Investing 101

Make Money Even in Down Market

As I was born and raised in New York, my first few trips to Yankee Stadium left a lasting impression on me.

But not in the way you’d think.

Though I was there to see the Yanks kick butt, my kid brain was more interested in watching the crowds of people in the stands.

Most people take public transit to and from the game. And you observe some strange characters on the subway. (Even some bizarre folks with the audacity to wear Red Sox jerseys behind enemy lines.)

But the one thing I found most surprising was that people started leaving the game before it was over, usually around the eighth inning.

As a child, I didn’t get it. You paid to see the game. Why leave before it’s finished?

Of course, I now understand the logic well.

If you leave a little early, you might beat the mass exodus. (And you can always stay updated on the game by listening to the radio.)

It makes sense. But everyone has the same intuition.

Therefore, most people – not just a clever few – left the game early. So, in the end, they still ran into a huge crowd.

The only way to really beat the crowd is to leave even earlier. Say, in the seventh inning. But then you risk leaving too early…

A lot can happen between the seventh and ninth innings. In fact, the game could go even longer than expected.

In other words, people must try to strike a balance between leaving too early or too late.

I think this same behavior describes much of what we’re seeing in the market right now.

The reality is company fundamentals and economic metrics do not bode well for doomsayers who expect a full-on bear market.

I mean… it could happen. But why should it?

That said, when you consider the madness of crowd psychology, it’s certainly a serious concern.

A brief correction always has the potential to snowball into something worse when investors – seeking to get out before everyone else – try to outsmart themselves.

Even so, I believe we still have an additional inning… or two… left in this historic bull market. So it would be a mistake to leave the game too early.

What should you do instead? Be defensive and consider trades that will help you generate profits despite market rockiness.

For example, utilities are a reliable, safe bet in a corrective or even bearish market…

Since the start of October, the sector – as tracked by the iShares Global Utilities ETF (NYSE: JXI) – is up about 6%, while the S&P 500 is down more than 9%.

But if you’ve got a speculative streak in you, you could be more aggressive.

For instance, the ProShares Ultra Utilities ETF (NYSE: UPW) makes it possible for  you to generate even greater returns thanks to leverage.

A leveraged ETF can track as much as three times the daily performance of its underlying index. So it’s an easy way to add instant firepower to your trades.

In this case, the ProShares Ultra Utilities ETF is double leveraged. It tracks twice the daily performance of the Dow Jones U.S. Utilities Index.

With it, you could have generated a nice double-digit gain – more than 15% – since the start of October, rather than hemorrhage cash with the rest of the market.

I like utilities because they’re often a safe investment when things go awry. Yet, if market conditions turn around and stocks rally, they’re also set up to benefit.

In other words, they’re a good interim play for exactly a time like this…

And it certainly beats striking out.

Good investing,

Anthony