Wednesday, October 5, 2011

Idiot's Guide to Making Money in a Recession


I know from the title you might think I'm a fool or crazy but there are lots of opportunities when the markets are down and probably going downer. A market like right now is actually the best time to get into investing. If you think about it when these equities are at their lowest ideally you would want to buy right? Well in my opinion the market is going to go much lower before it goes up again. Several reasons: our government has an inability to enact a good financial plan - especially one that they want to stick to for more than a couple months, jobs are not being created, Europe is seeing serious financial issues probably worse than ours. And Obama and Bernanke can't really do much else to stimulate the economy. I'd be very surprised if they did print more money (QE3). Another government intervention into the economy at this point would only make things worse, provide a short boost and then see even lower lows. Time is the only healer for this market. So with those facts I don't see the market going up any time soon.

How do you make money when prices are going down you ask? Well my friends the easiest way is to "short" the market. There are many ways to do this now. My favorite way to do this is to buy Short or UltraShort ETFs. An ETF is an exchange traded fund, it sounds technical and I guess it is, but the basic idea of it and the way that I've understood them is to think of them as mutual funds that are traded as if they were stocks. Another way to short the market is through options. I haven't spent much time with options and from what I've read about them they do seem attractive. Short ETFs are provided by companies like PowerShares and ProShares, and the way that they get their value is that they reflect the inverse of specific sectors or indexes.

Another plan of investing you could take is to hedge your account by investing a little into short ETFs and investing into companies that have hit their low that you think are going up or will HAVE to go up. A lot of popular companies have hit their yearly lows within the past month and now would be a good time to get in while they're cheap. Again this sounds crazy with Fox news and the like spouting fear but when there is fear in investors and the market it's the best time to invest.

Personally I'm saving up until I see that the market has hit it's true bottom. I do have some money in short ETFs right now with Greece's issues looming and talk of Germany possibly going back to their previous monetary system; the oulook isn't pretty. But when I think we're at the lowest lows I'm going to be all in. I'm not missing out this time like I did in March 2009.

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