There are many different strategies to investing. Some follow the stars, other follow silly charts and some follow common sense. I’m with the latter. I follow a “bottom-down” approach. I look for companies or sectors of interest and try to bet on their success. After careful analysis, I place bets on companies undergoing massive change and positive cash inflows. With that in mind, the financial and residential industry became on obvious shorting opportunity. However, shorting is a risky strategy since the market can honestly be retarded at times and bid up useless companies. Thus, my main strategy is finding long opportunities as a result of short opportunities that the market has not yet quite grasped.
I usually like betting on specific companies to maximize returns. However, this financial crisis has made industry wide betting opportunities quite appealing. With volatility at historical highs since it has began being measured the best way to take advantage of this is not necessarily market timing. Just in the past few weeks, there have been many examples of market manipulation. This is where ETFs come into play.
ETFs allow investors to use complex strategies to take advantage of industry wide trends. I’d love to invest directly in gold, but that would require futures trading with significant downside risk exposure. I’d love to invest directly in credit default swaps, but that opportunity is really only available to institutional investors.
With ETFs now moving from the simple “specialized index” strategies the opportunities for profit potential are significantly increasing. The ProShares series of ETFs are the future of strategic investing. I was hoping to get to Wall Street and invent this very type of investing instrument, but I’m a little young. For example, what I’d call the “Tiger” series of ETFs would be a leveraged strategy that would long the best in an industry and short the worst. Why the hell in the world would you buy the worst in class long as has been done with traditional ETFs and index funds? These new instruments would be hedge funds for the masses: Not the crap mutual fund structure where 80% under perform the market.
To those that say it’s impossible to outperform the market: that is a pure lie. I’ll admit that it gets much harder when lots of money is involved but for the prudent individual investor the sky is the limit.
