Just bought 1000 shares of Ultra Financials ProShares UYG at $3.40/share, for a short to mid-term trade. This ETF seeks daily investment results, before fees and expenses, which correspond to twice the daily performance of the Dow Jones U.S. Financials index. The fund normally invests 80% of assets in financial instruments with economic characteristics that should be twice the return of the index.
Basically, UYG will perform twice as good as the returns of the financial sector, but it will also perform twice as bad when the sector is down, and is the reason why it just reached a new low today. At these prices, UYG seemed worth the risk to me. I’m speculating that the upside potential far outweighs the downside risks.
I don’t believe that our financial system is doomed to failure, and as the sector stabilizes and economic fears subside, the price of UYG should soar. I also believe that it’s unlikely UYG will fall to zero, but if it does, I can afford the loss in the event that I’m wrong.
As the chart shows, the onset of the market crash which began in October 2007 has taken it’s toll on UYG. However, at one point approximately two years ago, the price of this fund was in the mid $70.00 range. It would be easy for UYG to double it’s current price with the smallest of positive news.
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Mike, with all due respect, you seem to be buying on the way down. I believe you once said in your blog, ‘trend is my friend.’
well, the trend has certainly beend downward since early 2008, with wednesday being another big selloff day.
I don’t mean to question your investment, (you may very well profit from it) but this has all the appearance of market timing.
I have recently been burned trying to market time financials (thanks BAC), but I learned my lesson, and will not invest anymore until I the trend starts to point upward with some stability.
cheers!
Posted 21 Jan 2009 at 3:04 am ¶There has been a lot of terrible press about the leveraged pro-shares lately. I entered two positions with them last Thursday (SDS ultra short S&P) and PST ultra bond short. Analyzing their performance before I entered it seemed both generally did what I expect them to do over time. The issue seems to be that while they are constructed to give approximately 2x the move on a daily basis this somehow becomes distorted for longer term trades. One story appeared to say that if you had bought both a long and a short on the same day, you would have lost money in both trades at some point in the future.
I’d like to hear your experience with them after you’ve used them for awhile. i.e. if you notice any distortions or pitfalls with their use.
Posted 21 Jan 2009 at 8:59 am ¶Thanks for the input Kel. But, I actually don’t trade very often and I’m not that sophisticated.
I bought UYG based upon investor’s fear and panic, and that it couldn’t go much lower without turning around at some point (within the year).
As long as it “approximates” what it’s supposed to do, it’s not that important to me if it’s “exactly” 2X.
But, since you asked nicely
I’ll be glad to let you know if I experience any grossly noticeable distortions or pitfalls.
The main pitfall that would “really” concern me is if I’m wrong and the financial sector “actually” collapses. If that happens, we’re all screwed.
Posted 21 Jan 2009 at 9:46 am ¶I don’t mean to question your investment, (you may very well profit from it) but this has all the appearance of market timing
I’m not sure what you are afraid of that causes you to hide your identity Ken, but I’ll respond to your post.
I’m guessing that you haven’t read my “About Me“, “About My Blog” or “Site Disclaimer” pages.
I’ve said a lot of things in my life both seriously and jokingly, so it’s possible that I could have said the “trend is my friend” somewhere else. But, I can’t seem to find that I said that phrase anywhere on my blog.
My investment in UYG doesn’t have the appearance of market-timing… it IS market-timing.
Sorry about your market-timing adventure with BAC, especially if you’ve already realized your loss. But, that’s the risks one takes when attempting to speculate in the markets.
Posted 21 Jan 2009 at 10:02 am ¶Not that I believe anything that a Bush administration appointee tells me, but FDIC Chief, Sheila Bair has been asked to continue on under the Obama administration. I’d like to believe she wouldn’t try to deceive us.
According to a recent CNBC News video interview, Ms. Bair stated:
But, this positive report of solvency hasn’t yet been reflected in the stock market.
“There is a fear factor,” she said. “You’re seeing that in the stock market, you’re seeing that in other places. People don’t know how bad the economy is going to get, what the outer limit on these losses could be.”
Like she says, it’ll just take time for this problem to resolve.
What I’d like to now though, is why wasn’t the original “aggregator bank” plan for troubled assets instituted, as Senator Hutchison described? I would have liked the interview to go off in that direction.
Also, small banks have been getting TARP funds, once they’ve applied for them. So, the government is making sure they have access to cash.
Posted 21 Jan 2009 at 12:24 pm ¶There is nothing wrong with strategically timing the market – like getting out in Oct of 2007 for example. Trying to do it at a high frequency rate while not having time to watch it constantly is generally a mistake – which is why they say most market timers lose.
Judging by today’s action I think your move was very nicely timed.
Posted 21 Jan 2009 at 8:11 pm ¶Well, maybe all small banks haven’t gotten access to TARP funds. At least not Arizona small banks.
Arizona shut out of most recent bailout round.
Posted 22 Jan 2009 at 6:08 pm ¶Good luck on this one Mike, it appears your timing may be good. Although compared to the risk or lack there of that you usually take, this seems like jumping out of an airplane. Just don’t forget your parachute.
Posted 22 Jan 2009 at 10:43 pm ¶Interesting… you’ll have to let us know how it goes. This is truly a great time to be liquid enough to make some investments like this.
Posted 23 Jan 2009 at 11:38 am ¶I’m just following some of Warren Buffett’s advice:
..attempt to be fearful when others are greedy and to be greedy only when others are fearful.
I usually post my investment choices so people who visit Guzzo the Contrarian can keep up with my successes or failures, or follow my processes.
It may sound like I’m liquid, but I’m just like every other average American, and not actually made of money. I just happen to live below my means and carry no debt.
I’m actually unemployed as we speak. I wish I had extra money available to invest in the stock market right now.
Posted 23 Jan 2009 at 1:33 pm ¶Whoa you got hit with a layoff as well? What happened at the pharmacy? Welcome to America’s current environment, it is pretty shaky right now.
Posted 23 Jan 2009 at 3:41 pm ¶Yes and no.
I’ve been trying to work part time this past two years, but it’s almost impossible. It seems like no one will give you a part-time job with benefits, then allow you to work just part-time.
I interviewed for a part-time job with benefits at a local hospital, but the position was put on hold after the interview. I took the position as an on-call pharmacist (with part-time hours) with the premise that the part-time “benefited” position would be open by the end of the year.
Instead, the hospital is bleeding money, and in December decided to cut the hours of all part-time and on-call pharmacy staff, including me.
They offered a transfer to another of their hospitals, but it would have been another on-call position (working part to full time) without benefits, so I declined to stay on and gave notice.
I’m looking for a full time job, but am only seeking a 7-day on/off, night-shift position at this time. This position would be ideal for me, and jobs are available, but they take a little time to get.
Posted 23 Jan 2009 at 4:25 pm ¶HI
Posted 31 Jan 2009 at 1:55 pm ¶i do agree with your view on the uyg , my self actually i got 50.000 shares because I also belive the market disounted heavly all the bad news, I also believe the financials are not all in good shape , but there is still some very good plays around and as a group some support is coming on the way , and another positive is activly managed , so in principle the are on the look out!!??
Anyway I am on it to even a shorter time span , I do believe I will double my money by the summer, normally one of the first sectors to start coming out of the recession is the financial, don’t forget without it we will never get out of a recession!
As you said, and very wisely , the risk/reward odds are more in the side of the reward at least in my analisys…
Regards…
Here’s a good video explanation from Morningstar.com alluding to what Kel describes above. I’ve noticed the distortion myself in UYG.
Returns at these ETFs could you
Posted 15 Mar 2009 at 9:43 pm ¶Post a Comment