Making Money In A Down Market

By Al Thomas

In 2008 almost everyone lost money. Almost everyone. A few made a profit because they would not remain in the box.
To make money today the investor must think outside the box as the market approaches the new tipping point. It looks like it is headed for a wide sideways pattern for the months ahead.

Most brokers have not been taught by their companies how to make money and few have any idea what to do when the market tanks. They look at each other with blank faces and ask what do we do now. Customers call either crying or screaming.

There are two basics brokers have heard of. Selling out and putting customers into a money market fund which their company will not allow or going short which most of them do not understand and their customers are afraid of with good reason. The latter can be very dangerous for the novice.

There is a third which some have heard of, but do not know how to use. There are both mutual funds and exchange traded funds that go up while the market is going down. Anyone can buy them. They are called bear funds. I made good use of them last year.

All investors are familiar with the S&P500 Index. It is one of the standard measurements of the stock market. There are many mutual funds that follow it exactly. It is an excellent investment while the market is rising. You don’t want to own it while the market is crashing. Last year it lost about 40%.

There is an exchange traded fund with the symbol SPY that mimics it. Conversely there is an exchange traded fund with the symbol SH that is the mirror image is the SP500. It goes up while the SPY goes down.

The problem is brokers don’t know when to sell out the long positions and buy the bear funds. There are several methods that work very well all of which Wall Street tells their brokers will not work.

How many times have you heard market timing doesn’t work? It does. Several years ago the Federal Reserve wrote a treatise saying it outperformed the Buy and Hold method.

Using a simple 200-day moving average penetration will have a good broker watching to protect his clients. There are things called oscillators where two moving average lines crossing over give buy and sell signals.

If your broker or financial planner is not trained in these technical indicators it is time to change to a new advisor. If you don’t know about them it is time you learned or you can watch your money disappear again in the next down sweep. Yes, I guarantee there will be another one; it is impossible to predict when.

Only technical indicators will show investors when to be in cash. Fundamental analysis will not.

An investor who learns to use bear funds will protect his capital and can make money while the market is crashing.

Al Thomas’ book, “If It Doesn’t Go Up, Don’t Buy It!” has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know. Copyright 2009 Williamsburg Investment Co. All rights reserved.

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