5. Trading During Turbulent Times
• This is why experts recommend – always
trade using the “Market Portfolio”
• Instead of betting on a single stock – diversify
your investments over all of the market’s
leading stocks
This is indeed a great
advise. Yet how useful is
it during turbulent
times?
7. Who Makes Profits During Turbulent Times?
• Probably the most famous example of how to
make enormous fortune during global crisis is
George Soros – “the man who broke the Bank of
England”.
• During 1992, just before the UK currency
crisis, Soros Betted that the British pound will not
join the EUR-Group, and as a result will be
significantly weaker.
• He then opened large short positions
on the pound.
• Made about $1.1 billion during the
crisis
8. How to Reduce Exposure to Falling Markets?
• The main concern when participating in
equity markets is the ripple effects of
global/local crisis on our portfolio
• When investors flee off the market – almost
all prices fall. Including assets which don’t
necessarily have direct
link with the crisis
9. How to Reduce Exposure to Falling Markets?
»Using “short” orders
Problems:
1. Not always possible
2. Considered to be “Risky-Trading”
3. Positive inflation targets
10. How to Reduce Exposure to Falling Markets?
»Using “put” options
Problems:
1. Not always possible
2. Could turn up to be quite expensive
3. Hedging yourself can - at best - prevent
losses. It cannot generate profits
11. How to Reduce Exposure to Falling Markets?
»Shorting on Currencies
• Unlike almost any other financial instrument –
there are no restrictions on shorting currencies
• Short and Long orders on currencies are basically
identical
• «Shorting» the Dollar vs. Euro is exactly like
«longing» the Euro vs. Dollar
12. Safe-Haven Currencies
There are three currencies which are typically
being referred to as «Safe-Haven» assets
• The currencies are: USD, JPY and CHF
• This means that investors – worldwide – put
their faith in these economies during times of
crisis
• Investing in the economy encourages
speculators to long these currencies as well
• The end result is…
14. Safe-Haven Currencies
EUR/JPY fell from 170.00 to 119.00
within three months
Potential position:
• Opening a short EUR/JPY position of 500,000
contracts
• Requires $4,000 in margin (using 1:125 leverage)
• Profit potential: $235,000
• In simple words – longing the JPY against the second
most traded currency in the world offered you a
5,875% yield within three months
15. What if the Crisis Takes Place in Japan Itself?
• In April 7th 2011, Japan was the victim of one
of the most horrifying natural disasters in
modern times
• The disaster included an earthquake and a
tsunami
• Developed into nuclear crisis
• About 16,000 deaths and
approximately 4,000 missing
• Estimated loss to the
Japanese economy:
$35 billion ($35,000,000,000)
17. EUR/JPY Following Japanese Natural Disasters
EUR/JPY fell from 123.00 to 103.00
within five months
Potential position:
• Opening a short EUR/JPY position of 500,000
contracts
• Requires $4,000 in margin (using 1:125 leverage)
• Profit potential: $110,000
• In simple words – longing the JPY against the
second most traded currency in the world offered
you a 2,750% yield within five months
19. And in Simple Words…
• The Japanese crisis has reduced what was
already a very low risk-appetite in the market
• As a result, investors took their money and
put it in what we previously called: «Safe-
Haven» assets
• Speculators saw the trend and immediately
stepped in – taking advantage of the crisis
• Global Crisis Stronger Yen
20. Another Alternative - Gold
• One of the ancient investment in history of
Mankind
• One of the most used instruments for
monetary exchange
• Investors use it to hedge risks
from Global uncertainty
• Why…?
22. Another Alternative - Gold
• Till Late 2007 Gold Never Reached over $700 an
ounce
• Then, investors who sensed the
possible forthcoming crisis
turned to gold
• They understood the potential in
investing in gold for hedging risks
• The big break-though happens once again
following the Lehman Brothers crisis
• Gold is boosted and reaching an all-time record
high of $1,900 an ounce
• Until today, gold has more than doubled its value!
23. What Makes Gold so Appealing?
• Universal Investment – isn’t valued by the
strength of a single economy.
• Isn’t Consuming Dependable –
demand for gold does not
depend on consumption power.
• “Doctor’s Orders” – psychological
effect. The “book” tells us – whenever
markets crashes: “turn to gold”.
• Simple Conception – doesn’t involve
sophisticated investments.
24. The Bottom Line
• Global crisis are terrible times.
• People lose their jobs, their equity assets and
even their pension investments.
• It is very important, especially for those of us
who invest their funds in equity markets, to
know how to handle these hard times.
• Investing in currencies and in certain
commodities has proved itself – over and
over again – as the most useful tool for the
common man to rescue his funds, and
perhaps even to gain capital.
