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Kass: A New Market Playbook

Below are some parameters that you might consider.

If you normally have a mix of investing capital to trading capital of 3:1, perhaps move it back into balance by reducing your investment exposure from 75% to 50% and increasing your trading exposure from 25% to 50%.

By contrast, given my negative market view, I plan to move even more dramatically in the direction of trading over investing. And, as I have written, you will be seeing more and more tactical trades in the months ahead from me in my diary.

I would also be more diversified and less concentrated than typical in the uncertain market ahead.

Keep industry concentration under 15% of your portfolio and any individual stock (long or short) under 4% or so.

Basically, as I have emphasized, err on the side of conservatism.

As a trader, you want to have much higher cash reserves in order to be in an opportunistic mode.

In terms of trading style, I tend to be news- or catalyst-driven. In a volatile market, I also like to buy the dips and sell the rips.

As well in a limited trending market, I have a tendency to buy group/sector laggards and to sell/short group/sector leaders.

Pair trades should also be considered, as should selling option premium (calls and puts).

It might be time to consider a change in our approach in order to profit from a transforming market.
At the time of publication, Kass and/or his funds had no positions in any stocks mentioned, although holdings can change at any time.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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