The Idiot's Guide To Losing Money

Just wanted to note that I've been wrong about DUG two times already, which just goes to show what you get for not reading the small print. Incredibly, I accidentally bought DUG last year when I was trying to short the DOW and simply misread the symbol (the Dow short ETF is DOG). When I finally noticed it was decoupled from the DOW, I checked and saw that it was actually a 2X short fund for oil, and swore not only would I never make another accidental purchase through ignorance, but that I would never short oil.

A couple weeks ago when oil went over $100 a barrel, I broke my word and decided to short oil with DUG after all. At first oil went up and and DUG dropped, which was fine by me since I was sure the situation would turn around. But then, oil kept going up and DUG began to rise as well. Two days ago, I was ahead almost 10% despite oil rising to an all time high, and was finally motivated to figure out why. DUG wasn't the simple 2X oil short based on the commodity price I'd assumed when I bought it, DUG is a 2X short of the DOW Oil and Gas Index. The DOW Oil and Gas Index consists not of oil but of oil and gas energy companies, refiners, etc, who have largely taking a beating as their feedstock prices rose.

Thanks to Ben Bernanke and the Wall Street Fed bailout, the I lost back that 10% yesterday on surging stock prices, but at least I know why. I'm not sure at this point whether or not I'll hold the position, I might look for a real oil short and swap the money into that instead, especially with the price of oil at $107. While it's possible oil will continue to rise, with some folks now talking about $200 (how folks love round numbers) my own suspicion is that it's a commodity bubble and will break when the currency problems get ironed out.