Excellent question. I have wrestled with this question several times, because my two fundamental beliefs are that financials will be going down, and tangible assets will be going up, over the long term.

Sure, if one could be a perfect market timer, it would have been best to short financials from the peak, and then use the proceeds to buy depressed precious metals related assets now. However, it has been my experience that this market is so manipulated by the powers that be, that it is especially difficult to successfully short many of these issues. You may have a good fundamental short, the stock may be down 30%, you're feeling good, and all of a sudden the Fed announces an emergency rate cut or some other BS bailout, starting a multi-month rally that drives the price up by 50-100%. This has happened to many of the financials over the last year. Then, you get scared out of your position, take a loss, even though you were right, fundamentally.

You run into even more trouble if you use those double inverse funds, such as SKF, that are now increasingly popular. The reason is, these do not accurately track their underlying indices over the long run. Plug in SKF and XLF over a one year period and you will see that there are many times when they are BOTH DOWN. This is because SKF doubles the daily inverse percentage gain of the underlying index. So if XLF goes from 20 to 15 and back to 20, if you were just short the XLF you are at a net zero loss. However, percentage-wise, this is a 25% loss followed by a 33% gain. Thus, with SKF you would register a 50% (double 25%) gain, followed by a 66% (double 33%) loss. Thus, while the underlying fund remains even over a period of time, the double funds lose. I have personally experienced this, and you can check it on the graphs.

My final thought is, if you are not in this for the short term, think about the ultimate outcome. You never know when these juniors are going to take off. Many of them become 5, 10, or 20 baggers over several years. On the flip side, the most you stand to make by shorting is 100%, and that's if you time it right both times. I would much prefer an attempt at 500% or more, since they are based on the same fundamental belief of the ultimate outcome. Sure, you may have taken a hit in the last couple months, we all have, but let's think about the final outcome.

As a caveat, I maintain a small short position in several financials, but this is more for my own learning. I tend to follow something more closely if I am invested. For my real gains, hopefully life-altering gains, I am investing in these juniors for the long run.

-Hysteria