Sunday, March 13, 2011

commodity etfs

a: when the hunt brothers cornered the silver market in 1980, the price rose to nearly $50/oz., but on "silver thursday" retraced back down to below $11. I recognize that current global issues are diff, in that china/india consumption growing, but I don't think an amt sufficient for current price. I see current price a reaction to the inflated price of gold (inflated by fear of global economic instability). I see gold inflation coming down in next year or so, and silver should come down, too....
me: that sounds likely
a: oh, good. a moderately safe way to play this: (assuming my feelings have some semblance of "rightness"...)
me: watch for daily adjustment; they will eat up your profits in a vehicle like this...even if you guess right, it will not match the market....Just a CYA...
a: can you guide me on that? further info?
me: Let me has something to do with the fact your dealing with futures/options and not the real market+they need to reconcile every night and buy in the morning because of margins and redemptions.
me: if you hold on to them for 1 or 2 days it will match; Otherwise your paying a price.
  I didn't find the exact article, but another one. Try this site for other educational material.
Good for  day traders but not investors.
a: good article. ideally, as I'm seeking to follow a big trend rather than day-to-day changes, length of contracts shouldn't be a concern. this etf (ZSL, that is...) has gone from 182 to 26 in one year. if it goes down another 50%, I'll buy more.... I did say "ideally"... :-)
Interestingly, this one has done several reverse splits (to keep the price attractive), a 1:10 a year ago, and a 1:4 last month...
I entered the words "silver technical" into google news, and got way too many rosy reports on the future price of silver. does that say a bull market (in that commodity) has seen it's better days?
me: Can I voice your side of the argument? If you capture 10x bagger when the hard asset appreciated 40x, is that bad?  and I grant you that I only speak of catching an asset/etf that is going sideways or up 4x and you losing money in the long run.....
a: 10x is 10x. the choice to use the etf vs. the hard asset is a choice of exposure. if you have the hard asset, you need to dispose of the hard asset at some point. with an etf (or other security), you need merely sell within a large marketplace.
do you mean hard asset as in hard asset, or as in instrument that represents hard asset?

 me: [plus the storage costs] You must really hit it on a trend, though. ---> when everyone knows that its going into a meltup or meltdown. 10x is a good return to me....I'm agreeing with you.
a: the hunt brothers had to dispose of quite a bit of hard asset, and futures positions came due with margin calls. I'll bet they'd have used ETF's if they could have....
that's what I'm thinking, as I look for the "next best thing" - where are the apparent trends? what aspects of this market are too high, what too low? what stocks are seemingly too high, what seemingly too low. Warren is looking for the same thing, but on a much larger scale.
me: my argument is that, unlike value stocks, there is a large cost to being "early".
a: why is there not a large cost in being early with value stocks?  it might be more of an opportunity cost...
me: exactly, value stocks have an opportunity cost, but not a daily penalty for being wrong.
if a value stock only goes up 1% in a month, you don't lose money, but an ultra-short etf would.  or ultra-long etf. let's keep them on the same side of the ledger...
me: a stock can go up, sideways or down. on value stocks you can survive till next month with 2 out of 3. on a etf ultra you can survive with only 1 out of 3
a: I don't know. I'm viewing the etf like a stock. I'm anticipating that it will fall with the rise in silver, and that I'll double up after it falls 50% or more. but, I'm fairly certain that I'm right about the overbought nature of silver, so this is the best, albeit risky, way for me to act.

And that made sense to me. The Chat stopped there. He is going for the home run, not the single. Only index etfs can be looked at like stocks. Commodity and ultra-short/ultra long etfs are like options and futures because of the underlying vehicles. They are good for short-term hedges, day/swing traders or long term trend home runs.

That's my amateur guess.

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