Update

A lot has happened since November! It seems like we are in the fledgling stages of a developing bear market. There is quite a difference of opinion out there regarding whether we will have a deflation or stagflation scare but most observers due at least expect a slowdown. Shorting is the name of the game presently. Market has sold off aggressively to near 12,000 on the DOW so seems like we should be due for some kind of bounce in the coming days.

I still have the position on in Downey that I initiated back in November/December. It is up quite a bit, but the trading portfolio is still pretty small at $8,500. Could be really fun lucrative to keep shorting / trading for the rest of the year to generate extra income and grow portfolio a bit. To some extent the trading has to be momentum or volatility breakout based because it is tough to "trade" as a value investor. Still Im curious to test what portion of income can be redeployed in perceived "undervalued" stocks to build bigger value positions forming long term equity core of portfolio.

For example lets be optimistic and say that trading can generate 30% income or 40% income versus overall portfolio size when annualized. What portion of that can be redeployed into value plays and still keep portfolio growing at say 10% annualized. Most exciting idea of value play is that you are buying ownership in some asset that you believe is fundamentally worth way more than you are paying. Still sometimes it sucks to be a value investor especially in bear market because you can spend your whole wad at once and be sitting there for another 6 months of bear market while your portfolio gettin wrecked. You are "stuck."

Here are the more momentum type stuff I have been shortin or lookin to short more of: DSL, WM, BBY, TLT, GS.

Here are some of the value plays I've been looking at buying long (for at least some % of portfolio): WZEN, ATVI, GGC, SNDK, GLNG, AIG.

The thing that brought up this idea was I was thinking of some of market's biggest winners over past 3 -4 years - RIMM, AAPL, and AMZN. These stocks all succumbed to massive bear market in tech during 2001 and 2002 bought have since risen anywhere from 40 to 50 times in value. If you were 100% short tech or the market during that time period it may have been tough to remain objective and redeploy some profits to buy long in the companies and build nice positions. For example - a 1000 share position in RIMM would have probably only cost you about $3,000 in 2001 or 2002 - its now worth about $100,000. A 1000 share position in AAPL would have only you cost you about $5,000 but would now be worth $150,000. These are very lucky examples as stocks have gone up 20 to 30 times from bear market bottom, but even 3 to 4 times return is phenomenal.

So to summarize my only positions right now are short DSL via put options and long a few shares of FXI (china index etf) just shares not options. DSL has some pending earning news next week or following week which I expect to move the stock, we also have the Fed meeting rapidly approaching. My focus for this year is mostly for shorts to fully maximize opportunities of one of potentially fiercest bear markets in history but can also not lose site that there will probably be some great bargains out there at some point. Doing both is extremely difficult so I think the only successful way to think about it is % of portfolio allocation. As profits are made some % (say 20-30% should be reallocated to the value plays.)

Hope everyone is having a great 2008 so far. We have not hit the bottom in housing or financials yet! Be patient - should take all of 2008 and some of 2009 to get a return to sanity in our banking and real estate sectors.

-Ben