Lessons from Five New Imaginary ETFs

Last Updated Oct 27, 2009 9:48 AM EDT

I'm a long-term investor who knows he doesn't know what the next hot company, sector, or country will be. But if I weren't a long-term investor, here are five new ETFs that I'd launch:

1. Negative technical analysis ETF
Technical analysis uses trends to try to predict the future price of a stock or the stock market itself. Since this data is available to anyone with an internet connection, following these trends is following the herd, which we all know doesn't work. So, when technical analysis says sell, my ETF would buy.

2. Sane-Money ETF
I've noted that Jim Cramer deserves a raise for keeping the stock market efficient in his Show Mad Money. Millions of consumers have watched him and followed his advice. So my new ETF will buy what he says to sell and sell what he says to buy. We may not have CNBC behind us, but I think we can build a niche of investors who would rather think of themselves as sane than mad.

3. Non-Fundamental ETF
Fundamentally weighted ETFs are run by people who think they are smarter than the market and weight stocks in an index differently than their values (market capitalization). This method of weighting used to be red hot, until it stopped working that is. But it will be hot once again when my new ETF does just the opposite - overweight the largest capitalizations.

4. Golden Dollar ETF
Gold was the best investment I ever made back in 1980 when I bought it at $664 an ounce and was sure it was about to become worth $2,000. It was a great teaching investment because I learned I was merely following the herd. Today, common wisdom is that gold is going to skyrocket and the dollar is dead. My new ETF will short gold and buy futures on the dollar, betting that conventional wisdom is usually wrong.

5. INDent ETF (flagship)
Every fund family needs a flagship product and this will be mine. Harry Dent has launched a new ETF called the DENT Tactical ETF, which is based on his best-selling books. Those books predicted both Dow 40,000 and later, the great depression ahead with the Dow at 3,800. His previous mutual fund, the AIM Dent Demographic Trends Fund, once had $2 billion in assets. Then it was merged into another, now extinct, mutual fund after 80 percent of the assets were gone.

So, with a track record like this, my new ETF would be an inverse of this new DENT fund.


Fund Manager
Every new fund needs a fund manager with a track record and national recognition so I've recruited one of America's top financial planners of 2009, MaxTailwagÑ?r, who single handedly made almost $100 billion more in 2008 than the collective minds of AIG.

More to the story than just sarcasm
While I won't actually be launching these new ETFs, there is actually a lesson here. Whether through ETFs or other vehicles, people seem to follow the herd. Don't do it!

I'm not advocating actually following any of the strategies in my five imaginary ETFs, but I do believe they beat out following what's hot, which all five of my funds are based upon, before inverting the strategy.

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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.

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