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Shorting stocks is fraught with peril. Simple reason being a stock has no limit (theoretically) on how high it can go. Losses could be indefinite. However, in the hands of an experienced trader, fund manager, etc. short sales can add one dimension to the overall approach. As you note, there are ways to hedge that theoretical loss if you’re experienced enough. In defense of shorts, DODBX’s last semiannual report mentioned their holding a 5% short position on the S&P.
Guessing market direction is always tough - and we’re usually wrong. From my experience you’ve got only perhaps a 1 in 10 chance of getting it right at any given time. I think whether to own one of the short etfs you mention, or a fund like TMSRX or an inverse fund has a lot to do with age, circumstance and willingness to take risk. For a younger or even mid-50s worker who is socking $$ away for retirement, they should stay as far away from the short / inverse gimmicks as possible. But for an oldster looking to protect a substantial nest egg these “gimmick” approach’s might help buffer against severe unexpected loss. As with insurance, there is a price to be paid - likely muted returns over the long haul compared to not using them.
The portfolio diversification, future rate uncertainty, and portfolio volatility reduction aspects of the case for owning some high grade bonds continues to have appeal (see @bee article above). The stock market is richly valued. I don't know how long it will remain that way. Owning some high grade bonds may continue to be prudent for many investors. (No plans to sell VWINX to make room for something more exotic.)
Comments
Shorting stocks is fraught with peril. Simple reason being a stock has no limit (theoretically) on how high it can go. Losses could be indefinite. However, in the hands of an experienced trader, fund manager, etc. short sales can add one dimension to the overall approach. As you note, there are ways to hedge that theoretical loss if you’re experienced enough. In defense of shorts, DODBX’s last semiannual report mentioned their holding a 5% short position on the S&P.
Guessing market direction is always tough - and we’re usually wrong. From my experience you’ve got only perhaps a 1 in 10 chance of getting it right at any given time. I think whether to own one of the short etfs you mention, or a fund like TMSRX or an inverse fund has a lot to do with age, circumstance and willingness to take risk. For a younger or even mid-50s worker who is socking $$ away for retirement, they should stay as far away from the short / inverse gimmicks as possible. But for an oldster looking to protect a substantial nest egg these “gimmick” approach’s might help buffer against severe unexpected loss. As with insurance, there is a price to be paid - likely muted returns over the long haul compared to not using them.
https://pragcap.com/bonds-still-diversify-rates-rise/