% of portfolio, because my instincts are that oil will fall in price from here. However, I was saying oil will fall (and shorting oil indexes) when it was $85/bbl, so my opinion on energy markets is pretty worthless. I’m down probably 30% on that short oil index position (but that’s trivial compared to what I’ve made net on my overall bear market positions on the NASDAQ and S&P500). Additionally, I’m very concerned that Israel will attack Iran before the end of Bush’s term, and Bush will use backing Israel as an excuse to join the war against Iran. That would send oil prices probably above $200/bbl within weeks of any Israel attack upon Iran. For this reason, I’m absolutely prohibiting myself from increasing my short oil bet. Anyone considering shorting oil should keep in mind this is one of the riskiest bets in today’s market, and should certainly keep any short oil bet below 10% (or 5%)of any portfolio.
Now, is it too late to join the party and take bear market positions in a market already down 20% through your buying bear mutual funds or bear ETF’s like “SDS”? I cannot recommend this given how far markets have already fallen; however, as I’ve said I do expect markets will fall at least another 10%. One could establish a limited (5% or 10% of portfolio) bear market position, on the faith that markets have farther to fall. Now you might not be the type to bet the downside, but if you are such an optimist that your portfolio has been 70% or more long this stock market since Oct ’07, then you had better change your strategy and increase your cash position (because this recession is JUST getting started, and is anticipated to be long and ugly).
I have 2% of my money in a PIMCO bond fund, and just as expected, bond values have been hurt as inflation has leapt up. I believe we’ll see real inflation (not fake government stat’s) exceeding 10% within 24 months. So, I cannot recommend anyone being heavy (50% or more) into bonds.
So with my portfolio now about 30% cash, I have some deep thinking to do on where next to invest that. I welcome everyone’s ideas.
I will comment that I’m closely watching the Shanghai index because our next chance may come within 24 months to buy that index at the next temporary bottom. It has already fallen by more than 50%. However, my instinct is that it still will go below 2,000, keeping in mind the last bottom was about 1,000. The problem is of course the limited options for buying into that market. I should note I never plan to put more than 10% of my portfolio in such a risky stock market. Some people are buying CD’s from Chinese banks, because with the continued appreciation of the Yuan, those CD’s pay good returns from a dollar perspective, despite their low yield rates in RMB. We chose to take a more aggressive approach by simply securing 20% down mortgages directly from the Bank of China to buy Chinese real estate.
As for my stock market performance, I haven’t run the numbers lately but a conservative estimate is that overall I’m up over 35% net since Oct ’07. By Oct ’07, I was nearly 100% positioned for this bear market, and with considerable leverage. I then made money shorting the market as it fell from Oct ’07 down to March ’08 lows, then sold. Then I again made more money riding the second decline from May through today, where we are now over 20% off the Oct ’07 highs. On paper I’ve lost my ass (down about 30%) on the short oil index position, but that’s never been more than 7% of my portfolio.
