ETF’s Are For Sissies
What happened to the good old day’s when investors actually did their homework and researched new potential investment opportunities? I am talking about investing in individual companies.
Let’s take the natural resource sector as an example. You could invest in many different ETF’s giving you a position in a basket of securities. But, and this is a big issue with us, investors will never achieve the big gains of 100s and 1000s of percent returns with any ETF. How much are you making with your ETF’s?
ETF’s, Exchange Traded Funds, have exploded in popularity particularly after the market meltdown in 2008. Many investors are still scared and are shying away from individual securities because of their perceived risk. The ETF’s give investor’s diversification with a basket of securities. The basket may be a stock sector, a commodity class or mixture of commodities, currency of a country or region; or stocks of an entire continent or grouping of countries. In other words, you can buy an ETF on basically anything.
With an ETF, you will be investing with companies in the same sector. Some of those companies with outperform and some will underperform leaving you with an average performance on your ETF. Why not perform your own research and focus on those outperforming companies?
As advantageous and convenient as the ETF is, a value investor will experience higher profits with the tried-and-true methods of stock selection. Seek those companies with great management, excellent properties, mining friendly countries, etc. It’s is not really that difficult.
If you are content with modest returns on your investments, go for it. Frankly, we want more and are prepared to take ‘some risk’ in order to achieve above average gains. For those investors in the natural resource sector, perhaps you should consider allocating a minimum of 10% to 20% back into individual shares? Something to think about!
We would acknowledge that some of the ETF’s make some sense, like the currency ETF’s, Country specific, i.e., China or Brazil ETF’s and some others. We can also see using ETF’s as a hedging vehicle as you can short the ETF or perhaps even purchase puts or calls on them.
But as a general rule, we would encourage investors to get back to the basics and make your own decisions.
In the natural resource sector common shares and many long-term warrants on those shares have generated monster gains recently. Most investors are missing out because they are taking the sissy approach and investing in ETF’s to reduce their risk but also giving up these significant gains that could change your lifestyle.
Our current opinion is that gold has bottomed and the markets are heading substantially higher very soon. The common shares and long-term warrants trading on those shares will explode in value and this is where we want to be. What about you?
We invite readers to join us in San Francisco, California at the Hard Assets Conference on November 21 and 22.
About Dudley Baker
Dudley Baker Archive
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|10/28/2010||Portfolio Diversification is Essential||story|
|10/06/2010||My Greatest Fear – Selling Too Soon||story|
|09/30/2010||Time for a Paradigm Shift in Your Investment Portfolio||story|
|08/03/2010||Warrants, Options and Leaps||story|
|07/15/2010||Here Is What Happened and Will Happen Again||story|
|06/07/2010||Carpe Diem – Seize the Day||story|
|09/15/2009||Gold Shares & Warrants||story|