On a Day Like This

On a day like this in the markets, moving into the imaginary world is an appealing option.  Our imaginary portfolio, a game really, is named "Change of Heart" and is tracked by Tickerspy.  With Tickerspy, stocks you've sold short are indicated by "-" in front of the stock name.  The object of the Change of Heart game is to outperform the S&P 500 long term.  To meet the objective, we hold an even number of long and short stocks.  Change of Heart now has 24 stocks, but not an equal number of long and short so we have some work to do.  Stocks are selected by looking at chart patterns and following trends.  Fundamentals play no role in the game.

We've been playing the game for about three months during which time we're up 19% and the S&P 500 is up 5%.  There are some caveats to this good performance.  One trade was responsible for much of our advantage.  Commissions costs aren't included.  Three months is not a very long test.  Perhaps most important, playing a game is easier and less stressful than risking real money.

On the other hand, a mix of long and short investments seems like a reasonable way to reduce portfolio volatility.  One highly rated fund of this ilk is the TFS Capital's Market Neutral fund (TFSMX).  They limit fund expenses to 2.5%, but that's still too rich for me.  If you have $5,000,000 minimum to invest you could try Vanguard's market neutral fund VMNIX as the fees are a bit less.  Realistically then, it's Change of Heart or nothing for me.  For now, we'll continue playing the game.  Never having sold short, I also need to get guidance from a broker or two.  Let's see what happens down the road.

Back in the real world, just a quick note that we did buy UDN on Tuesday for $27.84.  Given two days hindsight, this was most likely a poor choice for a Whim.  We held this previously and it's a slow mover.