I was talking to a colleague late on Wednesday night.
Now, he’s not a “gold guy” by any stretch.
But for one simple, important, and undeniable reason quickly becoming one.
Your editor gave him two bits of advice from personal experience.
First, I showed this chart on gold stocks.
Second, I told him about this story below which is the key to making a fortune in gold stocks in the months and years ahead.
How To Make a Fortune in a Market Meltdown
I’ve got to tell you, I was really quite proud of myself.
In one of the greatest market meltdowns in history, I was buying “can’t lose” stocks and won big…
Or so I thought.
I first bought Silver Wheaton (SLW) in early December 2008 at about $3 per share because it really couldn’t lose.
Now, Silver Wheaton isn’t a traditional silver mining company. It is a “streaming” company which means it buys silver for $3 an ounce from mines it financed into production.
There’s no big risks like in regular mining stocks. There are no riots from locals or dangerous conditions for workers to deal with.
Silver Wheaton is far simpler and far less riskier. If the price of silver is $14, it makes $11 an ounce. If silver is $30 an ounce, it makes $27.
It’s a great business to be in even in the toughest of times for precious metals.
At $3 a share when I bought shares, it really couldn’t lose either.
And it didn’t lose. When it hit $4 per share a few days later I punted it out.
A gain of 30%+ in one of the toughest markets ever.
Not bad, right?
Well, that’s what I thought.
A little over two years later Silver Wheat shares hit a high of $46 each. That would have been a gain of 1433%. Far more than my measly 33%.
That’s the price of not letting your winners ride.
I know it. I’ve paid the price. And learned from it.
That’s why, throughout the current downturn, I’ve been recommending readers holder onto my latest big idea because it has a unique structure which could cause gains to soar many times over.
Let me explain how it works.
The Right Time
As you have surely realized by now, the Advanced Wealth Letter is betting big on sharp drops of a few different sectors - China and Basic Materials specifically.
It’s bad and getting worse. Which, for us, is good.
The thing is though, we’re not taking big risks to bet against these sharply dropping sectors.
In fact, I’ve encouraged limiting risks because with our recommended trades, you don’t have to risk a lot to make a lot.
That’s because we’re taking advantage of anomalies created through leveraged ETFs.
You may be familiar with leveraged ETFs. They multiply the daily movements of underlying indices by 2x or 3x.
You may have even used them before. And if you did, you probably had mixed returns with them.
Leveraged ETFs have caused a lot of problems for investors because they don’t match the exact returns of the asset over time.
Honestly, most of the time, they’re sure ways to lose money...only faster than normal.
Occasionally, however, there are times they are tremendously valuable tools.
Right now is one of those times.
It all comes down to simple math.
Just look at the oil market to see what I mean.
Oil prices have dropped 78% in the past year and a half. It has taken many oil stocks down 80% to 90%.
If you had a “short” position in oil or in oil stocks, you’d be up a tidy 70% to 90%.
Not bad. But even a small position in a leveraged ETF would have done exponentially better.
Take a look at the VelocityShares 3x Inverse Crude Oil ETN (DWTI) over the same period:
This is an ETF which is designed to triple the daily movements of oil prices.
As a result, it has absolutely soared while oil prices collapsed.
The chart above shows it has run from about $27 before oil prices started to collapse to a recent high more than $480.
Even a small position would have trounced the regular “short” position in oil stocks.
You could have made 80% to 90% betting against oil or oil stocks. You could have made 20 times that with a leveraged ETF like DWTI.
Let Your Winners Ride
That’s why, in certain markets, leveraged ETF’s can be used to offset losses elsewhere and then some.
Of course, you have to let them ride.
We had a market where there were stocks which ran hundreds -- or even thousands -- of percent like Silver Wheaton did between 2008 and 2011.
That market is gone. Probably for awhile.
There is, however, a market where some sectors will drop 30%, 40%, or more.
The leveraged ETFs are in position to deliver the big gains in those positions.