Prospecting for a Nugget

If you are a millennial, or even if you’re not, you probably are trying to desperately turn your small account with a discount broker into a giant fund that will enable you buy, say, a Microsoft Surface, so that you can use it to track your giant fund.

As such, you need a big hit. Yes, you could invest like Master Hedge Fund Manager Ray Dalio, and generate like 20% annual returns year after year.  But look at the math as it pertains to small accounts:

Start with $2,000, add 20% every year, and in 10 years you will have $12,000, or enough to buy a candy bar, or Samsung Neutron, or whatever it is they are selling in ten years. You’re just not going to become a millionaire starting with a small account if you invest like a sane person.

Fortunately for you, there are investment (ha!) vehicles that allow you make (or lose) a lot more money a lot faster.

Let’s start with a real popular one, the Direxion Daily Gold Miners Bull 3X ETF or $NUGT. This Fund is designed to give you three times the daily move of the Gold Miners ETF, known as $GDX.  Note the important word there, Daily. We’ll come back to that.

When the $GDX moves a little, $NUGT moves a lot. You get it right, you make a lot of money in a short time.  You get it wrong, you hear from Marg.  Yes, margin call, if you are able to get margin on these.  Thankfully, you usually can’t, so you’re safe, unless your wife is named Marg.

With $NUGT, if you can predict the daily moves properly using TA or voodoo or whatever, you can make big moolah. I’ve designed a little test to see if this ETF is right for you:

1. You can’t predict the minute by minute moves of an ETF, accurately? Then stay away from this.
2. You can? They why do you have a $2,000 account? Go work for Carl Icahn. He has billions, and will be happy to pay you millions for that kind of ability.
3. You don’t know? See A.

Your homework for today is to look up “investing” in the dictionary. I am pretty sure there isn’t anything about guessing daily moves of an ETF that is based on another ETF.

For fun, there is also a comparable Bear ETF. It’s no better.

I know I said I would get back to the Daily thing, but I think you’ve learned enough for one day. Let’s just say that you can short this ETF (often), buy it (sparingly) but you should never hold it.  It will eventually tank badly.

I suppose I should say here that professional traders have the ability to use these as hedges and may get some value out of them as part of larger portfolio.  But, seriously, you weren’t going to use them like that, were you?

Disclosure: I am short $NUGT and $DUST now, and may be at any given time.

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