Stock Market and the role of emotion

[Patler]

Economic reports the last week or two have been weak, yet the market has bounced up. I'm not expecting a calamity, but I do expect the market to head back lower again. In my active portfolio a I am holding cash, APPL, gold and a 3x bear ETF. In other words, I am significantly in a "short" position and will make a little money if the market heads lower.

I know emotion has no place in investing, but I really dislike being in a short position. I don't like hoping the market will decline so I can make money. I dislike being disappointed yesterday because the market went up.

Hopefully this period of excessive volatility will end soon.

[MJZiggy]

You're further ahead than I am. I don't even know how to begin.

[retailguy]

You're further ahead than I am. I don't even know how to begin.

Get in early in the next Bernie Madoff fund.

[Partial]

Invest on #'s Pat. PEG ratio is evidently an extremely solid indicator historically. AAPL and GE have ridiculous PEGs right now. I'm thinking of dumping another 5k into GE right now.

[Patler]

Invest on #'s Pat. PEG ratio is evidently an extremely solid indicator historically. AAPL and GE have ridiculous PEGs right now. I'm thinking of dumping another 5k into GE right now.

There are lots of ways to invest, PEG ratio is a decent tool for stocks you want to buy and hold. For a young person's retirement account that is good, but it's not for everyone, and it's not necessarily the right tool for 100% of everything that someone might invest. I do own a bunch of AAPL for its long term growth potential. Basically, I will hold it through ups and downs until I have a reason to sell it.

I owned a bunch of GE that I bought under $10 in early '09. I sold it over a year ago for $2 more than it sells for now. Owning it for the last 15 months or so would have returned $0. A stock like that had no place in an active "trading account" in which the goal is to make profit whether the market goes up, down or sideways. This is an account I am positioning to provide current income, hopefully an account from which I can take living expenses without dipping into the basic invested amount too much.

I made money in August, a fairly decent percentage, actually. But with the market being down a good part of the time, it required either shorting, buying bear ETFs that go up as the target goes down, or finding those few stocks that will appreciate in the down market. Since the market has been volatile, I needed to be nimble with my money. I didn't want to decrease my holdings in AAPL and gold because I like them long term. The mechanics of shorting stocks are not for me in this particular account. Finding a needle in a haystack became difficult in early August, so I sold the 10-12 other stocks I had at the time and have kept a lot in cash.

The obvious choice for me to try to make money in the turbulent market seemed to be ETFs that move a multiple of the target indicator. That way I could leave most of my money in AAPL, gold and cash through the turbulent period, and get three times the exposure for the money invested in the ETFs. Basically, they go up or down three times as fast as the market.

I have owned both a bear and a bull ETF through most of August. I have bought and sold each several times during the month and have profited on each transaction so far. Early this week I made the judgement that the market was peaking (short term) and will soon retreat, so I sold all of the bull ETF and now own only the bear. I will profit if the market goes down, and it is the emotion of that I first wrote about. I tend to be an optimistic guy, and wanting the market to decline is an odd feeling.

I sold the bull ETF on Monday and made about 10% on it, but I was several days too early. It has gone up almost 6% since I sold it.