Considering Heely's and An UltraShort ETF As Buys Today

As the global community digests an unsavory day of Thursday trading in the U.S., American investors will have to reassess the situation again Friday. Because of the serious driver behind this decline, I expect trading to be highly volatile today, but adopt a decisive downward bias. It is still early in this move, and many will advise investors operating within a long-term time horizon to buy. The thing is, the short term matters. It could trouble you to see your portfolio statement at the end of July if you stay put, and if you can mitigate some of the losses, it certainly makes sense to do so.

Therefore, I agree with my fellow Philadelphian Jim Cramer in that as we pick at buys, we should also be hedging against greater losses. Consider selling "at risk" firms within the financial space - Blackstone Group (NYSE: BX) tanked yesterday before finding late buyers, and the shares are trading sharply lower in the premarket today. We wrote in our article, "Taxing Consequences for Private Funds," that the Blackstone guys were going to look brilliant down the road. When smart, wealthy fellows like these, who fund takeovers based on liquid credit, decide to share the profits, there's a red flag there. Here's a Greekism for you: "Never buy from a smarter guy than you..." Regarding BX in particular, the move may be overdone on the open, but think about like risks and holdings within your portfolio. Yes, I'm worried about the investment banks.

Once again defying the permabear stigma, here's a buy for you: Heely's (NASDAQ: HLYS) reports earnings in a couple of weeks, and today, peer CROCS Inc. (NASDAQ: CROX) is moving on a strong EPS report. Heely's shares are down dramatically since their last report, but since then the company has backed out of a new financing plan that would have diluted existing interests. This has allowed participating brokerage analysts to once again speak about the shares. We expect upgrades and reiterations soon and a solid earnings report. (In the interest of full disclosure, we added to Heely's holdings within our portfolios yesterday.)

Unlike many of our independent equity research breathren, we're not afraid to put our money where our mouth is, and we'll tell you about it when we do. Another idea for portfolio insurance is the UltraShort S&P 500 ProShares (AMEX: SDS), but be careful when and where you buy. This investment seeks to advantage from downward moves in the S&P 500 Index (see Yahoo!'s profile page and this listing and discussion of other Inverse (Short) Market Cap ETFs).

Disclosure: Author is long HLYS

Comments

[Malkiel:]

Today is not the day to be buying an ultrashort ETF; that would be chasing the horse after it's left the barn. Today you buy the ultralong ETF's, since you now have the market at a discount. For a reasonable insurance policy against the next big downturn buy your ultrashort shares when the market hits its next historic high after an upside run. Those shares will be guaranteed of a return on the next -400 point day sure to follow at some point thereafter...

2007 Jul 27 10:00 AM