How to Make Money Using Common Sense Investing Strategies
Who knows more about the Brexit today than they did two weeks ago? Probably all of us. In the days that have followed, specifically trading days, we have seen so much volatility and price fluctuations it is reminiscent of the August 2015 crash. What it means for the average investor is that there are easy ways to help your financial situation just by using some common sense investing tactics. The gravy train on the Brexit has probably left the station; however, it doesn’t mean you can’t be ready to jump on the next opportunity.
It’s so rare when something of this magnitude comes along. In preparation for it, I exited most of my positions that I don’t intend to hold for a few years and had cash waiting on the sideline. In just two trading days, I was able to make 32%. Hooah! That’s some serious cash. Want to know the amazing thing though? I only traded two different stocks.
What We Knew About the Brexit
Honestly, I thought the United Kingdom would stay in the EU. I am shocked with the results; regardless of my disdain for the EU and the Euro. So what led to all the turmoil? There were a host of reasons, and I’d like to share the two that I think are the most salient.
- Sovereignty was a big one. This is a two-fold factor. There are two different governing bodies of the EU, the court system and the EU administrative body. The EU administrative is located in Brussels and is responsible for many of the trade regulations imposed on British business’. Essentially the U.K. lacked the ability to regulate certain aspects of their economy because the EU had already regulated on those aspects. The second piece, being the court system, was because the European Human Rights Court could, pragmatically speaking, overrule a British high court. In American terms it would be like if the United States Supreme Court ruled and said that taxes on cigarettes are constitutional and then the NAFTA high court said, “Nope. Those taxes stifle trade and are abolished” and now we can no longer tax cigarettes. You can see how that could be frustrating for people and politicians. Please note, that was a hypothetical. NAFTA has no governing body, nor does it have a court system.
- The second reason was the “single market”. The single market (or single economy) was the term dubbed to how the countries within the EU would function. It wasn’t an actual single market, but it was designed to promote free trade and migration. This single market allowed for tax free shipments to member countries. A citizen in any member country could also move to any other member country that they wanted. What this inevitably led to was citizens from poor countries moving to other rich countries. That wasn’t really the issue though. The issue is Syria. . . Bet you didn’t see that wrench coming, huh? Essentially, with the Syrian refugee crisis you have all these immigrants moving into border countries like Turkey and Greece. Refugees are displacing citizens from the countries they’re visiting and those displaced citizens are moving elsewhere – and in large droves, they’re choosing England. This is completely ignoring countries like Greece and Turkey that are shipping refugees to the United Kingdom. Free movement is supposed to pair great workers with higher pay; instead, the U.K. is finding itself with more people who are just seeking permanence.
Like I said, there are probably a hundred reasons why the U.K. wanted to break, but I think those two summarily state the two main arguments.
How to Use Common Sense Investing Tactics
The Brexit was a large magnitude issue that everyone knew would have worldwide financial implications. They have international global banks, large corporate trading partners and in America, many of our companies have large headquarters over there. If you didn’t think our stock market would go crazy for a few days or weeks after the vote, regardless of outcome, you were being delusional.
So let’s talk about the common sense investing tactics I used to make 32% in two trading days.
In stock trading there is a common axiom: Uncertainty = Volatility. I knew whatever the decision the U.K. made, our markets were going to be incredibly uncertain. Thus, I traded a short term volatility future; specifically, ProShares Ultra Short Term VIX ($UVXY). After purchasing on the 22nd at an average price of $11.92 and placed a limit order to sell on the 24th. I ended up selling all of my positions of $UVXY for an average price of $14.87 – a 24.75% return on that trade alone.
The other trade I made was on Randgold Resources ($GOLD). When markets get uncertain, people usually will flock to gold as a placeholder for wealth as it tends not to fluctuate in the long run. I made this as a speculative bet. As such, I invested less here than I did in the ProShares trade. Using the same principle, buying my shares and placing a limit order for Friday, I netted around a 9% gain. Successful common sense investing at its best.
I use trends that never fail in the stock market to decide how to make money on the Brexit. You can too! Defining moments in history will generally always sway a few stocks one way or the other. Using that knowledge, you can pick winners and losers.
Let’s take a look on some other trades you could have made. Britain is home to two very large banks that trade on American exchanges – HSBC and Barclays. Knowing Britain was going to have to renegotiate trade deals and have interest rate talks, the banks were bound to be hit hard. HSBC lost 5.38% and Barclays lost 16.38% between the two days that I traded.
Another loser was Unilever who lost 4.5% between the two days. I’m sure there were many other winners and losers; however, the main idea here is to think about the cause and effect of how the economy works. It was about thinking about what the market was going to do in the short term and how to make money on it. I knew volatility would go up, so I traded volatility futures. I figured people would move money to gold because they were scared, so I invested in a common gold mining company. It’s logical that if Brexit happened, banks and companies that rely on European trade would be negatively affected, so you would short Unilever, HSBC or Barclays. Common sense investing.
Readers, were any of you able to make some money on this monumental change using common sense investing? Were you as shocked by the decision as I was? Let me know in the comments below.
Be sure to like the Cash Flow Celt on Facebook. You get all the latest updates there first! Cash Flow Celt is now reviewing books too. Be sure to check out the latest review and find what CFC is reading in his spare time.