Right now, investors in many parts of the world are panicking.
Markets all over the world have fallen… except in the U.S., that is.
According to a Business Insider report, some of Silicon Valley’s top tech firms and venture capitalists invested US$18 million into a secretive burger restaurant.
Why are Silicon Valley billionaires suddenly backing fast-food restaurants? This presentation has the answer.
As shown in the graph below, China, Europe and emerging markets overall are down in 2018 – while the S&P 500 is up 8 percent in the year to date. Emerging markets, as measured by the MSCI Emerging Markets Index, are down 17.5 percent since recent highs in January. European shares are down 5.0 percent from recent highs. And China (represented by the MSCI China Index) is down 20.7 percent. The S&P 500 is at all-time highs, as the market’s bull market becomes the oldest in market history.
As we’ve said, this could just be the beginning of markets falling.
So what should you do? How can you protect your portfolio – and still make profits – in today’s markets?
As we’ve told you before, diversify… make your investing decisions automatic and emotion-free… and use trailing stop-losses to minimise damage.
And you can also use a strategy applied by some of the world’s top investors and traders…
How to be “market neutral”
When you’re “market neutral,” the profitability of your portfolio doesn’t depend on the direction of the market.
Let’s say you don’t have a clear idea about where the market is going – but you know that, by the law of averages, some stocks will do better than others. And pretty much all stocks will move in the general direction of the market overall.
One way to implement a market neutral strategy is to figure out some stocks that you think will do better than the market overall – and buy those shares. And then you’d identify shares that will do worse than the market overall – and you’d sell those shares short (that’s a trade where you’d benefit as the price declines).
This is called “pairs trading,” and it’s one example of a market neutral strategy.
In this way, you’d be able to profit whether the market, or sector, rises or falls… that is, your profits aren’t tied to how a sector or market performs. Pairs trades can help you make money while reducing your risk to the broader market.
As U.S. markets are reaching new highs – the U.S. bull market recently became the longest in history – it’s a good time to figure out how to make your portfolio more market neutral.
Research released by one crypto insider shows a little-known J pattern signaled many of the world’s biggest crypto gains… including Bitcoin’s extraordinary 7,247% boom.
According to this insider, the same pattern just appeared in a US$29 crypto that could explode as high as 10 times in the coming months. Get the full story here.
This is “pairs trading”
My friend Ben Morris at Stansberry Research writes an excellent daily trading service called DailyWealth Trader. I read him every day. Lately, he’s been talking a lot about pairs trading. As Ben wrote recently:
“The stock market is in extreme territory. You don’t want to be out of stocks completely because the bull market could continue for months, or years, with big gains to come. But you don’t want to ignore the risk, either.
Pairs trading with a portion of your portfolio is an excellent solution. You can take part in the profits without increasing your overall risk.”
This is how Ben explains a pairs trade in action, using an example from one of the best-known bond gurus…
“Jeff Gundlach… is one of the world’s top bond experts. And he manages more than $100 billion in his fund, DoubleLine Capital. …
In 2012, he recommended shorting Apple (AAPL) and buying natural gas. The pair of contrarian trades resulted in an enormous profit. Last year, Gundlach recommended shorting utilities and buying a mortgage real estate fund, also a winning trade. And earlier this month, he announced that he was shorting U.S. stocks and buying emerging markets.
Most gurus keep these ideas to themselves. We only know about Gundlach’s pairs trades because he promoted them. Still, we can’t know for sure that he followed his own advice. But we do know the effect of these trades… and that his ideas have been profitable.”
What are some other ways to use pairs trades? Ben explains…
“Are you going to buy a high-flying tech stock? You might consider shorting a fund that tracks the tech sector. Are you going to buy an energy stock you think will outperform? Consider pairing it with a short position in a fund that tracks energy stocks… or with a short position in an energy stock that you think will perform worse than the rest of the sector.”
What this does is allow you to make money no matter what happens in the market… and to make the law of averages work in your favour.
Ben recently put together a presentation on how to use pairs trading to limit risk – and how to profit regardless of what the market does. You can view it right here.
Publisher, Stansberry Churchouse Research
P.S. Ben believes this is one of the best and safest ways to make money right now. And once you understand this strategy, you might never want to invest the “normal” way again. Go here to learn more.