Look to the Brazilian real estate stocks for evidence for the wisdom of trading both long and short where emerging markets are concerned.
But drill down and remember that you can play both sides of the trade by going long on the winners and selling the losers short when they falter.
In Brazil, for example, the homebuilders are cult stocks for big players like Sam Zell and even Warren Buffett himself.
Rise or fall, these names are still widely owned by funds around the world — not so much because they’ve made money on an end-to-end basis, but because the shorter-term swings have created big opportunities to ride the cycle.
We can see this with PDG Realty, which sadly doesn’t trade in the United States. As its name implies, the company buys and sells residential real estate throughout Brazil and into Argentina. It’s actually the biggest homebuilder and developer in the area, bringing in about $3.6 billion a year in revenue.
And it’s incredibly volatile. From the start of the year to February 5, PDG shares soared 51%, then receded 49% after that.
This week, the stock seems to have bottomed out and is bouncing back hard, to the tune of 10% in the last five days.
Traders who bought and held throughout the twists and turns would be looking at a 20% loss year to date. But those who played the inflection points — easier than it sounds, admittedly — could have doubled their money.
Over the last four months, GFA is down 27% end to end. But from January 1 to February 23, GFA provided long-only traders a nice 28% surge, then gave the shorts 41% on the downside.
Whether you like that kind of swing long-and-then-short trade or not, there are signs these stocks are getting their wind back. PDG seems to have hit a double bottom.
And yesterday, GFA shares rebounded 7.7%, handily beating everything else in the field.