Following are the three Rs of our Investment Strategy.

1. Risk: We are essentially trading “risk” in financial markets. Whether you are dealing with equities, commodities, or fixed income products, there is underlying risk – always. In fact it is the risk, which creates returns. So the goal is to assess the risk correctly. We want to be buy risk when it appears abundant (at lower market levels after a sell-off, like in March 2020). At least 30% capital deployment must be at 6-12 month lows. In other words, we can’t be more than 70% deployed if the market is not at 6-12 month lows (S&P500 is our benchmark index). In the absence of either cases, the 30% capital needs to wait in liquid/ money market funds.

2. Returns: Target 25% per annum or more. Earn better than benchmark Index (S&P500). Leveraged ETFs are a key part of our investment strategy because once we identify a good trade, then it is the leverage that helps us get the extra gain over the benchmark Index. If the risk management is done properly, good returns will follow. It helps to have limited/few investment positions for this purpose, so that we can carefully monitor each position. We have been able to generate good returns (trading gains) in various market cycles with just 4-5 leveraged ETFs (like SPXL, TQQQ, LABU, FAS, UBOT), while the two core ETFs (SPY and QQQ) are used for long term investing.

3. Reserves: At least 10% cash at all time. Cash can be parked in T-Bills or Gold ETF (GLD). Never be fully deployed unless at 5 year lows, because at lower levels, we will add leveraged positions, so cash will be required to create those positions. We will focus on position size at lower levels because knee-jerk moves or whipsaws are common at lower levels when market is trying to find a reliable support or bottom. At deep lows, it makes sense to use capital reserve or bring new capital to buy leveraged ETFs like SPXL and TQQQ. This strategy has given very good gains consistently, after market corrections in Feb 2016, Dec 2018, and March 2020.

Following are our guiding principles in the market.

  • Profit from price volatility in our high conviction assets, stocks and ETFs.
  • Invest when cost of capital is high and stock prices are low, and exit when abundant optimism prevails.
  • Market pays us for taking risk in uncertain times, providing exit to those who must exit for whatever reasons.
  • Fear at the right time creates profits (taking profits after a big upmove), and fear at the wrong time (buying after a big move, or selling/not buying at 12 month lows) creates losses.
  • Use all opportunities, small and big, wherever the risk-reward looks favorable.
  • Trading in a range bound market is reliable and profitable if we work with small upside targets and tight stop losses.
  • Reduce position size when market volatility is high and increase position size when volatility starts reducing.
  • Wait patiently for the big moves. They will come.

ETFs used for Trading and Investing: We use the following leveraged ETFs for trading: S&P500 ETF (SPXL), Nasdaq ETF (TQQQ), S&P Biotech ETF (LABU), Financial ETF (FAS), Robotics and AI ETF (UBOT). We also trade with S&P500 Emini Futures (ES). And we use the following index ETFs for long term investing: S&P500 ETF (SPY) and Nasdaq ETF (QQQ). At the start of each year, we prepare a trading plan for each Index and ETF. Please contact us to learn more. Thanks.