Why It Pays to Invest Against the Investing Herd

Aug 09, 2023
3d illustration of many black pawns going on the same direction and a golden one going on the opposite side.

Always be prepared.

If investors become too bullish for an extended period of time, be prepared for downside. If they’re too bearish, be prepared for upside.

It’s how some of the most successful investors became wealthy.

Sir John Templeton taught us to buy excessive pessimism.

Warren Buffett says that a “climate of fear is your friend when investing; a euphoric world is your enemy.” Even Baron Rothschild once told investors, “The time to buy is when there’s blood in the streets, even if the blood is your own.”

It’s just one of the reasons we suggested that investors prepare for the downside at the end of July. Especially with the VIX at 13.33 at time, which is a sign of too much calm in markets.

In fact, we suggested the following ideas on July 31.

ProShares UltraShort QQQ (SQQQ)

With an expense ratio of 0.98%, the Pro Shares UltraShort QQQ (SQQQ) seeks to profit from declines in the NASDAQ-100 Index. Its goal is to produce a return that is -3x the return of its underlying benchmark for a single day. Since the year began, the SQQQ dipped from about $55 to $16.96 because the NASDAQ-100 has been trending higher. However, if we see a pullback in the index, the SQQQ would run higher.

Since July 31, the SQQQ ran from $16.80 to $19.33.

ProShares UltraShort Dow 30 (DXD)

We can also use the Pro Shares Ultrashort Dow 30 (DXD). With the Dow gaining momentum, the DXD fell from about $42 to $38.11. However, with the Dow likely to correct, near-term, the DXD could push higher. With an expense ratio of 1%, the ETF seeks to produce a return that is -2x the daily performance of the Dow Jones Industrial Average.

Since July 31, the DXD ran from about $38 to $38.95 so far.

ProShares UltraShort S&P 500 (SDS)

Or, take a look at the Pro Shares UltraShort S&P 500 (SDS). With an expense ratio of 0.90%, the ETF seeks to produce a return that is -2x the daily performance of the S&P 500. Since July 31, the SDS ETF ran from about $32.50 to $34.29 so far.