Please Learn This:
- the result from shorting the market seems like "magic", but it is not!
- but, if you don't know what you are doing, you could lose big
1) Let's take the SPY from 2000 - 2007
- the SPY went from 150 (2000) to 75 (2003) back to 150 (2007)
2) With a buy/hold strategy, you would have been down 50% in 2003, and back to "even" in 2007. [BTW, you would not really be close to "even" because you would have been up 50% in 7 years with a 6% corp bond, like GE.]
3) If you used a buy/short strategy with a "perfect" system, you would have made 50% on your money in 2003 by being short
- then, when you went from short to long in 2003, you would have would now own three times as many shares of SPY (1.5 times your original money, buying at 1/2 the price)
- now, when the SPY went back to 150 (from 75 to 150), using a buy/short strategy, you would have had 3 times the money that you started with.
Of course, no one has a "perfect" system, but MIPS is a very good one.
- from 12/31/2007 to 8/19/2011
, the SPY is down 23%, and MIPS is up 278% (see graph below for MIPS performance from TimerTrac.com
- so starting with $100,000, you would have $77,000 with buy/hold vs $378,000 with MIPS buy/short !!!!!
And, YTD in 2011
, the SPY is down 11% and MIPS is up 18% (a 29% difference)...