How I Cashed In While Everyone Else Cries
Monday, October 13, 2008 | John M Is this Spam?Rating:
How I have cashed in while everyone else cries. It’s funny to hear my uncle, who is intelligent, successful, and investor for 20 years crying over how much money he has lost during this bear market. I ask him the simple question, “Why?” “What do you mean why” he answers in frustration, “do you not see the markets?” “Yes but didn’t you see this cycle coming over the past 12 months? Why didn’t you move to protect your assets?” He really doesn’t have an answer to this question. He is one-dimensional. He only knows how to conceivably pick winners in bull markets, like most investors and professional advisors.
To the readers: Isn’t a bear market just a downside bull market? Secondly, shouldn’t you be making money either way? The answer to both questions is, YES!
My uncle is not alone. Professional investors, experienced investors, and major investment banks still do not understand or respect investment cycles. Today Goldman Sacks cut their year-end oil target to $70 a barrel from $150 now prices are below $80. Well what took them so long? How could they not forecast lower oil prices until now? Well when you see Bear Sterns, Merrill Lynch, and Lehman Brothers all respected investment banks, going out of business because of their poor investments, you realize these people really have no idea what they are doing. The problem is people like my uncle listen to them all the way down to major financial looses. Similar to last week when Jim Crammer told everyone to sell their stocks. No kidding you clown!
There is another way to invest and here’s how I cashed in right in front of Tycoon Readers during this melt down. On August 1st I wrote an article featured in the Tycoon report title, “Oil: The beginning of a long-term downtrend”. Oil at that time sat at $126 a barrel. Almost 20 points off its high and in a confirmed bear trend, I recommended shorting the United States Oil Fund (USO) by purchasing the Jan 130 put options (QSO MZ) at $35.55. I sold them last week at $63.00 over 75% in a little over two months.
I also recommended moving on the Proshares Ultra Short ETF (DUG) at $35.35, which I sold Friday at $74 over 100% profit.
On August 21st I wrote another article featured in the Tycoon report titled, “Oil Service Sector: a Short Play for now. I recommended shorting the oil service sector (OSX) by purchasing the Mar 09 350 put options (OSX OJ) at $67, trading right now between $203 and $205, over 200% in a little under two months.
These are huge profits during one of the worst financial crisis we have ever seen. How could I be so smart while everyone else so dumb? Well I am really not that smart, I just follow the money. You see very wealthy people buy stocks when stocks are in favor. When stocks are down they buy gold or bonds. When oil is in favor, they by oil, when oil is out of favor, they sell oil. This is what we call sector rotation on the Macro level. When stocks are in favor I play the sectors most in favor. This is called sector rotation on a micro level.
Now that the Euro and gold are way over priced, I see an opportunity to make profits on the downside. As this market begins to turn around I will find stocks that are undervalued and buy them. This isn’t rocket science here. It amazes me the large financial institutions cannot grasp this concept.
The economy has been sliding for over a year now with rising oil pries, housing bubble burst, and a financial institutional crisis. As oil prices rose didn’t investors and investment banks realize this would be bad for stocks? Should they not have moved to gold, cash, or other stable investments? No, they just stay bullish on stocks even though the atmosphere was telling them a slow down was coming. See their ego led them to believe they could pick winners during a bear market. They were wrong.
The funny thing about all this is, these cycle have been occurring since the beginning of investments themselves. Bull and bear, boom and bust, expansion and contraction. Yet every time we have a bear market everyone seems surprised. If you lost money on financial stocks in the last three months you deserve too. Could you not see the financial sector was in trouble 2 years ago?
One should never consider themselves a bull or bear because to always be one or the other is to loose half the time. One has to see the market direction and invest accordingly. THERE IS NO REASON AN INVESTOR SHOULD NOT MAKE MONEY WHEN THE MARKET IS BEARISH. I say it all the time; a bear market is a downward bull. Wake up people and if your advisor kept you in stocks through this mess, FIRE HIM!
Right now I am short Gold (DGL MN) Jan 09 40 Put Options at $8.60, and the Euro (FXE OX) Mar 09 154 Put Options at $14.70. What is your strategy, to wait until the markets go up and then buy stocks when they are not that cheap anymore? Why is it year in and year out investors buy stocks high and sell them low? Hopefully this investment crisis will be a wake up call to investors not to be one-dimensional. The market will make you pay every time.
John M
