"The reality is, you can't pick the winners," he tells me. "All you can do is pick a portfolio, and embedded in that will be a winner or two." But Brett, you pick winners all the time on TV. Pick me a winner.
"I've got lots of things in my portfolio that, over a 10-year cycle, would be worth five or 10 times what I paid for them," he patiently explains, but adds that he's got a lot of duds as well. The key is to pick companies that have management you are confident in, and then be patient. "In most cases I'm looking for a double or a triple over a three- to five-year period," he says.
Wilson suggests I bank my money in a start-up natural gas company. "My gut feel right now is that natural gas is one of the most oversold markets in North America-and one of the least understood," he says. It's "ripe for a cyclical run."
Finding the right early-stage gas company is going to require research, which sounds suspiciously like work. Even thinking about it makes me want to take a nap. In an ideal world, I wouldn't have to rack my brain trying to pick just one natural gas company; there would be some kind of investment product that would allow me to tuck my nest egg into a whole bunch of said companies at once-all the while earning outrageous returns.
"If an index has a great year and goes up 35%, a regular ETF that just tracked an index on a one-time basis should be up pretty close to that." Howard Atkinson, president of Horizons Exchange Traded Funds
As it happens, there is such a product. Exchange-traded funds (ETFs) follow an index of companies but trade like stocks on a major exchange. There are ETFs that track everything from gold to real estate to airlines and, yes, natural gas. Rather than having to pick one company, I figure that the right leveraged ETF should allow me to ride a few natural gas companies all the way to my time-share in Del Boca Vista-in theory at least.
I call up Howard Atkinson, president of Horizons Exchange Traded Funds, a Toronto-based firm and the sole Canadian provider of leveraged and inverse leveraged ETFs. I ask him how I can get in on what appears to be the best game in town.
Atkinson agrees that in rare cases, an ETF could hold the potential of a massive payout. "If an index has a great year and goes up 35%, a regular ETF that just tracked an index on a one-time basis should be up pretty close to that," he says. With leveraged and inverse leveraged ETFs-known in the industry parlance as bull and bear ETFs-the potential earnings would actually be much, much higher. He translates: A bull ETF aims to double, and in some cases triple, the daily gains of the underlying index. (In other words, index goes up 35%, I earn 70%.) An inverse leveraged ETF, on the other hand, does the opposite: It gains in value as the index drops, through a combination of short selling and trading in derivatives such as futures contracts. The only problem? When the index does go in the wrong direction, well, the losses are equally dramatic.
Still, if I were to purchase a leveraged ETF and ride a strong index trend, it's possible, admits Atkinson, that I could see returns of 600% in a year, with compounding. This is exactly what happened when oil ran up to $147 a barrel in 2008, and also when natural gas cratered from $15 down to $3 in 2009. The question is, would I have the nerve to ride such a wave?
"Very few investors would hold through that entire period," Atkinson says. Leveraged and inverse leveraged ETFs are "not necessarily something that you are going to buy, stuff into your portfolio and ignore for long periods of time."