Shorting financial stocks.

I was planning to publish daily posts, but it doesn’t seem to be easy.

Friday, 06/06/08 was full with appointments, so by the time I came home it was late night. It was a pleasant surprise to see -394.64 on $INDU (Dow Jones Industrial Average). The only concern I have, if the US banking system, dollar and economy collapses and inflation goes through the roof, what good does it make for me to have all that money in my portfolio? After all, I live in the US, own a house here and use US dollars to travel.

Anyway, my DOG is doing great, though I still feel bad that I closed my short position in LEH. I wanted to reduce the volatility of my portfolio and did it by covering short LEH and adding shares to long DOG. This probably cost me 75-80% of my profit. To be more precise, I bought DOG at 60.68 and now it is $63.98. Meanwhile, I covered LEH at $46.97 with the current price at $25.57. That results in potentially losing (by not making) $21.40 vs. making $6.60 (I bought twice as much shares than I sold). $6.60/$21.40=31%. In other words, I left 69% on the table.

Believe it or not, this is not the first time it happens to me. Last summer I was shorting BSC, starting in August. I got in and out 11 times, but my timing was off by a few months. As a result, the total of covered short positions produced exactly $0! Considering that my entry points were in the range of $103.00-$114.06, I didn’t do too great by rushing out. As you probably know, I would have had a much better luck by closing any of them this year.

The last one I’d mention from this series (just to get it out of my system) is my MBI shorts, also started last August. In this sucker I even managed to lose $2673.46.

At least with LEH I have a better record, as I was riding it a few times down from $64.5 to $60 and once from $64.30 to $47.73.

LEH – Lehman Brothers Holdings Inc.

BSC – Bear Stearns Cos Inc.

MBI – MBIA Inc.

DOG – Short Dow30 ProShares.