06/10/2012 gritting my teeth

Condition	Bear Market
S&P Target	1230
Small Portfolio	IAU & XLF	5.13%
Margin (short)	XLK	5.58%
Position	Date	Return	Days
GCI	7/14/2011	-3.64%	332
CSGS	10/3/2011	29.83%	251
NLY	10/25/2011	9.40%	229
KBR	10/27/2011	-11.36%	227
VG	10/27/2011	-45.59%	227
BT	1/4/2012	3.05%	158
PDLI	3/7/2012	6.72%	95
CLF	3/19/2012	-31.65%	83
SAI	5/30/2012	3.97%	11
XEC	6/5/2012	-1.55%	5
S&P	Annualized	-1.41%
Small Portfolio	Annualized	4.98%
Mousetrap	Annualized	3.87%
Margin	Annualized	9.29%

I hate bear markets.  A bull market is pretty easy.  Volatility slowly falls while prices slowly rise.  A bull market is part of the natural upward trend of the market.

A bear market goes against the long generational upward trends, and are occasioned by drastic interventions that will wipe out short positions just as leveraged long positions get wiped out on the way down.

In a bear, almost everyone loses money – even permabears cleverly short themselves right into a rally.

Value Investors fare no better, since fundamental valuations are thrown out the window in the stampede.  Instead of mean reversion, the diving “value” stocks act like value traps as they lead downward in a new trend of compressing P/Es.

My model sleep walked a short position in utilities on the way down (while utilities went up 7.3%), and now that we’re gearing up for what looks like a rally the model has probably outsmarted itself by shorting XLK (technology).

I’m gritting my teeth, but the price in technology stocks has overshot its money-flow, so it IS the logical short, no matter how scary a thought it is for me as a human being.

A bear market is not a time to try to make a killing.  It’s a time to try to keep from getting killed.

Tim