On July 10th the Dow Industrial Average hit 8,100, up from a multi-year low of 6,600 on March 6th. It was a nice 4 month run if you were long stocks and I thought it had run out of gas so I cashed out my positions and put some of the money to work in short positions. At that time I had $73,000 in a discount brokerage account and I invested approximately $49,500 in 685 shares of the ProShares Ultra Short S&P 500 Exchange Traded Fund (SDS) leaving me with $23,000 in cash. Three months later that $49,500 was almost cut in half as the DOW raced to 10,000.
A paper loss or a realized loss is easy to do when you are in leveraged ETF's which ProShares Ultra Short S&P 500 (SDS) is and the market is going up. With ProShares Ultra Short S&P 500, if the S&P 500 goes down 1%, you make 2%. If the S&P 500 goes up 1%, you lose 2%. It is very simple mathematics, but very risky if you are on the wrong side of the trade which I have been for three months now. This temporary loss has not has not soured me on my initial investment decision although my ego is bruised and I am subject to ridicule and embarrassment since I am making my investment decisions public here on the Internet. In fact, I recently put the remaining $23,000 of cash in my brokerage account to work in more short positions.
For the record, that $23,000 was used to purchase 280 more shares of the ProShares Ultra Short S&P 500 (SDS) and 1,000 shraes of the Direxion Small Cap Bear 3X Shares (TZA) which is leverages 300% to the downside of the Russel 2,000. All of the cash in my trading account is now in leveraged short positions because I firmly believe we are going to retest the lows we saw in March if not go lower in the next two years. As I write this, my cost basis for the ProShares Ultra Short S&P 500 (SDS) is $62.70/share and the Direxion Small Cap Bear 3X Shares (TZA) is $11.50/share.
The purpose of this Web site is to track the $73,000 invested in July over a three or four year period using whatever tools are available to a retail investor and see what happens to the money. In addition, it will be a forum for discussing investing and most specifically my philosophies on investing. I originally wanted to call this blog the do-it-yourself hedge fund, but that name has already been taken, but you get the drift. Anything goes. A note of caution, I have been investing for almost 20 years and tend to take outsize risks so what I am doing with my money is not recommended for most accounts. Three months after the beginning of this experiment my initial $73,000 is now $49,000, down 32%.