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Economy , Finance , Investing , Personal Development

We Don’t Know What’s Going On… But We Can Still Do Well

August 16, 2016

“We make long term trades on things that we think are right and we make short term trades on things we think are wrong.”

This is what I said last week, in regards to how we can make money when we don’t know what the hell is going on. Let’s list the facts that we know are true:

  • Central banks and governments throughout the world have artificially suppressed interest rates; sometimes to negative rates.
  • Central banks and governments are printing money through stimulus programs, sometimes known as “Quantitative Easing.”
  • The US is currently in one of the longest bull markets ever.
  • There is significant global conflict that has not resulted in any major events (war).

All of those facts would be bullish reasons to own and/or invest in gold.

Here are more facts to counter the above:

  • The tech industry in the US continues to create unbelievably successful products and services.
  • The current US bull market has lasted a very long time, but that fact alone does not indicate a ‘crash’ is coming.
  • The low interest rates and money printing policies of various countries can be directly correlated to the increase of many world markets. How long that will last… who knows?
  • Although there is significant global conflict, we are living in one of the safest times in world history.

All of these facts would be bullish to buy more stocks.

Now, here is the important difference between the two groups of facts I listed above:

The first group will have results over the long term – so we will make investments and trades based on the prediction (from our research) that these results will take longer.

The second group will have results over the short term – so we will make investments and trades based on the prediction (from our research) that these results will happen soon.

Quite a simple way to look at things… but a strategy that most people avoid because they get wrapped up in emotion.

Ok… so you want to know what to do… here are some suggestions:

For the short term, if you are weary about the market (like myself), but acknowledge we could see upwards motion for a little while, this trade might interest you:

Call options on any of the ETFs which track US exchanges. ($SPY, $QQQ, $DIA, etc.) With this strategy you are exposing yourself to big gains if the market goes up. If the market goes down, you will not be at any risk, except for the cost of the options (maybe a couple hundred dollars for a consumer trader). You want to choose call options that have an expiration date not too far away, because you are trading with the idea that the market could go up in the short term, but not in the long term. This trade is really just a hedge to your longer viewed trade(s).

For the long term, if you’re thinking that the market will correct in the next several years, or sooner; you’re going to want to own stocks that do well in a down market. Gold, silver and mining stocks should immediately come to your mind:

Stocks such as $SLV, $GLD, $GDX, etc. are some good examples. You can just buy these stocks like you would any other stock; meaning you are willing to hold them for a while.

You can also do call options that have expiration dates a couple years or more from now. These options will be more expensive, but you are at least exposing yourself to the upside without risking any downside (other than the loss of your cost for the option contracts themselves).

Finally, you could do the reverse of everything I just mentioned.

You could go short (or buy puts) on metals for the short term. And you could go short (or buy puts) on US exchanges for the long term.

***As a disclosure, I currently don’t have any of these positions open – and may never pursue these ideas.

Everything above is not a recommendation for you to execute. Instead, it is an example of how you can expose yourself to opportunities instead of waiting for things to happen.

Many people who think the market is going to crash just sit on the sidelines waiting for ‘it’ to happen. They could instead pursue different strategies that allows them exposure without having to “time the market” perfectly – and without risking everything.