Do good performing investments always start out good? The short answer is not necessarily.
As proof, we showed ETFguide’s readers a real life example in the June 2015 issue of the ETF Profit Strategy Newsletter. In that issue, we shared an incredible story about a 72-year old investor who converted a $95,000 investment made in two stocks (NYSEARCA:SCHB) into $11.5 million. We showed you which stocks he owned and how long he held them based upon the information he shared with me for the Portfolio Report Card analysis he requested.
Even more incredible than the fact he grew $95,000 into $11.5 million is that this particular investor lost -25% in value on his original investment in one of the stocks over a period of 10 years. Who among us has the nerves of steel to hold onto a losing investment for 10 years without going completely mad? Ultimately, he was tremendously rewarded for sticking to his guns and the investment paid off. Talk about an amazing rebound!
Something similar happened at ETFguide this past week. The chart below shows two timestamped trades on the ProShares ST VIX Futures ETF (NYSEARCA:VIXY). On April 9, we bought VIXY at $15.95 via our Weekly Picks. But instead of going up, VIXY fell and kept going lower and at one point was down -35% in value.
Instead of panicking, we stuck to our guns and we held on. “Volatility is one of the most depressed asset classes on the planet,” we kept reminding our readers. Most of them believed us while a minority few did not. How did our S&P 500 volatility (ChicagoOptions:^VIX) trade turn out?
On Sept. 1, we exited our VIXY position with a handsome +23% timestamped profit. While it’s true we could’ve made a whole lot more buying VIXY at lower prices than our initial entry of $15.95, we’re not the sort of greedy slobs that smirk at a +23% profit made in five-months. Especially when the S&P 500 (NYSEARCA:IVV) and Dow Industrials (NYSEARCA:DIA) are both down around -0.61% to -1.82% YTD!
Both real life examples we just considered are valuable lessons. They teach us that good investments do sometimes start out bad. But since most investors lack the stamina, conviction, and audacity to allow their investments to blossom, they sadly never experience the sweet taste of success.
The other lesson is that buying out-of-favor assets and patiently waiting for them to increase in value is a proven recipe for wealth building.