- Published on Monday, 28 November 2011 09:50
- Written by Sara Nunnally, Editor, Inside Investing Daily
- Hits: 2201
The markets are volatile, but if you stand on the sidelines, you will get crushed. Here is what you need to do.
This is the face of a man who has done something.
Last Tuesday, a protester from the Occupy Wall Street movement handed President Obama a note.
This photo was taken by Charles Dharapak of the Associated Press, and shows the grin of a man who believes his message might finally reach somebody's ears. In New Hampshire on November 22, President Obama's jobs speech was interrupted by a group of protesters.
After the speech one of the protesters was able to get close enough to hand the President this note:
Mr. President: Over 4000 peaceful protesters have been arrested. While bankers continue to destroy the American economy. You must stop the assault on our 1st amendment rights. Your silence sends a message that police brutality is acceptable. Banks got bailed out. We got sold out.
We know the problems aren't just with the banks that recklessly pandered and invested in toxic assets. The blame is shared by this do-nothing Congress and the White House.
I know that many of us would like to hand our own notes to President Obama, Speaker John Boehner, and Democratic "Leader" Nancy Pelosi.
But our note wouldn't be nearly as polite as this one.
The message we can send to our politicians is the one at the voting booth. The "just put it on my tab" mentality that's so pervasive in Congress might just put 535 "leaders" out of a job.
And that'd be fine with us.
In the meantime, we're left to deal with the ramifications of government gridlock.
Nouriel Roubini, professor of economics at New York University, says that this do-nothing congress is pointing us towards a recession in 2012. He told the Daily Ticker that the consequences of the super committee's failure to come up with a deal could be "$350 billion, 2.3% of GDP."
We are in for a wild ride as we come to the close of 2011. Traders will love the volatility, but conservative investors will be panicked.
I share that concern. Protection from a market shock should be first and foremost in your mind. That's a good thing.
I still like gold for its staying power...
Over the last year, gold prices have climbed from $1,350 to as high as $1,900. Gold is still trading near $1,700 an ounce.
Last year, and even a couple years ago, gold was an investment to make huge profits off of. Just before 2009, gold prices were below $800 an ounce. To see gold more than double in three years was a thing only the most extreme gold bugs predicted.
I don't know if we'll get those kinds of moves out of gold again, but that's not the reason you should want to hold gold. You should hold gold for its value against the U.S. dollar and volatility in the markets.
I recommend buying physical gold, something you can actually hold -- be it bullion or coins.
Your second option is to look at the SPDR Gold Shares ETF (GLD:NYSE). It's backed by physical gold.
And lastly, you can buy shares of mining companies who are "unhedged" against the price of gold. This allows their shares to more accurately move with the price of gold.
One of the best is Goldcorp (GG:NYSE).
Every investor -- even every trader -- should have a portion of their portfolio in gold.
But every investor -- even if they're not a trader -- should also look to another portfolio protection... Put options against the market. This is your market insurance. Put options give you the right to sell an asset at a specific price, even if the market price of that asset is tanking.
This kind of "insurance" will be very popular in 2012.
Last week, the S&P 500 fell from 1,215.62 on Monday's open to 1,174.35 at Wednesday's open, a loss of 3.4%. That means the SPDR S&P 500 ETF (SPY:NYSE) went from 122.50 to 118.06. The SPY January 2012 120 puts jumped from $6.29 to $7.03 overnight from last Tuesday to last Wednesday morning.
That's a gain of 11.8%!
You can see how powerful put options can be, and what a strong protection they offer your portfolio.
And finally, don't let these portfolio protections lull you into inaction. Behind all the chaos and volatility, there are some huge investment opportunities, if you have the patience and determination to sift through the rubble.
One of the secrets of big, heavy recessions and depressions is that they create millionaires. Investors that can see -- and seize -- the opportunities when everyone else is in a panic are going to create lasting wealth for themselves and their families.
These kinds of opportunities can come overnight, like George Soros' $1 billion payday on the British pound in 1992, or they can take years to grow, like Buffett's fortune from buying up good, solid companies at rock-bottom prices when everyone else was selling.
So while we're advising certain portfolio protections, keep an eye out for the chance to hit a home run.
Publisher's Notes: The best place to uncover "home run" opportunities is the small cap sector. Thanks to our brand new service, Small Cap Insider, we just released a special report on a technology trend poised to create strong profits no matter what the market does over the next few months. You can read it... here.