Investor risk-return preferences

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If you invest in stock portfolio or asset management firm, and you have 2 options

1- Long only : go long with bullish market only ( lower return )

2- Long-Short : go long when bullish and short when bearish market ( extra return from shorting )

When strategy short stocks it expose your portfolio to forced stop outs if market move in unfavorable direction

Which one you prefer 1 or 2 ?

 
samyhussein:

If you invest in stock portfolio or asset management firm, and you have 2 options

1- Long only : go long with bullish market only ( lower return )

2- Long-Short : go long when bullish and short when bearish market ( extra return from shorting )

When strategy short stocks it expose your portfolio to forced stop outs if market move in unfavorable direction

Which one you prefer 1 or 2 ?

For equities and/or equity derived futures, #1 for sure.

For example, 401k's and pension funds invest in the S&P 500 stocks on a regular basis.

 
Ryan L Johnson #:

For equities and/or equity derived futures, #1 for sure.

For example, 401k's and pension funds invest in the S&P 500 stocks on a regular basis.

Thanks for your reply @Ryan L Johnson

I totally agree with you, I always prefer going long and avoid shorting exposure

But if you supposed to try a strategy with shorting, what acceptable percentage of your portfolio to be used for shorting and what your acceptable stop loss percentage before a portfolio hit margin liquidation?

 
samyhussein #:

Thanks for your reply @Ryan L Johnson

I totally agree with you, I always prefer going long and avoid shorting exposure

But if you supposed to try a strategy with shorting, what acceptable percentage of your portfolio to be used for shorting and what your acceptable stop loss percentage before a portfolio hit margin liquidation?

Assuming that we are still talking about equities/stocks, I would never short. There is trading, and there is investing. Shorting is antithetical to the desires of most wealthy investors.

If we're talking about CFD's, you might get a little more downward movement because CFD's are not connected to any underlying stock exchange--CFD's are over-the-counter contracts with "parallel" private liquidity pools. As CFD's are banned in my home country, I have to leave analysis of stock-parallel CFD's to you.

 
Ryan L Johnson #:

Assuming that we are still talking about equities/stocks, I would never short. There is trading, and there is investing. Shorting is antithetical to the desires of most wealthy investors.

If we're talking about CFD's, you might get a little more downward movement because CFD's are not connected to any underlying stock exchange--CFD's are over-the-counter contracts with "parallel" private liquidity pools. As CFD's are banned in my home country, I have to leave analysis of stock-parallel CFD's to you.

Yes sure I always mean stocks as mentioned in my start post not CFD stocks

And again I totally agree with you

 
samyhussein #:
I always mean stocks as mentioned in my start post not CFD stocks

A+ for selecting real stocks in a real exchange, and for examining the environment in which they are traded. You're ahead of many retail traders regardless of your experience level.👍

 
Ryan L Johnson #:

A+ for selecting real stocks in a real exchange, and for examining the environment in which they are traded. You're ahead of many retail traders regardless of your experience level.👍

So for an investor you can accept to see your portfolio unchanged without trading for 9 months or a year when market is down like 2008 US crisis - 2020 COVID crisis - 2022 Russia-Ukraine Crisis, as long as the portfolio growth is continued with a rate that outer perform benchmark?
 
samyhussein #:
So for an investor you can accept to see your portfolio unchanged without trading for 9 months or a year when market is down like 2008 US crisis - 2020 COVID crisis - 2022 Russia-Ukraine Crisis, as long as the portfolio growth is continued with a rate that outer perform benchmark?

A portfolio that is 100% dedicated to stocks? Yes.

My personal definition of a portfolio investor is broader, meaning that multiple types of markets, exchanges, and/or asset classes are incorporated. For example, some treasuries, currencies, and commodities (namely, Gold) can appreciate while stocks are weak. Moving trading capital from a dead instrument/market over to hot one is simply reallocation.

EDIT: The CME is an umbrella futures (and options) exchange that lists futures contracts derived from stock indexes, treasuries, commodities, and currencies. As a result, reallocation of capital to a wide array of futures derived from different underlying markets is fairly easy with one futures broker/trading platform.
 
Ryan L Johnson #:

A portfolio that is 100% dedicated to stocks? Yes.

My personal definition of a portfolio investor is broader, meaning that multiple types of markets, exchanges, and/or asset classes are incorporated. For example, some treasuries, currencies, and commodities (namely, Gold) can appreciate while stocks are tanking. Moving trading capital from a dead instrument/market over to hot one is simply reallocation.

Yes am talking about a portfolio of stocks traded over time when technical indicators on place

I understand that portfolio means asset allocation between various financial instruments to allocate risk, but still other funds are pure stocks or pure indexes or even specific sectors

For me, I tried to diversify my investment during my balance is not used when stocks and S&P are down, I checked most alternatives, Gold, Oil, and it was also affected and correlated the the overall market

The only instrument is fixed income instruments but for few months the return will not add any value as the return is low and fees and taxes make it even lower, So keeping my account in cash is the best investment during these bearish times, what you think?

 
samyhussein #:

Yes am talking about a portfolio of stocks traded over time when technical indicators on place

I understand that portfolio means asset allocation between various financial instruments to allocate risk, but still other funds are pure stocks or pure indexes or even specific sectors

For me, I tried to diversify my investment during my balance is not used when stocks and S&P are down, I checked most alternatives, Gold, Oil, and it was also affected and correlated the the overall market

The only instrument is fixed income instruments but for few months the return will not add any value as the return is low and fees and taxes make it even lower, So keeping my account in cash is the best investment during these bearish times, what you think?

I think that is a wise decision. An unwise decision would be to refuse to trade strategies that go dormant occasionally. I've seen this issue over and over again which causes some traders to be attracted to continuous and frequent scalping. One word for that is greed. Hordes of professional investors liquidate to cash in the most severe times.

As a mere side note, there are risk-on currencies like JPY or USD indexes in CME futures. They tend to rise in bad times. If you're willing to short something in any market, the off-exchange spot GBPJPY cross tends to fall like a stone when the S&P 500 index falls. To this day, GBPJPY still hasn't recovered to the extent that the S&P 500 index has recovered from the 2008 recession.

Regarding taxes, I really don't know anything about Egyptian tax policy. In the U.S., I get a 60/40 capital gains rate/personal rate split for futures and FX regardless of my trade hold time (Section 1256 election). I guess that the hedge funds slipped this into the U.S. tax code. Thanks to them, I guess?
 
Ryan L Johnson #:

I think that is a wise decision. An unwise decision would be to refuse to trade strategies that go dormant occasionally. I've seen this issue over and over again which causes some traders to be attracted to continuous and frequent scalping. One word for that is greed. Hordes of professional investors liquidate to cash in the most severe times.

As a mere side note, there are risk-on currencies like JPY or USD indexes in CME futures. They tend to rise in bad times. If you're willing to short something in any market, the off-exchange spot GBPJPY cross tends to fall like a stone when the S&P 500 index falls. To this day, GBPJPY still hasn't recovered to the extent that the S&P 500 index has recovered from the 2008 recession.

Regarding taxes, I really don't know anything about Egyptian tax policy. In the U.S., I get a 60/40 capital gains rate/personal rate split for futures and FX regardless of my trade hold time (Section 1256 election). I guess that the hedge funds slipped this into the U.S. tax code. Thanks to them, I guess?

Yeah, stop trading in crisis time maybe a good decision as long as the strategy outperform in regular times.

Yes JPY still didn't recover 2008 crisis totally, but during COVID the JPY didn't move as it was in 2008, so yes it is good for multi-currency accounts and those who can short JPY pairs.

Am talking about US tax for US investors, a 2% or 2.5% gains in a year from fixed income or bonds/futures would not be a great value to my stock trading strategy where a backtest show 250% performance over 5 years ( actually 4 years as it stop trading 2022 drop ) , that's why I just prefer pause trading totally and resume trading with bullish signs.

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