Although I called the 2008 bear market months ago now, and sold about half my holdings, I'm still wishing I had the fortitude to pull everything out completely, but that would be market timing, right? Most of the best investors in the world get it wrong, so what's the next best thing?
Diversification and Hedging...
Over the past couple months, I've diversified into commodities more heavily; initially with the gold bullion ETF GLD and more recently into the 2X leveraged ETF for gold, DGP. Unfortunately, I delved into platinum the only way I knew how with Stillwater mining (SWC) and realized an initial 15% runup to be followed by a precipitous crash. The only thing I can say is that where you can, avoid the operational risk of owning individual stocks like miners, oil drillers, etc., and buy ETFs where you can.
Regarding hedging, I had routinely held a few QQQQ puts at any given time and sold each time the market dropped another 5-8%. Adding a few hundred dollars here and there on the way down is nice, but hasn't quite done the trick considering the other high Beta holdings I've been seeing decline at 2x market rates.
To add some additional hedging power, there are some other powerful 2X inverse ETFs and funds out there. To bet against the Nasdaq, there's QID, the 2x inverse. Next, there's SKF, the 2X inverse of the Financials if you think there are more subprime surprises in store. Finally, it looks as though the hot air has deflated from the China bubble. As the markets continue to react to this reality, you may want to consider the 2X inverse of the Chinese market with FXP.
In order to realize a nice floor on some of your holdings, you may want to consider high yield stocks with steady dividends (outside of financials). Feel free to review my high yield self-directed IRA account holdings here:
http://everydayfinance.blogspot.com/2008/02/everyday-finance-high-yield-self.html
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