Houses and Hedges

My last post on the wonderful housing market we are having was back in November. That Autumn I had decided to declare the market peaked, and still feel that that was a correct call. Of course, these things take time to work their way through the system, especially with people awaiting a Spring bounce. Things have remained mostly quiet these past few months, and I’ve been busy adding more optimistic positions to my small portfolio. What I’ve been holding off on adding is a hedge against a housing downturn.

I tend to be fairly risk-averse, and would never consider shorting a stock. However, there are number of funds that attempt to match the inverse of a market index. For example, one such fund is tied to the Dow Jones U.S. Real Estate Index. For the past few months, I’ve considered housing stocks to be dangerous territory, somewhat akin to shares of in the latter days of the dot com bubble. Owning an inverse fund in a rising market is a sure way to lose money, so for this occasion I’m also trying to generally time the market. Clever readers will note that I’m breaking at least two of the standard rules for value investing: you don’t time the market, and you don’t take short positions.

Just to reassure you, I’m not going all in. I’m using money I can afford to lose, because there’s a difference between a small wager and complete irresponsibility. The reason I’m doing this is mainly to put some money where my mouth is; and with that I’ll say that I bought in at the end of March. Tune in this time next year to see how much I’ve lost.

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