Protect Your Portfolio

Transcription

1 1 Protect Your Portfolio 2013 Phoenix Capital Research, OmniSans Publish, LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of OmniSans Publishing, LLC. All Rights Reserved.

2 Disclaimer: The information contained on this newsletter is for marketing purposes only. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice by Phoenix Capital Research or any of its affiliates, nor is it to be relied upon in making any investment or other decision. Neither the information nor any opinion expressed on this newsletter constitutes and offer to buy or sell any security or instrument or participate in any particular trading strategy. The information in the newsletter is not a complete description of the securities, markets or developments discussed. Information and opinions regarding individual securities do not mean that a security is recommended or suitable for a particular investor. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Opinions and estimates expressed on this newsletter constitute Phoenix Capital Research's judgment as of the date appearing on the opinion or estimate and are subject to change without notice. This information may not reflect events occurring after the date or time of publication. Phoenix Capital Research is not obligated to continue to offer information or opinions regarding any security, instrument or service. Information has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. Phoenix Capital Research and its officers, directors, employees, agents and/or affiliates may have executed, or may in the future execute, transactions in any of the securities or derivatives of any securities discussed on this newsletter. Past performance is not necessarily a guide to future performance and is no guarantee of future results. Securities products are not FDIC insured, are not guaranteed by any bank and involve investment risk, including possible loss of entire value. Phoenix Capital Research, OmniSans Publishing LLC and Graham Summers shall not be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided. Phoenix Capital Research is not responsible for the content of other newsletters to which this one may be linked and reserves the right to remove such links. OmniSans Publishing LLC and the Phoenix Capital Research Logo are registered trademarks of Phoenix Capital Research. OmniSans Publishing LLC - PO BOX 6369, Charlottesville, VA 22906

3 Protect Your Portfolio The purpose of these reports is to help you prepare your family/ loved ones, savings, and investment portfolios for the next round of systemic risk. In order to understand why there will be a second round to the Great Crisis you need to understand how the global financial system truly operates. To do this, we highly recommend reading our Special Report The C Word: The Dark Secret the Fed Wants Hidden before you continue with this current report. For those of you who have already ready The C Word: The Dark Secret the Fed Wants Hidden, let s get started. Before we get into the specific investment suggestions, it s important to take a big picture of stocks as an asset class. The common consensus is that stocks return an average of 6% a year (at least going back to 1900). However, a study by the London Business School recently revealed that when you remove dividends, stocks annual gains drop to a mere 1.7% (even lower than the return from long- term Treasury bonds over the same period). Put another way, dividends account for 70% of the average US stock returns since When you remove dividends, stocks actually offer LESS reward and MORE risk than bonds. If you d invested $1 in stocks in 1900, you d have made $582 with reinvested dividends adjusted for inflation vs. a mere $6 from price appreciation. There are of course exceptions to these general rules: a master trader like George Soros can outperform the markets by many multiples based on price appreciation. However, for the vast majority of investors, not traders, it is critical to focus on dividends when investing in stocks. With that in mind, if you have to remain invested in stocks to the long side, you should focus on high quality companies with low debt and strong unencumbered cash flows that operate in industries that people will want no matter happens in the economy (tobacco, soft drinks, alcohol, drugs, etc.). The companies listed on Table 1 are a good place to start. Please note that these companies, like all stocks, will fall during a crisis. However, as the chart on Figure 1 comparing Coke s share price to that of the S&P 500 during the 2008 Crash illustrates, high quality companies generally fall less than the market as a whole during times of collapse. Now, let s talk about how to hedge against a market collapse. When it comes to profiting from a market collapse, the easiest, most liquid means of doing so for individual investors are UltraShort ETFs. If you re unfamiliar with UltraShort ETFs, these are investments that return 2X the inverse of a particular ETF. By way of 3

4 example, let s consider the UltraShort Financials ETF (SKF). SKF returns 2X the inverse of the Financials ETF (IYF). So if IYF falls 5%, SKF is supposed to rise 10%. If IYF falls 10%, SKF is supposed to rise 20%. The reason I say supposed to is because UltraShort ETFs do NOT perfectly move in tandem to their underlying indexes in the long- term. The reason for this is that while they re designed to return 2X the inverse of their underlying indexes, in the long- term they trade based on demand from the market. So, if the market is not correcting, these investments will gradually fall in value as investors buy them less and less. With that in mind, UltraShort ETFs are best utilized as short- term positions to open when the market goes into Crisis mode. If you buy them hoping that a Crash will eventually manifest you will almost assuredly lose money. Instead, you need to wait until thing get ugly to open these positions. However, this demand- based pricing also works to your benefit during times of Crisis. The reason for this is that during a Crisis, investors will pile into these investments allowing them to move more than 2X the inverse of their underlying indexes. By way of example, consider the performance of the UltraShort Financial ETF (SKF) during the 2008 Crash. In 2008, financial stocks (as measured by the 4

5 Financials ETF: IYF), fell roughly 50% (Figure 2). However, if you d bought SKF once the Crisis really took hold (late September 2008), you could have made MUCH MORE than 100% in two month s time as investors panicked (Figure 3). This is what makes the UltraShort ETFs so handy when a Crisis hits: investor demand can result in them moving even more than they re supposed to. Below is a list of the more popular UltraShort ETFs: 1) The UltraShort S&P 500 ETF (SDS) 2) The UltraShort Dow Jones Industrial Average (DXD) 3) The UltraShort NASDAQ (QQQ) 4) The UltraShort Russell 2000 ETF (TWM) 5) The UltraShort Financials ETF (SKF) 6) The UltraShort Real Estate ETF (SRS) 7) The UltraShort Materials ETF (SMN) 8) The UltraShort Emerging markets ETF (EEV) 9) The UltraShort China ETF (FXP) 10) The UltraShort Brazil ETF (BZQ) 5

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7 In terms of portfolio allocation, I cannot provide specific insights because everyone s risk appetite is different. However as a general rule of thumb, if you have to remain invested to the long side of the market, I would urge you to focus on high quality companies such as the ones listed at the beginning of this report. However, do not simply invest based on this report. Always perform your own due diligence and consult with a financial advisor or tax planner. In terms of investing in UltraShort ETFs, you should not allocate a large percentage of your portfolio into these investments even during times of Crisis. The reason for this is that these investments can be quite volatile. Again, everyone s risk appetite is different but generally speaking I would be very cautious about investing more than 5% of your portfolio into these investments even during a Crisis. This concludes the Protect Your Portfolio portion of the Phoenix Investor Personal Protection Kit. To other two reports, Protect Your Family and Protect Your Savings, can be downloaded at the Subscribers only Private Wealth Advisory website. Best Regards, Phoenix Capital Research 7