Kass: Time Frames and Exposures
Again, I change my exposures (investing vs. trading) dependent on the outlook:
1. Range-bound market. If I conclude that we are likely to be in a range-bound market, I would be more inclined to trade stocks, increasing the percentage of my portfolio committed to trading and reducing my exposure to longer-term commitments. In this case, I might be only be as much as 40% committed to investments and perhaps as much as 60% in opportunistic rentals, with a mix of both longs and shorts.
2. Upwardly sloped market (normally trending). If I conclude that we are in an upwardly sloping market, I would be more inclined to be a long-term investor in stocks. In this case, my portfolio might be as much as 60% to 70% (dominated by longs) in investment positions and 30% to 40% in trading-oriented positions (again, dominated by longs).
3. Downwardly sloped market. If I conclude that we are in a downwardly sloping market, I would be more inclined to be as much as 60% to 70% in investment positions and 30% to 40% trading-oriented positions. In theory, my portfolio, reflecting a downwardly sloped market, would be dominated by shorts, but, in reality, it's not practical, as the asymmetric risk/reward of short sales would reduce the overall commitment to shorts even in a correcting market phase. While I would likely be net short in both investment and trading positions, my degree of confidence in the market outlook would dictate that net exposure.Let's now dig deeper into time frames. To simplify, here are my definitions of time frames (note: yours may be different):
- A short-term trading position (rental) can be as little as a few hours or as much as several weeks.
- An intermediate-term trading or investing position is typically a month to 12 months in duration.
- A long-term investment position is typically greater than 12 months in duration.
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