I guess I can introduce stop-loss and other cautionary measures to prevent snowballing loss, but shorting is shorting… Wonder if I could resist the urge.
Don’t short, diversify. Invest in alternatives.
Any suggestions?
Any company that isn’t shouting from the rooftops about their massive AI investments. Walmart, Ford, I don’t know.
While good advice, I don’t think that will help. When things would go downhill, most stocks will follow, and it is hard to know which ones would be exceptions.
There’s no way to avoid it that isn’t extraordinarily risky, you will lose money when the bubble bursts. You just gotta avoid the obvious traps and make out with a somewhat stable portfolio.
First, don’t try and time the market. The market can stay irrational for longer than you can stay solvent.
Second, if you ignore the first point, please don’t try and time the market with your rent money. It’s only one step removed from gambling, and you wouldn’t put your rent money on Red on the Roulette table, would you?
Third, if you ignore the first two points, please please please don’t short anything unless you really know what the hell you are doing. It is like gambling with money you borrowed from the mob. It never ends well, no matter how much you think it will.
With all that said, I have two better suggestions:
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read about options trading, specifically about buying put options. It can be safer than shorting, if you don’t fuck it up. I am specifically not writing more because you need to understand them yourself before playing in them.
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Why are you so pessimistic? Is it because of tech and AI slop? Simply direct your money to mutual funds that don’t invest in tech. (There are S&P 500 funds that explicitly exclude the “Magnificent 7”, and buy the other 493. Every year so far, the full S&P has outperformed it, by a lot. Do you feel lucky?)
Just to add some more words of caution, when you buy an investment, you can potentially lose up to 100% of your principal, and there is no limit on the amount of money you can gain. When you short an investment, you can lose more than 100% of your principal, and are limited on your gains if the price goes to $0.
Yeah, this is exactly why stop-loss exists, and you should ideally open and close shorts pretty quickly.
Great points, thanks!! Dunno if it could stop my impulse, but gotta try… Maybe options are safer, I gotta look into it.
By the way, I think there is no way other stocks would do well if the bubble ever bursts, so I believe it’s better to invest in the bubble if it is not bursting - I actually have some nuclear energy stocks for this purpose. Need to sell them at some point…
It is impossible to exactly time the market, so I should hold my impulse, but I think there would be chart signals that would show that it is crashing.
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The short answer is just don’t. If you listened to Jerome Powell and the FOMC meeting here the other day, they specifically said that they were lowering the interest rate again and were going to stop quantitative tightening on December 1st.
Eventually they will start expanding their balance sheet again which will cause stocks and the markets and everything to go up because there’s a higher quantity of money chasing the same amount of whatever stocks or bonds or whatever you want to talk about.
With all that said and out of the way, if you do want to short, I suggest using an extremely small portion of your position to do so, like maybe 1% as a small hedge against a fall like that.
I disagree that FED lowering interest rate means stocks will be ballooning. Often, lowering rates mean the economy is bad enough to do that, so there has been instances where stocks went down with interest rates.
Also considering how most market participants are talking that rates are going to be lowered, I believe it is already priced in.
I definitely think you could see a temporary drop, for sure, because of the economy. But I would not want to bet on just how deep it would be, and how quickly it will end.
Remember 2020 when they shut the entire economy down? The stock market temporarily went into freefall, and then the Fed came out with the freaking bazooka and sent it right the heck back up. Well, that and the stimulus checks.
Covid was a black swan event, so no one envisioned both the lockdown and Fed intervention. There is no way it was priced in.
On the other hand, Fed lowering rates has already been talked about for years. High probability it was priced in.
