In Support Of Leveraged ETFs Once Again

Jim Trippon |

U.S. CongressPerhaps I'm grumpy. Maybe I'm becoming a curmudgeon at just 50 years-old. It could be the result of my new sleep-depraved lifestyle that comes with the territory of owning a puppy. For some reason, our new black lab just doesn't want to accommodate our schedule. Actually, I know what's really bothering me and it's not the dog. She's quite sweet actually. What's troubling me is the “let's gang up on ETFs” attitude that seems to becoming more pervasive these days.

There's even going to be a hearing on Capitol Hill on October 19 about ETFs. Most congressional hearings, say about 99 of 100, are dog and pony shows. In other words, these proceedings are long on pomp and circumstance and short on substantive results. I'm not even sure why these hearings are going on since most members of Congress probably don't own ETFs, let alone are they well-qualified to conduct investigative hearings on the matter.

But I'll leave that for another day. I'm sure the ETF hearing will provide me with ample fodder for future musings. For now I'm heading back to my old stomping grounds and that is defending leveraged and inverse ETFs. I spotted an article online a few days ago that spelled out the top five reasons why retail investors should stay away from leveraged ETFs.

As always when I write pieces like this, let me be clear and say I have no personal issues with the folks that write ETF articles that I don't agree with. Everyone is entitled to their own opinion and dialogue is a good thing. Scare tactics and misinformation are not.

The piece regarding why retail investors should stay away from leveraged ETFs is proof positive that those that advocate this position are running out of ammo for their now very tired argument. For starters, the pieces takes issue with high market volatility and the impact it can have on leveraged ETFs. Well, that's kind of the point. As I've said hundreds of times in the past, since leveraged ETFs are not to be treated the same way Warren Buffett treats his stake in Coca-Cola (KO), we want to accrue rapid gains in a leveraged ETF trade quickly, often times in a matter of days. Take the profits and run, you know?

Second, the piece dings leveraged ETFs for requiring a lot of management. What that means is that investors really need to monitor these types of ETFs. That's true, but rather than treating investors, most of whom are adults or at least close to being adults, like second-graders, I think the burden of responsibility needs to be placed on the investor. Let me put it to you like this: If you buy the Direxion Daily Financial Bear 3X Shares (FAZ) late in Monday's trading session knowing that you're going to be on a plane all day Tuesday and you haven't put a stop-loss order on this trade, you're asking for big trouble.

Just because you have a trade in a leveraged ETF doesn't mean you need to quit your day job. It also means some common sense must be exercised. Place a stop-loss. Check the quotes a couple of times a day on your phone so you don't get in trouble at work. Common sense stuff.

You don't have to be a professional trader to profit from leveraged ETFs. You merely need to be a responsible trader and read the fine print. Actually, the print isn't all that fine on the issuers' Web sites. It's plain as day regarding the risks of leveraged ETFs and how these funds work. Make up your own mind and don't follow the naysayers.

For further information on the ETF markets, you may visit www.etfprofitreport.com or join us at www.globalprofitsalert.com for our daily market commentary. I will look forward to bringing my exclusive insight to you next week.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
MKL Markel Corporation 885.00 2.30 0.26 52,435
KO Coca-Cola Company (The) 42.00 1.02 2.49 28,125,775

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