Tuesday, November 18, 2008

The insanity I've been hiding from you.

So two weeks ago I ran into a fun investing idea that I didn't share with the blog because it is insane and because I don't want anyone to sue me. If you look at my CAPS list, you'll see that my latest pick was made on November 10 and is up 53% in the last eight days. That pick is a little something I call "the insanity index." I've written numerous times before about the 2x leveraged index funds (and inverse index funds) I love so much these days. But what I didn't mention was that just two weeks ago, a new series of indexes were created which track the market at 3x leverage.

Yes, I realize that is exactly what we don't need right now.

Anyway, you can short financials, large caps, small caps, or energy all at 3x. Doing so is, of course, very dangerous. Just a quick example of what can go wrong...I have a friend who theorizes that Paulson will announce next week that he is deploying the rest of the $350 billion bailout fund with the support of Pelosi and Reed. I'm not saying that is true...I'm saying that if something like that were to happen and the market were to rally 15% in a day, you'd be in a world of hurt if you owned something which shorted the market at 3x leverage!

With all of that said, this morning I took a 5% position in TZA. I still believe strongly that the S&P 500 will hit 600 points, and a 5% position is not crazy. It doesn't put me at risk if I'm wrong and this is a market bottom (which it isn't).

If you'd like to check out the list of newly released "insanity indexes" you can find them here. Please...proceed with extreme caution.

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