FM Wealth Management News Letter
At FM Wealth Management we run a trading room with well over 1500
clients, of which we have over 300 money managers as clients. In the
time we have been working in the industry we have seen the good, the
bad, and the ugly as far as what traders and investors have done
throughout the years. And, no matter how much we warn our clients and
newsletter readers about the pitfalls in the market, many choose to
ignore us, and eventually learn on their own the hard way.
To this end, this FM Wealth Management Newsletter is focused mostly upon the evils of leveraged Exchange Traded Funds (ETF’s) and those that advise their use as long term investment vehicles.
For the most part the average investor does not understand how these leveraged ETF’s work, and unfortunately that even includes analysts and money managers. They are designed in such a way that if you are not catching a strong trending move perfectly, the ETF will lose money in fact even if the market moves sideways, these leveraged ETF’s lose money. And of course if the market moves down, then because they are leveraged funds they lose money twice or three times as faster.
Therefore unless you are able to time the market absolutely perfectly, then you should NEVER, and we mean NEVER buy and hold one of these instruments. They are designed to be nothing more than a trading vehicle.
We are talking about this because lately we have had a situation where a number of you (watching a certain analyst on TV and reading his reports) believe or have the impression that these instruments are the ticket to overnight wealth. In fact, we have seen unscrupulous analysts and promoters promise the path to riches for those who take their suggestion of buying and holding these leveraged funds. Here at FM Wealth Management we want you to know that they are not the path to riches for most people. Rather, they are the ticket to the overnight poorhouse.
We would like to give you an example. There was a “call” by an “analyst” (no names but you can see him everyday on CNBC) in 2016 which suggested to buy AND HOLD a metals 3X ETF when it was north of 24, without any stops, and using more than 25% of your portfolio. In reality this analyst suggested to exactly what most amateurs do – they buy at just about the high of the market in an oversized position because they have been sucked in by the market sentiment. In other words, he was simply leading the herd to slaughter. He backed up his call by promising that those who took his suggestion would become wealthy beyond their wildest imagination (well maybe we are exaggerating but you get the picture).
The sad reality is that for those investing their hard-earned money based upon that “expert advise” that metals 3X ETF hit a low of 3.77 only a few months later. For those keeping count, that was an 85% drop in price in a few months, and it was catastrophic to those who followed this tip. That’s not where this ends because based upon the way these 3X ETF’s are calculated, the underlying market will have to move significantly higher than the entry point in order for those who bought on this suggestion to break even.
It has become painfully clear that this “analyst” has not learned from his massive failures, as he has recently done it again to his viewers and subscribers suggesting just last week a “buy and hold” on a 3X TECH ETF (NASDAQ:TQQQ) just as the market was hitting its highs. This time again, he promised riches beyond their wildest imagination to those foolish enough to follow him. Unfortunately, those who listened are now experiencing a whole lot of pain at this time.
While we are expecting the market to hit further all-time highs, those that bought into the TQQQ at the previous highs (because as we explained above on how a leveraged found works) will likely have to see the market go up 10% or more than where they initially bought it just to break even. So we reiterate that this is a trading instrument, and not a buy-and-hold instrument, specifically due to the significant decay built into these products.
These suggestions by this “analyst” (which we will not name because every time we have we get a nasty letter from his and the networks legal team) broke every principle we have learned and tried to pass on to our clients.
Firstly, NEVER buy a 3X ETF as an investment because it is a trading vehicle and not a buy-and-hold vehicle. Any knowledgeable market analyst or advisor should know this, and if your advisor or money manager suggests otherwise, PLEASE recognize that he is suggesting that you gamble with your money.
Secondly, this “market analysts” did not advise stops, since the belief is that the “manipulators” would take your stops and that the market would correct any bad timing entries. Here you can all see why not using stops was catastrophic to those following this advice.
Thirdly, investing more than 50% of one’s portfolio into any one vehicle or sector is also another form of gambling. So to suggest that large of a position using a 3X ETF without stops is even worse than gambling . . . it is reckless. You may as well just torch your money.
So, after getting numerous enquiries and seeing another massive failure of inappropriately utilizing a 3X ETF, we felt it was a good time to warn people again. The Wall Street adage goes: Bulls get fat; bears get fat; but pigs get slaughtered. If you want to know if that is true just ask those who got slaughtered following this analysts’ 3X ETF suggestion back in 2016, as well as the latest one at the recent equity market highs.
Each and every one of you has a responsibility to yourself, your families, and your future and should not be taking needless risks in an already difficult financial environment. If you follow some simple risk management strategies, and stay away from 3X Exchange Traded Funds for investment purposes, you give yourself a much better chance of finishing this marathon by avoiding any catastrophic set-backs, from which it could take years to recover.
To this end, this FM Wealth Management Newsletter is focused mostly upon the evils of leveraged Exchange Traded Funds (ETF’s) and those that advise their use as long term investment vehicles.
For the most part the average investor does not understand how these leveraged ETF’s work, and unfortunately that even includes analysts and money managers. They are designed in such a way that if you are not catching a strong trending move perfectly, the ETF will lose money in fact even if the market moves sideways, these leveraged ETF’s lose money. And of course if the market moves down, then because they are leveraged funds they lose money twice or three times as faster.
Therefore unless you are able to time the market absolutely perfectly, then you should NEVER, and we mean NEVER buy and hold one of these instruments. They are designed to be nothing more than a trading vehicle.
We are talking about this because lately we have had a situation where a number of you (watching a certain analyst on TV and reading his reports) believe or have the impression that these instruments are the ticket to overnight wealth. In fact, we have seen unscrupulous analysts and promoters promise the path to riches for those who take their suggestion of buying and holding these leveraged funds. Here at FM Wealth Management we want you to know that they are not the path to riches for most people. Rather, they are the ticket to the overnight poorhouse.
We would like to give you an example. There was a “call” by an “analyst” (no names but you can see him everyday on CNBC) in 2016 which suggested to buy AND HOLD a metals 3X ETF when it was north of 24, without any stops, and using more than 25% of your portfolio. In reality this analyst suggested to exactly what most amateurs do – they buy at just about the high of the market in an oversized position because they have been sucked in by the market sentiment. In other words, he was simply leading the herd to slaughter. He backed up his call by promising that those who took his suggestion would become wealthy beyond their wildest imagination (well maybe we are exaggerating but you get the picture).
The sad reality is that for those investing their hard-earned money based upon that “expert advise” that metals 3X ETF hit a low of 3.77 only a few months later. For those keeping count, that was an 85% drop in price in a few months, and it was catastrophic to those who followed this tip. That’s not where this ends because based upon the way these 3X ETF’s are calculated, the underlying market will have to move significantly higher than the entry point in order for those who bought on this suggestion to break even.
It has become painfully clear that this “analyst” has not learned from his massive failures, as he has recently done it again to his viewers and subscribers suggesting just last week a “buy and hold” on a 3X TECH ETF (NASDAQ:TQQQ) just as the market was hitting its highs. This time again, he promised riches beyond their wildest imagination to those foolish enough to follow him. Unfortunately, those who listened are now experiencing a whole lot of pain at this time.
While we are expecting the market to hit further all-time highs, those that bought into the TQQQ at the previous highs (because as we explained above on how a leveraged found works) will likely have to see the market go up 10% or more than where they initially bought it just to break even. So we reiterate that this is a trading instrument, and not a buy-and-hold instrument, specifically due to the significant decay built into these products.
These suggestions by this “analyst” (which we will not name because every time we have we get a nasty letter from his and the networks legal team) broke every principle we have learned and tried to pass on to our clients.
Firstly, NEVER buy a 3X ETF as an investment because it is a trading vehicle and not a buy-and-hold vehicle. Any knowledgeable market analyst or advisor should know this, and if your advisor or money manager suggests otherwise, PLEASE recognize that he is suggesting that you gamble with your money.
Secondly, this “market analysts” did not advise stops, since the belief is that the “manipulators” would take your stops and that the market would correct any bad timing entries. Here you can all see why not using stops was catastrophic to those following this advice.
Thirdly, investing more than 50% of one’s portfolio into any one vehicle or sector is also another form of gambling. So to suggest that large of a position using a 3X ETF without stops is even worse than gambling . . . it is reckless. You may as well just torch your money.
So, after getting numerous enquiries and seeing another massive failure of inappropriately utilizing a 3X ETF, we felt it was a good time to warn people again. The Wall Street adage goes: Bulls get fat; bears get fat; but pigs get slaughtered. If you want to know if that is true just ask those who got slaughtered following this analysts’ 3X ETF suggestion back in 2016, as well as the latest one at the recent equity market highs.
Each and every one of you has a responsibility to yourself, your families, and your future and should not be taking needless risks in an already difficult financial environment. If you follow some simple risk management strategies, and stay away from 3X Exchange Traded Funds for investment purposes, you give yourself a much better chance of finishing this marathon by avoiding any catastrophic set-backs, from which it could take years to recover.
At this point we would even welcome
regulation or legislation prohibiting anyone to hold a 3X ETF for more
than a week. It would at least offer some indirect protection from
reckless and unscrupulous advisors.
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