How to make money in a bad market

By Howard Lindzon
Globe Investor Magazine Online, April 7, 2008

Howard Lindzon is a Canadian portfolio manager at Lindzon Capital Partners in Phoenix, Ariz. He trading focus is on momentum stocks. He also is a partner at Toronto-based venture capital fund Knight’s Bridge Capital Partners and was the founder of wallstrip.com, a video website about stocks. His blog is howardlindzon.com

Is America Broken? More importantly for investors is the question: How can I make money if it is?

As I write this article from the runway of Miami’s airport on the way to Phoenix, I have many negative thoughts. Lot’s of American infrastructure is old and broken from its highways in old urban areas that can’t handle the traffic to its airports. New York City has three airports, all of them awful.

The fact that Countrywide Financial and now Bear Stearns are basically insolvent and carcasses for lawyers has really put the fear into the stock markets once again. I am mad at U.S. leaders but that won’t affect change and it sure as hell won’t make me money. This “credit crisis” is quite different from the little Internet bubble of 2000. Internet entrepreneurs were little boys compared to the grownups losing money in the financial sector.

It’s easy to be negative, especially now. We have escalation in the prices of fuel, shelter and food costs, and an angry U.S. citizenship. Almost all stock market sectors have broken price trends and/or trending down, despite a 10-per- cent rally in the major indexes. It’s a dangerous time to be aggressively optimistic, but I believe the optimists always make out in the end.

The good news for investors is technology…not Cisco, Microsoft, Dell or Yahoo, but exchange-trade funds, more importantly inverse ETFs. As the ETF phenomenon has taken off, so too have all the exotic ways you can use them to invest. Hundreds of ETFs that allow you to short countries, sectors and indexes have been created. As an investor you no longer have an excuse to whine about the stock market. Here is a link to a list of of inverse ETF’s, from fellow blogger Trader Mike ( http://tradermike.net/2007/03/list_of_inverse_short_bear_etfs_/ ) ETFs are not toys and they are not “the” answer to stock market returns. They are financial tools. Used properly, they can mitigate risk to a long-term portfolio of individual stocks.

If inverse ETFs and betting against the market are not your style, take your time and keep an eye on the record high list. Even if America is broken and the stock market is doomed, there have been plenty of stocks and industries charging ahead.

The oil stocks continue to outperform. The oil stocks continue to outperform. Agriculture stocks are acting like internet stocks despite the weak stock markets. Steel stocks remain in vogue as companies like United States Steel (X-NY) and Steel Dynamics (STLD-Nasdaq) move to further new highs.

High price-to-earnings stocks like First Solar (FSLR-Nasdaq) and Intuitive Surgical (ISRG-Nasdaq) are back near record highs. That means confidence is creeping back into the market.

Focus on strength, keep an open mind and do less in the market until hundreds of stocks are hitting record highs again daily.

Special to The Globe and Mail