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Diary of a Dumb Investor: fail, Sarko, fail!

My leveraged synthetic exchange traded fund (ETF), designed to short France, may have some more – nay, a lot more – love to share.

 
Diary of a Dumb Investor: fail, Sarko, fail!

Well, my purchase of BP (BP.L) shares has turned out to be a massive flop, and my Lloyds (LLOY.L) holding is doing what it does best – shedding value. But my audacious bet against the French stock market is beginning to look quite clever.

Read Dumb Investor: the story so far

My CAC 40 2X Short Fund Shares exchange traded fund (ETF), which attempts to give me the inverse of twice the value of the French index’s daily change, has returned 7.7% since I bought it at the beginning of the month.

It jumped as high as 9% on Friday, when markets were really tanking on all this new Spanish debt stuff. But today the CAC is annoyingly staging a bit of a rebound, so I’ve lost some of my gains.

Which begs the question: should I sell out now, having had a pretty good run with what is surely one of the most esoteric investments available to a lowly retail investor like myself?

My answer? Hell no!

Yes, I’m aware that ETFs of this ‘synthetic’ sort carry all sorts of risks owing to amount of financial engineering that goes into making them. It’s also clear to me that France is not guaranteed to continue falling: the Fed or the ECB could shock us all again with another splurge of money-printing or cheap loans.

But with the French election coming up this weekend, it seems somewhat craven to pull out now, when I could potentially win big if Herr Sarkozy is ousted from the Elysée.

The thing is, I’ve read that investors know where they stand with Sarko, the incumbent. He’s close with Angela Merkel, paymaster general of the eurozone, and is unlikely to rock the fiscal boat with any mad-cap ideas such as taxing rich people more.

His opponent, François Hollande, makes me think of Hollandaise sauce. Yet he also stands for renegotiating a number of European deals and reversing some of Sarkozy’s market-friendly legislation. A France under his rule could look a lot more like doddery Spain and Italy than fortress Germany.

And I haven’t even mentioned the Communist to the left of Hollande who is racing up the polls.

What’s more, readers mostly backed my bet on France’s failure. ‘Dumber Investor, I think you made a good investment,’ said Sameh Youssef in response to last week’s entry.

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14 comments so far. Why not have your say?

ermine

Apr 16, 2012 at 11:39

> I know it’s a bet

Ever heard of the Grand National? Maybe you should diversify into dogs, too ;)

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mikest

Apr 16, 2012 at 12:01

LLOY has fallen 5.22% today, whereas BARC is 'only' down 1.82%. Does this imply some ‘reassessment’ of the inherent risk at Lloyds, or is there some other reason?

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chazza

Apr 16, 2012 at 12:13

DI, if you are only holding it in hopes of Sarko losing the French election, I would sell your CAC 40 2X Short Fund Shares exchange traded fund now. Not because I think Sarko will win, but because all the polls are predicting he won't. So the news you hope for is already in the price, and if Sark DOES win, then you lose!

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Chris Clark

Apr 16, 2012 at 12:48

What I like best about DI's musings and writings is the visibly display of agonies and uncertainties that I'm sure are shared by many others.

Considering the market bearish I did something similar to DI and bought into a US $ ETF. Treasuries did indeed go up a bit and my ETF went down a bit. And now Shares and Treasuries are up and Gold is down, and I think the Spain stuff is a 'danger UXB' problem.

So if DI's seeing a profit I'd go for it.

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Dave P

Apr 16, 2012 at 12:49

This man was never meant to be an investor.

Rather, a trader without equal.

A few growing pains will not stop his eventual success.

In the meantime, the column gets more action.

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Michael Peters Fenwicks

Apr 16, 2012 at 13:19

DI,

subscribe to the following Golden Rule - Success is 10% inspiration, 90% last-minute changes when trading these instruments.

Take the profit daily/weekly as motivation while constantly readjusting your position to hedge risk.

I do believe that the analysis concerning the instrument in mind maybe pointing higher the case being the french presidential elections this month.

So watch this space as the market does not like uncertainty hence the reasoning behind the argument.

Don't waste time learning the "tricks of the trade - unlike the commentary above." Instead, learn the trade as that is where you will gain confidence.

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Anonymous 1 needed this 'off the record'

Apr 16, 2012 at 15:36

It's good to hear that the comments directed at DI are now more uplifting, rather than the somewhat vicious putdowns he has received in the past. DI is human too, remember.

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Hotrod

Apr 16, 2012 at 15:36

Now C'mon: Take profit on a daily/weekly basis? How are gunna cover your costs with only £1000 to stake?

My plan for what it's worth, is to take a view as to which way the market is going. When I consider the markets or invidual shares to be in an uptrend I take long positions, with stop loss triggers, where appropriate, as a means of insurance.

I don't subscribe to shorting as in my experience judging when and by how much a market will fall is more unpredictable than spotting a rising trend.

European markets look fragile, but If I was in DI's shoes I would be more concerned with the knock on effects concerning his other investments. (If Paris goes down it will drag London down with it)

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alan thorburn

Apr 16, 2012 at 16:43

Ever heard of "for the long term" ?

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Moylando

Apr 16, 2012 at 18:14

"has returned 7.7% since I bought it at the beginning of the month".....

Since your need for gratification is so short term have you thought about fruit machines or better still daily spread betting. You can get your fix every day or even every second ! - With £1000 you might as well get some thrills , you'll never make anything with the trading costs you incur - me I'll just settle for 5 - 10% growth over 25 years to fund my rather less frenetic needs

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ynys

Apr 16, 2012 at 22:37

Everyone can make a small winning from time to time but can they do it consistently, in meaningful amounts? Which probably is a rhetorical question. Maybe investing is for, hopefully, protecting the value of your money and making steady gains whereas (glorified) gambling is for fun, if you like that sort of thing. Actually this post is not to unlike the one above – sorry if the logic is being laboured to some extent.

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Spotdog

Apr 17, 2012 at 14:09

An article to chear you up - re BP. Think you just need to be patient.

http://seekingalpha.com/article/501871-bp-may-be-the-hottest-stock-for-2012-with-44-upside?source=email_investing_ideas&ifp=0

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snoekie

Apr 20, 2012 at 21:40

following on from Spotdog, dare I remind you of what I have been saying over many months, patience is a virtue. Afren, and I thank you for the tip, today at £1.505, and I bought in at 94p, then 87p, and then 75 p!

Now BP is heading to my 'buy' territory, adding yet more to my holding. My recommendation to you is sit tight on that, it will rise again, I think, and what is more is will pay dividends, at not a bad rate, over 4%, and they are 'fishing' in prospectively productive areas, like Afren.

Betting on, or for that matter against, politicians is pure gambling, not investing. It will not impress uncle. Change of name in order?

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Dumb Investor

Apr 23, 2012 at 10:34

Please don't remind me about Afren!

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