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Author: jacket97 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 451  
Subject: Re: A Big Short refugee's quandary Date: 5/14/2011 11:13 AM
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First, welcome to Alpha. If you intend to stick around, I think you will find the community debate both lively and informative.

To your questions, I echo the sentiments of those who have already chimed in. I would like to add a couple points.

Taxes and investing
I don't like to think about taxes when making investing decisions. It is only a minor consideration. I think of it this way. What is the difference between your marginal short-term and long-term cap gains rate (e.g. 36% - 15% = 21%)? I consider the difference to be the tax hit. When considering the damage the market may do in the interim while you wait for your 12 month holding period, the tax hit might seem more palatable. I also consider the ability to use losses in offsetting gains to be an acceleration of a tax benefit (as opposed to the $3k/yr income limit). That is me, your mileage may vary, especially if you aren't a US taxpayer.

Hedging and Alpha
As a portfolio service, the longs hedge the shorts. However, they are considered independent ideas - the intent is to make money on both longs and shorts. In the ~6 months of the service so far, the closest we have come to a pair trade is long SA and short NG and possibly long CSCO, short JNPR. However, the trades were not pitched that way and the allocations did not match up perfectly.

What you should do is think about the exposure you have and the level of risk implied by that. If you are comfortable matching the Alpha portfolio then go for it. If you are concerned that you might miss so upside then find ways to add long exposure (e.g. ETFs). If you are concerned about a pullback, hang back on some of the long trades.
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