"Enjoy when you can, and endure when you must"
Johann Wolfgang von Goethe
Today's snap back rally is a great lesson for the poor investors who pay too much attention to the media... Yes, it is true that nothing has really changed fundamentally between yesterday and today, but rallies like this represent a very important milestone emotionally and psychologically and here is why:
You can call whatever you want - a "bear market rally" or "short covering rally"- but in reality days like today accomplish an important objective- they inflict a very severe damage to the "bears" confidence by making it clear, that one sided bets like being a 100% short, are outright reckless, silly and even dangerous!
Think about it- it is very likely that many of the heaviest "short sellers" have been boldly increasing their bearish bets as the markets plunged going with "let your winners run strategy". What that implies, is that someone who has been only 50% short last week but decided to go 100% short yesterday, has suffered 10%+ losses on the entire portfolio, likely wiping out a large portion of any gains from successful hedging of the initial 50% position...
I know it sounds complicated, but believe me when I say- today was another nail in the coffin for a huge number of long/short hedge funds, and that's certainly "not so good" news for the continued fund outflows... Just a quick glance at the largest gainers of the day, makes it very easy to see that the vast majority of today's winners represent a "who-is- who" list of usual "short favorites". I know this because I have personally shorted a third of today's winners at some point during the last 4 months and many of the names still come up on my "short screeners"...
Source: yahoo.com
On the other hand my portfolio of preferreds has held up quite well so far and I actually have spent the last few days building out my own "arbitrage" spreadsheet to take advantage of any mispricing between securities of the same issuer. I present an example ( using BofA) of what I think is important to look for in these above...
Stay safe out there, skepticalcapitalist@gmail.com
