Lead Balloons, Clean Dirt, Obvious Black Swans and Easy Portfolio Solutions Don’t Exist

It’s Friday and I’m not slowing down or taking the foot off the gas pedal at all, are you?

Here’s the trader’s thought of the day. I get dozens of “Story Idea” pitches from various PR outlets in my inbox everyday. Here’s one I got today:

Dear Cody,

Investment Guru Nassim Nicholas Taleb warned about a market meltdown in 2008 and made a fortune when the stock market collapsed. Now there is a new ETF trying to emulate his methods to benefit by a market fall while trying to deliver good returns if markets raise – The Black Swan ETF.

During these turbulent times, investors are looking for different ways to invest their money than the traditional offerings. Now a number of ETFs have been launched that claim to protect investors in the event of a market meltdown while delivering good returns if the stock market rises.

Larry Short, author of In Short: Successful Investing During Turbulent Times and a 24-year veteran of the investment industry, believes that these ETFs could be the next wave in investing. After all, investors are looking for good, conservative returns combined with significant downside protection and that is what these investments promise. It’s still early but if these investments deliver what they promise they could sell like hot cakes.

Can I put you in contact with Larry to discuss this topic?

Thanks,

Lynzy

Do you guys know what a Black Swan is? Here’s a definition of it from Wikipedia that’s pretty darn accurate:

“The black swan theory or theory of black swan events is a metaphor that describes an event that is a surprise (to the observer), has a major impact, and after the fact is often inappropriately rationalized with the benefit of hindsight.”

So think about this for a moment. These Black Swan ETFs are somehow supposed to enable the masses to bet on events that by definition cannot be foreseen by the observers.

I often tell people that most of Wall Street is 90% marketing and extraction and just 10% substance (15 years ago, when I first got to Wall Street, it was more like 80/20, but things have gotten worse in the industry, as we all know). People will be paying premium management fees for these Black Swan ETFs for a product that by definition cannot exist.

This isn’t supposed to be a commercial for TradingWithCody, but the fact is that for $99 a month, you guys actually get daily analysis that presents alternative perspectives and actual Black Swan hedges such as the times we’ve been short financials as well as our other “Welfare-Dependent” shorts.

Don’t waste your time and energy trying to find an easy way to hedge and invest. It’s not going to be easy. Investing and trading have always been tough, and with all the computerized high-frequency trading algorithms driving the very short-term, and with the markets vacillating between panic over the debt crisis du jour and celebrating more bank bailouts du jour, it’s tougher than ever.

Only through being vigilant, free-thinking and contrarian over and over every day, can we expect to outperform the markets and grow our wealth for the long-term.

Black Swan ETFs and other trendy trading vehicles are not the answer.

No trades for me today. Back in a bit with this week’s trading list and latest positions after that.