Be Careful What You Buy For Your Portfolio

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
May 30, 2016

I have now been involved in the analyst side of this business for almost 5 years.  During that time, I have had the opportunity to interact with the almost three thousand members in my trading room at   https://www.elliottwavetrader.net/ , who range from novices to large money managers, in addition to the thousands who have commented on my public articles.  From all these interactions, I have learned much about novice traders and why so many of them fail.

Stay Away From Leveraged Funds

While there are a number of reasons as to why there is such a monstrously high rate of failure amongst novice traders, it is clear that one such driver is the desire to hit a home run at their first at bat.  And, there are many tools placed before novice traders to entice them into swinging for the fences.  If you don’t understand to what I am alluding, I will come out and say it:  I am referring to the leveraged funds, or any instrument that carries with it potentially heavy decay.

Several years ago, I wrote an article on Seeking Alpha, which explains why most investors and traders should stay away from these leveraged funds.  http://seekingalpha.com/article/2041173-should-you-invest-in-agq-uslv-or-any-other-leveraged-etf

Most really do not understand how the prices for these funds are calculated, and often wind up hugely underwater holding them when they should only be trading them for very short time periods.  And, as I noted in big bold letters in my old article, it is still very worth repeating:

Any leveraged ETF is purely a trading vehicle and should never be used as an investment vehicle. And, yes, I will repeat the main point: Leveraged ETF's should never be used as an investment vehicle.

Stay Away From “Experts” Advising “Holding” Leveraged Funds

Amazingly, not only do most novice investors still use them inappropriately, I am still shocked when I see so-called “experts” suggesting these vehicles as a “buy-and-hold” to their subscribers.  And, what is worse is that they do this even during periods of market volatility when there is no general direction to the market.  This is exactly how novice traders lose money, and why any “expert” who suggests you buy and hold one of these funds should not only be ignored, but run out of the business.  Anyone suggesting to buy and hold one of these funds has no clue how their price is calculated and is nothing less than reckless and dangerous. They have no interest in your well-being and will lead you down a path to ruin.

Under normal circumstances, the chances that a trader succeeds are exceptionally low to begin with.  Why would you want to decrease your likelihood of success even more?  So, my advice to traders, and especially investors, is to stay clear of these leveraged funds unless your purpose is to use them for that which they may ONLY be used – as a very short term trade. 

And, if an “expert” attempts to entice you into using them for any other reason, not only should you run away as fast as you can, but you should warn every person you can about how dangerous this person really is to the health of individual investor accounts.  I have seen and heard about too many novice traders blowing up their accounts from such false enticements, and the internet is littered with complaints about these “experts” who led investors down the path of blowing up their accounts using these leveraged funds.  So, as the title to the article states, please be careful about what you buy for your portfolio.

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net, a live Trading Room featuring his intraday market analysis (including emini S&P500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education. You can contact Avi at: [email protected].


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