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February 9, 2010
Michael Shulman

Sector Bets? You Betcha!

By Michael Shulman

Diversity should be the cornerstone of every individual investor's portfolio. A healthy mix of longs and shorts in various industries, coupled with stocks and options, including puts and calls, can protect you during downdrafts and, using shorts, you can even make money.

Don't get scared off by the term "short" -- when you do it the ChangeWave way, the most you can lose is what you put in the game. And we're making short-side profits the safe way, through buying low-cost puts with big potential!

When we find a sector that looks like it's ready to hit the skids, we strap on our seatbelts and go along for the wild ride to the downside. Late this spring, our ChangeWave Shorts portfolio looked like a parade of the homebuilding sector's worst of the worst: Centex (CTX), D.R. Horton (DHI), Hovnanian (HOV) and Lennar (LEN) all made appearances, their heads hanging low.

With fundamentals that not even a mother could love, I knew these homebuilders were begging for short positions.

In early March, we tested the murky homebuilding waters with the DHI Aug 20 Puts and HOV Aug 30 Puts. Less than a month later, we were looking at 73% and 93% profits, respectively. I knew things were heating up because of a cooling housing market.


If your portfolio suffered wounds from this summer's correction, come on over to the short side for relief. With predicted volatility in the months ahead, Michael Shulman can show you how to profit even if the market drops.

Click here to learn more about ChangeWave Shorts.


To the Poorhouse for Homebuilders

In fact, on March 7 I told my short-side investors, "Mortgage companies and banks heavily dependent on mortgages are going to have a weak to lousy year. Mortgage companies with overexposure to subprime and near-subprime mortgages are also going to have a very nasty year."

But, I was early to that party, and like most guys who are the first to arrive, I looked like a loser. Thankfully, looks can be deceiving. I knew what was ahead, given the mortgage mess, the slowing sales and the rising inventory.

I'm a huge proponent for diversifying and investing prudently, so when I see an opportunity for a sector bet, it's based on crumbling fundamentals, not hype and speculation.

While keeping some capital in other "choice" ailing sectors (namely banks, communications and tech stocks), I urged ChangeWave Shorts members to hammer down on the homebuilders with a new round of HOV Nov 20 Puts and DHI Jan 17.50 Puts, as well as CTX Oct 35 Puts and LEN Sept 30 Puts.

Now, I have to warn you that while some of these positions are still open, they are now grossly overvalued with inflated prices, thanks to the credit crunch I spoke about earlier -- in fact, way earlier. Please do not attempt to buy these positions now, because you'll end up in the doghouse.

But, when short-siders initiated their positions in the spring, no one was interested in shorting homebuilders, so in most cases we got in at a deep discount. The returns looked like this:

* 311% in Centex
* 173% in D.R. Horton
* 300% in Hovnanian
* 83% in Lennar

Sweet Success (and a Little Gloating)

So, while we were singing the praises of the short side during this summer's correction, everyone else was nearly singing for their suppers. I know it was a tough time for a lot of investors, and I don't like to make light of that.

This goes back to my first tenet to remain diversified. But since I recommend you only play short positions -- and any other options -- with money you can stand to lose, then it doesn't hurt to try a sector best with that Vegas money.

Thanks to our focus on homebuilders, a lot of our short-side investors told me they're "movin' on up" -- not to deluxe apartments in the sky, but instead to beautiful new homes -- many of them vacation properties. When you look at it that way, while we have made (and are making) plenty of dough at the builders' expense, they can't say we never did anything for them!


If you're ready to see the view from the short side, ChangeWave Shorts is ready to show how to make triple-digit profits in companies that are bad to the bone.

Michael Shulman uses extensive fundamental research, decades of experience and the invaluable analysis of the ChangeWave Alliance to pick short-side opportunities that can grow your wealth with dying companies. Click here to learn more.