Max Isaacman - Winning with ETF Strategies: Top Asset Managers Share Their Methods for Beating the Market

Top Asset Managers Share Their Methods for Beating the Market

Max Isaacman

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2012 by Max Isaacman
Published by Pearson Education, Inc.
Publishing as FT Press
Upper Saddle River, New Jersey 07458

This book is sold with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services or advice by publishing this book. Each individual situation is unique. Thus, if legal or financial advice or other expert assistance is required in a specific situation, the services of a competent professional should be sought to ensure that the situation has been evaluated carefully and appropriately. The author and the publisher disclaim any liability, loss, or risk resulting directly or indirectly, from the use or application of any of the contents of this book.

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Company and product names mentioned herein are the trademarks or registered trademarks of their respective owners.

All rights reserved. No part of this book may be reproduced, in any form or by any means, without permission in writing from the publisher.

Printed in the United States of America
First Printing April 2012

ISBN-10: 0-13-284918-6
ISBN-13: 978-0-13-284918-0

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Library of Congress Cataloging-in-Publication Data

Isaacman, Max.
Winning with ETF strategies : top asset managers share their methods for besting the market / Max
Isaacman.
p. cm.
Includes indexes.
ISBN-13: 978-0-13-284918-0 (hardback : alk. paper)
ISBN-10: 0-13-284918-6
1. Exchange traded funds. I. Title.
HG6043.I833 2012
332.6327--dc23
2011041196

Thanks to Research Affiliates (RA), BlackRock, Rydex, and the participating managers, for their guidance and help. Some of RAs research was covered in my book Investing with Intelligent ETFs (McGraw-Hill, 2008). Thanks to my friends and associates at East/West Securities and at White Pacific Securities: Echo Chien, Dr. Charles Chen, Benny Choi, Bob Angle, Monte Pare, Bin Yang, Diana Vuong, Aaron Small, Ming Hwang, Amy Guan, Zebo Huang, and Walton Lee. Also, I thank my editor, Jeanne Glasser; my agent, David Nelson; Dr. Abbot Bronstein; my wife, Dr. Joyce A. Glick; my children and their spouses, Jonathan Isaacman, Linda Burnett Isaacman, Carrie Isaacman, Roger Stude, and my step-daughter, Dr. Danielle Kaplan. A shout out to Nathan Stude and Harper Joanne Isaacman for arriving in the world and alerting us again to the fact that life is for both sprinters and long-distance runners.

Disclaimer: I own ETFs for myself and for my clients, and some of these ETFs might be written about in this book. There are always risks associated with investing in the stock and bond markets. This book does not guarantee you will make money in the stock and bond markets, and you could lose money. I am not making recommendations to any reader because an investors ability to take risks must be taken into consideration before investments are made.

Max Isaacman is a Registered Investment Advisor for individuals and institutions and is associated with East/West Securities in San Francisco. He was a Financial Consultant at Merrill Lynch, a Partner and Office Manager at SG Cowen, and a Vice-President at Lehman Brothers and worked in other positions in the investment community. Isaacman was a columnist for The San Francisco Examiner and wrote for many publications, including Delta Airlines SKY magazine. He has spoken at CFA Institute events, CBS MarketWatch, Tech TV, the FTSE Global Index Conference in Geneva, Switzerland, and other places. Winning with ETF Strategies is his fourth book.

The past ten years have been frustrating for stock market investors with the market moving mostly sideways, making it difficult to make money by buying and holding stocks. In a recent presentation, I told a crowd of individual investors that they can make money by buying Exchange Traded Funds (ETFs) and holding them for the longer term. They laughed, as if I was telling a joke. I wasnt surprised that people would be skeptical, but thats a good way to recognize the market bottomwhen people laugh at the idea that the market will go upand that is a good time to buy.

We know that markets fluctuate and always change, and often, markets do exactly what most people think they will not do. This sideways market could continue for a while, and in the mean time, investors and traders are making money or at least limiting losses in a variety of ways. Many use the new ETFs to go long or short, to trade currencies, to trade with a portion of their portfolio, to buy undervalued sectors or short overvalued sectors, and to use other strategies to trade and find ways to get varied asset-class exposure.

Market cycles have to be identified and considered. Before buying, you should know at what point in the cycle the market is at and where it might head. Markets move in cycles, and these cycles take years to complete. In this book, we show that according to research by Rydex/SGI Investments, in the past 113 years, there were 4 bull markets consisting of 42 years and 4 bear markets consisting of 71 years. Bull markets lasted an average of 10 years; bear markets lasted an average of 18 years. Even though there were fewer bull market years, the cumulative gains in the bull markets were substantial, and the cumulative losses or gains in the bear market years were slight. The bear years were more sideways markets than big down moves. Bear markets usually hang around, having periods of gloom interspersed with periods of hope. This is the market cycle we have been in for about ten years. Bull markets are usually vigorous and active, with big gains, sideways-to-down movements, and then more big gains.

Because there are more bear market years, you must get the best returns you can in those years, and you must try to cut down on losses. This can be attempted using a wide array of ETFs, such as sector ETFs, foreign country ETFs, non-stock market-correlated ETFs, and inverse ETFs, that enable you to short the market. History suggests that if you stay in bear markets, you will lose a little money, but bull markets return and are worth the wait. Unless the U.S. is in a long-term, irreversible declineand there are those who think this is true, but I do nothistory will repeat itself and there will be a bull market. The U.S. is a major player in the global economy and should continue to grow along with the international community.

Sections of this book explain how ETFs work, why theyre the perfect securities for the current and future market, and which ones you should buy and why. To better understand ETFs, we examine where they come from and how they fit in this investment environment.