How to take advantage of an impending crash- Part 1: the risky way

June 18th, 2007

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Back in Epic, unprecedented inflation, we mentioned that the world is right now in the midst of an epic asset price bubble. As we warned before, in the entire history of humanity, ALL bubbles eventually burst. When that happens, it will manifest itself as a ?surprise? crash. When that happens, the delusional optimism among the masses will be given a shocking reality check. The Great Crash of 1929 is an example. Alas, since most of humanity are not even born yet in 1929, the important lessons of this Great Crash lies largely forgotten.

Now, the next question is: if you really believe that the Great Crash III (the second one is 1987) is coming, how are you going to profit from it? Today, we will suggest one way to do it?the most risky and foolhardy way?take it as a negative lesson i.e. how not to invest.

This bad strategy goes like this: you make a bet that the Great Crash III will happen in a particular month and enter a short sell position. In case you do not know, short selling means borrowing stocks that you do not own and selling them in the market. After the stock price fall, you buy them back at the lower price to return to the original owner of the stock. But what if the stock price rises instead? You make a loss as you are forced to buy the stock back at a higher price to repay it.

Why is this strategy really bad?

As we said before in Crash alert?to short the stock market or not?,

Well, if you decide to short the market, remember that you are going against the trend of the market. Many short sellers lost their shirts by being wrong on the timing of the coming crash and were forced to buy back stocks in panic to cover their short positions.

If you short sell stocks, you can still lose a lot of money even if you are right about the event but wrong on the event?s timing.

Currently, we are in a bubbly bull market. Therefore, the probability of stock price rising is higher than the probability of it falling. This will go on until the Great Crash III happens. The problem is that no one in this world knows exactly when it will come. It could come tomorrow or next week. Or next month. Or next year.

No one really knows.

But rest assured, though it may tarry, it would surely come. As each day pass by, the day of the Great Crash III gets nearer. What are the better ways to profit from the coming Great Crash III? Keep in tune!