Hey everyone, Hope ye’re all having a great day. So, I don’t know when the next recession is going to be but I know that when it does occur I want to take full advantage of it. Initially, I was thinking some sort of put option strategy but I decided against it because I don’t feel I know enough about options to successfully implement a strategy. So after some thinking, I decided maybe inverse leveraged ETF’s might be better. The plan would be to buy something like SQQQ or a more cyclical sector focused ETF once a recession is apparent. I’d then hold for the course of the recession. If you’re well versed in the world of ETF’s I’d love to hear your point of view. Is such a strategy even realistic? Or am I being stupid. Secondly, what sort of criteria should I be looking for when picking a suitable inverse leveraged ETF. I know that the homebuilding industry would be severely affected during a recession but I’m not aware of any 3× inverse leveraged ETF’s in the sector. I presume the financial sector would be affected as bad. What sort of ETF would you recommend? Don’t be afraid to be bluntly honest with me. This is me just brainstorming And I'm well aware of how critical timing would be for this to work. Your knowledge would be really appreciated if you had a few minutes to spare. Thanks again, B.P
HERE is a little article for you 7 Risks of Trading Leveraged ETFs and How to Avoid Them https://etfdb.com/leveraged-etfs/7-mistakes-to-avoid-when-trading-leveraged-etfs/ Why That Leveraged ETF Is A Bad Idea https://www.forbes.com/sites/katest...hat-leveraged-etf-is-a-bad-idea/#b4bf1bf6ed22 BEWARE the danger of hindsight thinking. ARE YOU sure you will know when a recession starts and when it is ended? Did you think we were in a recession in November and December 2018. Did you anticipate what has happened in 2019. If you had bought a 3X inverse ETF in December anticipating that the market drop would continue into the new year how would you be doing right now? LEVERAGE is a BITCH. AND.....analysis of trading habits of humans will tell you that most people CAN NOT time the markets. Basically what you are wanting to do is MARKET TIMING. Therefore, if I was you, and I decided to do what you are considering, I would NOT use a leveraged product. If you do use the ETF strategy.....please start a thread when you start and keep us informed as you follow the strategy from start to finish. It will make for interesting reading and a good learning experience for others on here. Thanks for an interesting question and post.
Three things have been proven over time: 1) People generally cannot predict a recession. 2) People who react to negative events generally don't do as well as people who just leave their money in the market for the long term. 3) People, even those who are aware of points 1 & 2, continue trying to time the market. Going back to go back to point 1. There are a few people who have been able to predict market collapses with reasonable accuracy. Warren Buffett is one example. He watched the GFC from the sidelines in 2008 and then got back into the market in 2009. There are legions of people who think they can predict market collapses but cannot. There are several channels on YouTube that predict a real estate or financial market collapse this year. Digging into the channels, I find identical videos last year and the year before from the same people. "But this time we're pretty sure...." When a market meltdown does occur, I'm sure they are going to claim credit for having predicted it. I think if you predict it more than three times without being right, you should admit to yourself that you cannot predict the event. Predictions that are vague and long term (ie: a market collapse will take place in the next several years that might be huge but possible only minor) are made by charlatans. The odds of a good company producing value over a long period of time are extremely high. The odds of someone repeatedly winning in the wealth redistribution lottery of trading over a long period of time are near zero. Good luck. If you discover the key to getting rich quickly, please let us know. I'd like to make a ton of money really fast with no effort.
You seem to be associating a recession with a stock market "crash", since you're talking puts and inverse ETFs. One way to take advantage of a stock market drop is to just not lose money when other investments are. Seriously, just be all cash while the stock market goes down -30% in a year. That is big time outperformance. Try beating the market by 30% in a good year. Oh, and that 3x leverage inverse building ETF...that's a good question, because there used to be CLAW but that seems to be gone. Direxion does a lot of the 3x leverage ETFs, and they come up with interesting names for them. http://www.direxioninvestments.com/leveraged-inverse-etfs (ctrl+F nail)
Hi @B.P Christopher welcome to this forum Just my 2 cents, 3X leveraged ETFs are extremely volatile and you should hold it for a few days at most and probably not weeks/months. Even in a bear market, we could have some massive bear market rally in between and you could lose money by holding these 3X leveraged ETF for too long. Anyway, these leveraged ETFs are designed for some extremely short term trading and you aren't supposed to hold them for too long. If you think bear markets are coming, then things like TLT (Bonds), GLD (Gold), and FXY (Yen) could be decent plays since safe havens tend to do well when equities selloff. 1X bear ETF like SH and DOG could be decent plays too in a bear market, less volatile than the 3X leveraged ETFs and you don't have to worry as about the decay. Just for me personally, what I would do in a bear market is to hold the safe havens that I mentioned and add some positions of the companies that I like slowly if they are getting hit hard.
How would I take advantage of a recession? I have a portfolio with 40% in Bonds and 30% in Stock Aristocrats and speculate with the remaining 30%. I constantly think about the bear market that will come someday. I would stick with the allocations above in this "Long Only" portfolio but I would consider speculating with inverse ETF's. I would hold those inverse ETF's as long as they ranked high with value, momentum and safety. I would check this ranking daily. I currently do not hold any inverse positions in any sector. But I check daily for the "turn" in a unique use of a stock screener I subscribe to. Thanks for this thread and your question. It's good to have a plan.
