Wall Street Serves Up a New Toxic Product

Available now from the same guys that brought you to the brink of global financial collapse, a new and better form of capital punishment. But, hurry, supplies are unlimited and sales are suitable for only a few self selected sophisticated investors.
If your capital hasn’t been punished enough already, and you consider yourself sophisticated enough to run with the big dogs, Wall Street would like to introduce you to Leveraged ETFs. Through the same kind of hocus pocus financial engineering that we have come to expect from The Street, Leveraged ETFs can double or even triple the daily volatility of your favorite index.
Hasn’t anybody paid attention for the last three years? Leverage Kills! A leveraged ETF is dangerous at any speed.
Let’s be perfectly clear: Long term results will not double or triple. Depending on the actual stream of returns of the market over time, a 2X leveraged ETF will probably have about 30% to 50% higher return than the index. That should tell you something. Nobody in their right mind takes 100% more risk for 30% – 50% more return.
But, there’s more! You can buy these on margin which would leverage up your risk even higher, and for those of you with cast iron stomachs and suicidal tendencies you can sell them short.
Long term investors will avoid these toxic holdings like the plague. However, for those highly sophisticated day traders delusional and self destructive enough to believe that they can forecast the market, new opportunities to seriously erode their capital base emerge.
In case you haven’t heard, day traders seldom make money over time, and the overwhelming evidence is that the more you trade the more you will underperform a buy and hold strategy. When you couple day trading with leverage, you create almost the perfect storm.
The leveraged ETF is a day trader’s dream, a product with almost unlimited destructive potential in the right hands.
The Leveraged ETF is proof positive that the as of yet unindicted criminals in pin stripes on Wall Street are not there to help the investor. Trading derivatives with other people’s money can be so much fun. But, one can only imagine the profits that will flow to their bottom line.
Do you hear me now? Have I been perfectly clear?

By | 2018-11-29T16:16:12+00:00 July 1st, 2011|Blog|

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