ShortOnly

Crappy return, of course - a negative 10% in just about a year. Not surprising for a short strategy; and I'm sure if I had real money on it things would be different. It's very strange, actually, to have no real money backing this strategy; I'm sure if I did I would manage it better (and who wants to lose this much!)

When we planned Moneyoga I remember hearing that this "virtual" portfolio stuff is only a learning exercise - the real test is the emotional damage the volatility of real money can do. Which is true, I guess - I've been strangely unattached to the losses of a "virtual" strategy, and been on the wrong side of most of the move!

There will be a time to return, and given we are currently way overpriced, the only thing I'll do is setup Nifty puts on it. A better way to short perhaps is to find stocks that have very short term underperformance and take small bets on those - in a bull rally it's tough to hold shorts on a fast moving stock. HDFC is still way overvalued, but to short it weakness must build; and there is absolutely no sign of weakness.

The blowout will come, but when, from which level? That's not a question worth answering - the Taleb bet might be the only useful one, when you spend small amounts buying what will give you an outsized return in one of the following months.

The rest of the positions are still within the limits, but the performance sucks - a -6.56% return in a year is terrible. And I didn't take advantage of the great fall, not quite as much as I should have. Even now, it's tottering at the edge. There is a lot to learn; cycles can be vicious both on the upside and the downside!

Not giving it up of course; there will be more positions to build. DLF seems weak in the last few days, and there's a chance this down move over the last few days will continue another 20 rupees. So in comes the 390 put at 13.45 - a small quantity on a very short term move (Expiry is 24 Sep).

Disclosure: No positions. Do not follow this strategy, it is not a recommendation. It's an education, and primarily for me.

Also I'm taking a short break, heading over to Nainital with my wife and son. Will be back Tuesday, and hopefully will get thoughts better organised so I can post more frequently. Apologies for dragging out posts and the innumerable mistakes that are left unedited.

Going short, virtually, on Nifty. It's showing the sort of weakness I haven't seen for a while - and world markets are softening too.

HDFC - it's raising 4000 cr. using bonds, and I think the current valuation is rich. A 25-30 P/E for a finance co. sounds high - and it has the highest price to book in the pack. There is no solvency issue - it's a valuation problem.

That applies to ICICI Bank too - at a 20 odd P/E and a literally flat EPS for the last two years, it needs to show enormous growth just to stay there. It has shown signs of "trading income" based growth in the 1st quarter, but the main businesses of advances and fees declined - so, valuations being high, and the technicals showing a breakdown, it's time to short.

Lastly, Reliance Infra. Again a little rich in valuation considering anything new and good will go to Reliance Power. They may eventually absorb Rel Power - like RIL did to RPL - but till such time I'm suspicious of paying this much for a utility business.

Everything's on with a 15% stop loss - must exit if it rallies back that much. And are there reasons for a rally? Of course - we have the great statistical recovery going on and money's sloshing around equity markets, so a rally cannot be ruled out. And if there's price inflation - something that is traditionally good in the short term for stocks - there is likely to be upward revisions in stocks too.

(Current Status)

Note: No current personal positions matching the above. And this is not advice. This is not anything for the folks that get really anal about this kind of post. I am not a financial advisor. And in case you think I might be right - I've just been terribly wrong in this post - I thought the market would rise (before it fell) but it gave me no ijjat.

The return till now hasn't been anything to write about - around 1.5% in less than a year - but the markets are not about 5% above when I started, so in that sense it wasn't too bad. But I could've locked and made much more - perhaps I should put real money on the strategy so I'll be forced to update it more often! For now, no opportunity for that, given my job, so I'll stick with it being virtual; as usual, don't follow this strategy, this is not advice, etc.

The return has dwindled to about 2.67% (annualized) now, which is pathetic. Gotta take care and get into the next downswing. Luckily there wasn't too much of a position on this time, otherwise the losses would have been intense. Still, I see a huge downmove, so I'm content buying a few puts - 1000 to start with - looking for a 10% move down. That may not happen this month, so capital must be allocated to stretch across months.

My apologies for not keeping this updated - I get small bursts of time to microblog (Twitter) so have ignored the sheet. It's updated now.

It's a fantastic rally, and obviously short positions have been mauled. But I'd cut positions to keep exposure low, and therefore the SoS hasn't been so badly impacted.

It will soon be time to add more. The rally is great, and there is some more upside likely - I've decided to cut positions once we cross 3400. Short positions build up though will now happen with some technical support and post results. Elections too, will be considered.

Quite amazingly, my mechanical system has been long throughout - and has, from November 1, managed a 27% return to date. I am now working with a hedge fund (different post on that) so I can no longer trade in my personal account, but then I work with systems in and out now. I'll keep the SoS going, it's virtual anyhow.

Disclosure: No positions. And note: this isn't advice.

• Exit Nifty call. Thats about 35K of return on a 14L exposure, which is 2.5%. Not too bad.
• Exit Reliance Call. 19K on an exposure of 7.8L, another 2.5%.
• Short some more HDFC. I'm somehow not yet comfortable with a P/E of 15 is worthwhile for a stock that won't grow EPS for the next two years, at least.

Yes, a lot of cash on the table now. Will have to use this rally to build a new set of positions.

Disclosure: Have personal positions in some of the above, not necessarily short (System based).