Market-Neutral Strategies to Prepare for a Crash

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#1
Seeing a lot of concerns from forumers about a possible crash. For those that want to stay invested and retain upside in stocks, but want some insurance against a market crash, a possible strategy is the market-neutral strategy.

What it is:
- Buy stocks that you think will out-perform the market.
- Sell an equivalent amount of MSCI Singapore futures (SiMSCI futures)

How it works:
- Say you buy $70,000 of Stock A, and SELL 1 unit of SiMSCI futures for 340 points (equivalent to a negative stock market exposure of $68,000)
- Touch wood, the stock market crashes by 40%, but luckily your stock only goes down 20%.
- The SiMSCI contract goes to 204 points, you make $27,200.
- You stock goes down, causing you to lose $14,000.
- Your net gains are $27,200 - $14,000 = $13,200.
- You make $ because you "outperform" the market by 20%.
- Without this strategy, you would have made a straight loss of $14,000 (20%).

Why it works:
- You need to "Outperform" the broad market. i.e. if the market goes down 10%, your stock needs to go down not more than 10%. if the market goes up by 10%, your stock needs to go up by more than 10%.
- This means that you need to have confidence in your stock picking skills and confident that your stocks will not do as badly as the broader market.

Risks:
- Your stock picking skills are lousy, your picks underperform the market. In that case, you still lose money.
- Market goes up, but for some strange reason, your stock goes down e.g. China Minzhong. Then you are really screwed on both sides.

Most Suitable For:
- People who have invested for some years, and are confident of their stock picking skills.


Disclaimers:
- For sharing purposes only, this does not constitute financial advice. Get it from a professional.
- I do not stand to make money from you trading in any of these products and am not affiliated with any brokerages or such.


MSCI Singapore Futures details:
SiMSCI details
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#2
(28-08-2013, 10:38 PM)andrefre Wrote: Seeing a lot of concerns from forumers about a possible crash. For those that want to stay invested and retain upside in stocks, but want some insurance against a market crash, a possible strategy is the market-neutral strategy.

What it is:
- Buy stocks that you think will out-perform the market.
- Sell an equivalent amount of MSCI Singapore futures (SiMSCI futures)

How it works:
- Say you buy $70,000 of Stock A, and SELL 1 unit of SiMSCI futures for 340 points (equivalent to a negative stock market exposure of $68,000)
- Touch wood, the stock market crashes by 40%, but luckily your stock only goes down 20%.
- The SiMSCI contract goes to 204 points, you make $27,200.
- You stock goes down, causing you to lose $14,000.
- Your net gains are $27,200 - $14,000 = $13,200.
- You make $ because you "outperform" the market by 20%.
- Without this strategy, you would have made a straight loss of $14,000 (20%).

Why it works:
- You need to "Outperform" the broad market.
- This means that you need to have confidence in your stock picking skills and confident that your stocks will not do as badly as the broader market.

Risks:
- Your stock picking skills are lousy, your picks underperform the market. In that case, you still lose money.
- Market goes up, but for some strange reason, your stock goes down e.g. China Minzhong. Then you are really screwed on both sides.

Most Suitable For:
- People who have invested for some years, and are confident of their stock picking skills.


Disclaimers:
- For sharing purposes only, this does not constitute financial advice. Get it from a professional.
- I do not stand to make money from you trading in any of these products and am not affiliated with any brokerages or such.


MSCI Singapore Futures details:
SiMSCI details

(28-08-2013, 10:38 PM)andrefre Wrote: Seeing a lot of concerns from forumers about a possible crash. For those that want to stay invested and retain upside in stocks, but want some insurance against a market crash, a possible strategy is the market-neutral strategy.

What it is:
- Buy stocks that you think will out-perform the market.
- Sell an equivalent amount of MSCI Singapore futures (SiMSCI futures)

How it works:
- Say you buy $70,000 of Stock A, and SELL 1 unit of SiMSCI futures for 340 points (equivalent to a negative stock market exposure of $68,000)
- Touch wood, the stock market crashes by 40%, but luckily your stock only goes down 20%.
- The SiMSCI contract goes to 204 points, you make $27,200.
- You stock goes down, causing you to lose $14,000.
- Your net gains are $27,200 - $14,000 = $13,200.
- You make $ because you "outperform" the market by 20%.
- Without this strategy, you would have made a straight loss of $14,000 (20%).

Why it works:
- You need to "Outperform" the broad market. i.e. if the market goes down 10%, your stock needs to go down not more than 10%. if the market goes up by 10%, your stock needs to go up by more than 10%.
- This means that you need to have confidence in your stock picking skills and confident that your stocks will not do as badly as the broader market.

Risks:
- Your stock picking skills are lousy, your picks underperform the market. In that case, you still lose money.
- Market goes up, but for some strange reason, your stock goes down e.g. China Minzhong. Then you are really screwed on both sides.

Most Suitable For:
- People who have invested for some years, and are confident of their stock picking skills.


Disclaimers:
- For sharing purposes only, this does not constitute financial advice. Get it from a professional.
- I do not stand to make money from you trading in any of these products and am not affiliated with any brokerages or such.


MSCI Singapore Futures details:
SiMSCI details

If one is skill in picking stock, hold as much cash as possible when you think the market is going South. No.

(28-08-2013, 10:38 PM)andrefre Wrote: Seeing a lot of concerns from forumers about a possible crash. For those that want to stay invested and retain upside in stocks, but want some insurance against a market crash, a possible strategy is the market-neutral strategy.

What it is:
- Buy stocks that you think will out-perform the market.
- Sell an equivalent amount of MSCI Singapore futures (SiMSCI futures)

How it works:
- Say you buy $70,000 of Stock A, and SELL 1 unit of SiMSCI futures for 340 points (equivalent to a negative stock market exposure of $68,000)
- Touch wood, the stock market crashes by 40%, but luckily your stock only goes down 20%.
- The SiMSCI contract goes to 204 points, you make $27,200.
- You stock goes down, causing you to lose $14,000.
- Your net gains are $27,200 - $14,000 = $13,200.
- You make $ because you "outperform" the market by 20%.
- Without this strategy, you would have made a straight loss of $14,000 (20%).

Why it works:
- You need to "Outperform" the broad market. i.e. if the market goes down 10%, your stock needs to go down not more than 10%. if the market goes up by 10%, your stock needs to go up by more than 10%.
- This means that you need to have confidence in your stock picking skills and confident that your stocks will not do as badly as the broader market.

Risks:
- Your stock picking skills are lousy, your picks underperform the market. In that case, you still lose money.
- Market goes up, but for some strange reason, your stock goes down e.g. China Minzhong. Then you are really screwed on both sides.

Most Suitable For:
- People who have invested for some years, and are confident of their stock picking skills.


Disclaimers:
- For sharing purposes only, this does not constitute financial advice. Get it from a professional.
- I do not stand to make money from you trading in any of these products and am not affiliated with any brokerages or such.


MSCI Singapore Futures details:
SiMSCI details

If one is skill in picking stock, hold as much cash as possible when you think the market is going South. No.
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
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