ETFs

  • 26 Jun
    Don’t Follow The Herd: Why The Majority Of Investors Always Get It Wrong

    Don’t Follow The Herd: Why The Majority Of Investors Always Get It Wrong

    • Consider this, the question always remains the same: “What will my return on investment be?” But the answer changes all the time.
    • Thinking costs energy and humans prefer to let others do the thinking for them. Are you like that?
    • It’s important to know when to use history as a teacher.

    Introduction

    “Whenever you find yourself on the side of the majority, it is time to pause and reflect.” 

    – Mark Twain

    When Albert Einstein was teaching at Oxford University, he gave his senior physics students exactly the same exam he had given them the year before. His assistant was disturbed by such a mistake, but before intervening he asked Einstein whether he actually made a mistake. Einstein replied that the exam was exactly the same. The assistant was even more concerned and asked why he would do such a thing. Einstein replied, “Well, the questions are still the same, but the answers have changed.” More →

  • 05 May
    The Market Is Dumb And Getting Dumber

    The Market Is Dumb And Getting Dumber

    • The number of analysts is declining, stocks don’t react to earnings nor news anymore, and the underlying economic environment is rigged.
    • However, as investors, we have to always look at risk and reward as there is always a way to profit.
    • Protecting yourself from market ignorance doesn’t even cost much.

    Introduction

    I would define a dumb investor as one who doesn’t think about risk in relation to reward, and therefore I fearlessly say: the majority of investors are behaving in a pretty dumb way.

    This is a heavy statement, especially considering markets have performed nothing short of spectacularly in the last 8 years. As evidence, the S&P 500 is up three-fold since 2009 and continues to strongly march ahead. More →

  • 04 May
    Here’s What Happens When An ETF Gets Too Big

    Here’s What Happens When An ETF Gets Too Big

    • When an ETF owns more than 10% of a company, any kind of rebalancing can be very dangerous for the stock.
    • The VanEck Vectors Junior Gold Miners ETF is becoming too big for its index, and has been forced to look beyond junior miners and to sell up to 50% of some of its positions in order to rebalance.
    • The main danger coming from ETFs is the lack of underlying liquidity, especially when there is no one to buy the assets sold in a fire sale.

    Introduction

    ETFs are potential vehicles of mass destruction. There is a high chance that in a few years from now, we’ll be talking about the 2000 dot-com bubble, the 2009 subprime crisis, and the 201X ETF liquidity crisis.

    After ETFs took the investment stage, there weren’t many issues with them as they remained relatively small. However, the continuous inflow of capital has already made some ETFs too big.

    In today’s article, we’ll describe the issue with the VanEck Vectors Junior Gold Miners ETF (NYSEARCA: GDXJ) and how it’s affecting index constituents. More →

  • 26 Apr
    If You’re An Investor, Now’s The Time To Get Out Of The S&P 500, Index Funds, & ETFs

    If You’re An Investor, Now’s The Time To Get Out Of The S&P 500, Index Funds, & ETFs

    • If you only look at averages, passive investing will always outperform active due to lower fees, but you can only expect average returns.
    • The market is skewed and inefficient due to huge flows into passive funds, outflows from active funds which should be doing the thinking, and euphoric management doing large stock buybacks. This creates a highly risky situation.
    • Avoid owning index funds, ETFs, and stocks that are largely owned by passive funds.

    Introduction

    There are two investing worlds. One is the world of active investing where the fund manager you hired analyzes company after company and invests in those they think are the best. The passive manager simply disperses your funds over an index where you will perform exactly as the market performs. With passive investing, fundamentals, dividends, growth, sales, scandals, and business trends don’t matter at all. More →

  • 15 Mar
    There’s Only One Reason The Markets Are Rising & Nothing Can Be Done About It

    There’s Only One Reason The Markets Are Rising & Nothing Can Be Done About It

    • Everybody knows the market is extremely overvalued and risky, but nobody cares as long as it goes up.
    • Funds keep flowing into U.S. equities despite the fundamentals. This will be very painful when the trend reverses.

    Introduction

    We all know that in the long run, our investment returns are perfectly correlated to the underlying performance of the businesses we own in relation to the price we pay for ownership. If the price is high, our returns will be weak. If what we buy is cheap in relation to underlying earnings, our returns will be great or even amazing. This is a universal truth. However, there are some issues with it.

    The first is that even if most agree on the strong correlation between earnings and stock returns, very few like to think about the long term and instead prefer to only think about the short term. In the short term, stock returns are driven by equity flows and there is nothing that we can do about it even if it has been statistically proven that long term returns are perfectly correlated to underlying earnings and the greatest investors, like Ray Dalio and Warren Buffett, keep reminding us of this fact. More →

  • 03 Mar
    Why An ETF Is The Wrong Way To Invest In Emerging Markets

    Why An ETF Is The Wrong Way To Invest In Emerging Markets

    • Irrational market sentiment and low liquidity create high volatility that can easily be seized by smart investors. Just do the opposite of what the crowd does.
    • Despite what the market might think in a certain moment, emerging markets and businesses grow alongside economic development and positive demographics.
    • ETFs are the crowd and due to their construction and rules, ETFs represent buying high and selling low, which is a terrible strategy anywhere but it’s extremely costly on volatile emerging markets.

    Introduction

    I have a positive bias towards emerging markets because of their positive demographics, growth aspirations, and low starting level from a macroeconomic perspective, and because, from a behavioral perspective, emerging markets are completely irrational, much less liquid, and highly volatile, especially individual stocks.

    You might wonder why I like volatility, low liquidity, and irrational behavior. Well, at the first sign of fear on financial markets, everybody rushes to sell their emerging market position. This, combined with low liquidity, creates huge volatility which is the best investing opportunity if you are a value/growth investor. More →

  • 20 Feb
    Sell Your ‘High Yield’ Immediately – Aggressive Traders Get Short

    Sell Your ‘High Yield’ Immediately – Aggressive Traders Get Short

    • Due to higher oil prices, ‘high yield’ bond yields are approaching historical lows while interest rates and inflation are increasing. Investors should be grateful for the amazing opportunity to unload.
    • ‘High yield’ ETFs have grown from 0% to 10% of the total fixed income ETF market in less than 10 years.
    • Apart from rising interest rates, illiquid ‘high yield’ primary markets in relation to the highly liquid secondary ETF markets signal potential Armageddon as there will be no buyers when the ETF trend reverses.

    Introduction

    I usually look for investments where the risk is low and return is high as asymmetric risk reward situations provide the highest and safest returns. Today I’m going to do the opposite, discuss a high risk low reward investment. If you own or are attracted to higher yields, or want a short play, this article is for you. More →

  • 18 Jan
    Get Ready: ETFs Could Shake The Market Like 2008

    Get Ready: ETFs Could Shake The Market Like 2008

    • ETFs have the potential to shake the markets similar to how subprime debt and CDOs did.
    • Potential risks come from illiquid underlying assets on secondary markets and poor capital allocation.
    • However, this should also create amazing individual investing opportunities for those who are ready.

    Introduction

    Last week, we discussed the best way to use ETFs in 2017, and I warned a bit about herd behavior. Today we’ll dig deeper into overall financial market risks and/or—depending how you see it—the amazing investing opportunities that a reversal in the ETF trend could create. More →

  • 11 Jan
    How To Use ETFs In 2017

    How To Use ETFs In 2017

    • ETFs were the favorite investment vehicle in 2016. Beware of herd behavior.
    • However, ETFs offer plenty of possibilities for the sophisticated investor.
    • Trading and hedging are interesting options for 2017, and ETFs can help a lot.

    Introduction

    The swing from active to passive investing continues.

    In 2016, positive inflows into ETFs (exchange traded funds) were close to $400 billion, and about $200 million flew into passive mutual funds while active mutual funds saw outflows of $250 billion and hedge funds of another $100 billion.

    I’m usually against basket type investments as I prefer to hold the good and leave the bad to others, avoiding herd investments in general. By holding mutual funds or ETFs, you own a bit of everything, good and bad stocks, and follow the crowds. More →

    By Sven Carlin ETFs Investiv Daily
  • 18 Oct
    Investing Advice From John Maynard Keynes

    Investing Advice From John Maynard Keynes

    • It’s good to invest for the long run, but don’t let that be an excuse for investing in overvalued stocks as in the long run, we all die.
    • Often shunned as irrelevant, inflation must be considered when investing.
    • Markets are irrational and get more irrational as people think less. ETFs are the perfect example.

    Introduction

    You probably remember Keynes from Economics 101 as his ideas fundamentally changed the way people looked at economics in the first part of the 20th century. Before Keynes, a laissez-faire (let people do as they choose) economy with low or no government involvement, was the norm.

    By studying the causes of business cycles, Keynes came to the conclusion that government intervention is necessary to moderate boom and bust cycles in an economy. He endorsed the New Deal in a letter to President Franklin D. Roosevelt in 1933, and the New Deal remains a perfect example of his theories. More →

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