How Bad Investments Can Sometimes End Well

Do good performing investments always start out that way? The short answer is — not necessarily.

Here’s a real-life example, from the June 2015 issue of the ETF Profit Strategy Newsletter. We shared the story of a 72-year old investor who had converted a $95,000 investment in two stocks into $11.5 million. He had requested a portfolio analysis, so we were able to demonstrate which stocks he owned and how long he held them.

Even more incredible than the dollar figures 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.

Lesson for today

Something similar happened at ETFguide this past week. On April 9, we pointed out the ProShares ST VIX Futures ETF (VIXY.P) at $15.95. 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 held on. “Volatility is one of the most depressed asset classes on the planet,” we kept saying.  Most of them believed us while a minority few did not. How did it turn out?

On Sept. 1, we exited our VIXY position when it was up 23%. Note that the S&P 500 (.SPY) and Dow Industrials (.DJIA) 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.

The ETF Profit Strategy Newsletter provides detailed analysis on major market trends and long/short ETFs. Investments are carefully selected from a universe of more than 2,000 ETFs and each issue contains our proprietary global equity map, our mega-investment theme report, and a complete rundown of yield and performance data for major ETFs. Subscribers also get access to our Weekly ETF Picks and Technical Forecast.

Ron DeLegge is the founder of ETF Guide.