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SPDN: An Inexpensive Way To Profit When The S&P 500 Falls

Summary
SPDN is not the largest or oldest way to short the S&P 500, but it’s a solid choice.
This ETF uses a variety of financial instruments to target a return opposite that of the S&P 500 Index.
SPDN’s 0.49% Expense Ratio is nearly half that of the larger, longer-tenured -1x Inverse S&P 500 ETF.
Details aside, the potential continuation of the equity bear market makes single-inverse ETFs an investment segment investor should be familiar with.
We rate SPDN a Strong Buy because we believe the risks of a continued bear market greatly outweigh the possibility of a quick return to a bull market.
Put a gear stick into R position, (Reverse).
Birdlkportfolio

By Rob Isbitts

Summary
The S&P 500 is in a bear market, and we don’t see a quick-fix. Many investors assume the only way to navigate a potentially long-term bear market is to hide in cash, day-trade or “just hang in there” while the bear takes their retirement nest egg.

The Direxion Daily S&P 500® Bear 1X ETF (NYSEARCA:SPDN) is one of a class of single-inverse ETFs that allow investors to profit from down moves in the stock market.

SPDN is an unleveraged, liquid, low-cost way to either try to hedge an equity portfolio, profit from a decline in the S&P 500, or both. We rate it a Strong Buy, given our concern about the intermediate-term outlook for the global equity market.

Strategy
SPDN keeps it simple. If the S&P 500 goes up by X%, it should go down by X%. The opposite is also expected.

Proprietary ETF Grades
Offense/Defense: Defense

Segment: Inverse Equity

Sub-Segment: Inverse S&P 500

Correlation (vs. S&P 500): Very High (inverse)

Expected Volatility (vs. S&P 500): Similar (but opposite)

Holding Analysis
SPDN does not rely on shorting individual stocks in the S&P 500. Instead, the managers typically use a combination of futures, swaps and other derivative instruments to create a portfolio that consistently aims to deliver the opposite of what the S&P 500 does.

Strengths
SPDN is a fairly “no-frills” way to do what many investors probably wished they could do during the first 9 months of 2022 and in past bear markets: find something that goes up when the “market” goes down. After all, bonds are not the answer they used to be, commodities like gold have, shall we say, lost their luster. And moving to cash creates the issue of making two correct timing decisions, when to get in and when to get out. SPDN and its single-inverse ETF brethren offer a liquid tool to use in a variety of ways, depending on what a particular investor wants to achieve.

Weaknesses
The weakness of any inverse ETF is that it does the opposite of what the market does, when the market goes up. So, even in bear markets when the broader market trend is down, sharp bear market rallies (or any rallies for that matter) in the S&P 500 will cause SPDN to drop as much as the market goes up.

Opportunities
While inverse ETFs have a reputation in some circles as nothing more than day-trading vehicles, our own experience with them is, pardon the pun, exactly the opposite! We encourage investors to try to better-understand single inverse ETFs like SPDN. While traders tend to gravitate to leveraged inverse ETFs (which actually are day-trading tools), we believe that in an extended bear market, SPDN and its ilk could be a game-saver for many portfolios.

Threats
SPDN and most other single inverse ETFs are vulnerable to a sustained rise in the price of the index it aims to deliver the inverse of. But that threat of loss in a rising market means that when an investor considers SPDN, they should also have a game plan for how and when they will deploy this unique portfolio weapon.

Proprietary Technical Ratings
Short-Term Rating (next 3 months): Strong Buy

Long-Term Rating (next 12 months): Buy

Conclusions
ETF Quality Opinion
SPDN does what it aims to do, and has done so for over 6 years now. For a while, it was largely-ignored, given the existence of a similar ETF that has been around much longer. But the more tenured SPDN has become, the more attractive it looks as an alternative.

ETF Investment Opinion

SPDN is rated Strong Buy because the S&P 500 continues to look as vulnerable to further decline. And, while the market bottomed in mid-June, rallied, then waffled since that time, our proprietary macro market indicators all point to much greater risk of a major decline from this level than a fast return to bull market glory. Thus, SPDN is at best a way to exploit and attack the bear, and at worst a hedge on an otherwise equity-laden portfolio.

I Will Be Strongly Disliked by Nutrition Cults After This Article is Published

“No soup for you!” This became the cry of the “Soup Nazi” in one episode of the popular series Seinfeld when it was on. The plot is that one of the crew eats soup that is to die for, and the others won’t believe soup can be so good until they try it. When they go to the shop that sells the soup, there is a long line of people wanting this soup. Each person methodically and silently moves through the line, reaching and taking without talking to the chef. One of Jerry’s friends (or maybe it was him? anyway…) commits a horrible faux-pas and talks to the chef and doesn’t do something the way he should and ends up banned from the soup line, with the grouchy chef yelling this famous line after him as he leaves.The Soup Nazi came to mind the other week when I was musing over the latest nutrition fad to hit the market. Because I market liquid whole food nutrition as supplements to healthcare practitioners and those involved in the nutrition field, I hear a lot of people telling clients some pretty strange things. It’s not wrong to try something that someone you trust recommends. However, when someone issues mandates and absolutes about diets without the science to back it up, I start getting perturbed. So, I’ve coined a term for the people who are so far at the end of the nutrition spectrum that they have fallen off: Nutrition Nazis.A Nutrition Nazi is someone who requires another person to eat a plate of peas for lunch every single day. A Nutrition Nazi is a person who scares other people into eating certain foods with such authority that all types of (insert a certain food category) are eliminated from the diet. A Nutrition Nazi is a person who will not accept any other suggestions offered to a client if it is not made by them. A Nutrition Nazi will not accept clients if they do (insert something here that seems random) or don’t do (insert something else that seems random).Actually, you have probably seen Nutrition Nazis on TV (maybe even on Oprah!). You may have met one, or even followed one for awhile. They are people who make other people feel bad if they aren’t like them. They use nutrition as a reward and as a punishment. They look great, and they are healthy. But they make one mistake in their training that is a deal-breaker:They tell people to do things that aren’t enjoyable!I do believe in many, many things about nutrition that science, experience, and history back up as wise practices. These things come from all different sources. Anyone who converts his/her nutrition habits to even 20% of them would at least experience a greater sense of well-being and would be investing in their future good health. And I know better than to tell people to do these things.Good nutrition cannot be presented to clients as a god to please. I have yet to meet one person who craves failure, and to hold good nutrition up as something high to aspire to will create failure. So much in our culture that doesn’t relate to the stuff on our plates is twisted up in foods that I refuse to address clients in such black and white terms. If you happen to meet a Nutrition Nazi, I strongly suggest asking them up front what they won’t let you eat. Follow that with a question of what is the one food you should eat everyday. If they answer any food after question one, don’t sign any papers. If they tell you something odd, expensive, or yucky, make a one-eighty and tell them you’ll think about it. I hope you’ll think about how odd or expensive or yucky that food would be to eat everyday, and then think about finding some other sources (yes, plural) to help you grow in this area.

10 Things You Need to Know Before Starting a Business

Having started 9 successful small business during my 11 year business career I am routinely asked, “How did you make the jump into self-employment?” and “What are the most important things you need to do before you start a business?” These questions are then usually followed up by a barrage of questions about the minutia that goes into small business ownership and development. Questions such as, “Where do I get a Tax I.D. number?” or “How do I get capital?” or “How do I register my website?” are often asked. Although these minutia-focused questions do have some validity and some credence to them, the real important stuff that every entrepreneur needs to know is more general. The important information that an entrepreneur needs to know is the winning-mindset stuff. The stuff that determines whether an entrepreneur succeeds or not is not in the minutia. I can teach a moron how to get a Tax I.D. number, but I can’t teach a moron how to fully embrace, and passionate implement the “10 Things That You Need To Know Before Starting A Business.” These 10 things, concepts and ideas have the power to alter your entire success trajectory or they have the potential to do nothing. How these 10 things impact your life is 100% up to you. And so without any further ado, here we go:1. A business is not a business until you are actually selling something.I know, I get it. Trust me. Buying furniture and phones is fun. I know that designing your own logo is cool and thrilling. I know that buying your very own custom-wrapped vehicle sounds appealing. I know that ordering letter-head with your name on it is awesome. I know that the new Voice-Over-The-Internet phone system is truly revolutionary. However none of those things matter at all until you make your first sale. If you can’t sale you do not have a business. If you have not made your first sale, all you have is a “justification to buy professional office gadgets.” If you have not yet been handed cash by a customer in exchange for a product or service that you have added value to or rendered then your business is bogus.2. The best way to market your new product or service is by harassing the power of deep discounts based on richly anchored prices.If you want to enter and potentially exit on top of a new market during your lifetime, the only way to do it effectively without using a huge amount of marketing capital and time is by offering deeply discounted prices based on richly anchored prices. Here is an example. If you wanted to enter into the landscaping business in your town the chances are that there is already a top dog in your market. There is probably already somebody in your town that has market share by a wide margin. This company probably already has an army of landscaping crews and probably already has a certain well known marketing strategy. So how do you enter the market victoriously? If you want to win. You need to offer your customers the trojan horse. Not that you are misleading them in anyway, but you want to give them a FREE GIFT SAMPLE or a DEEPLY DISCOUNTED TRIAL PERIOD of your product and service. Once they experience the magic of your product or service, your high-prices will soon no longer matter. Soon your prices will seem justified by the extremely high quality of your product and service. Think about the iPhone, how much are those things? How much does it actually cost to buy one of those phones without buying a phone plan? A lot. Why are Americans willing to buy a new iPhone? Because they got their first iPhone deeply discounted with their phone plan.3. At the end of the day, if you or your company can’t sell, then your business is going to hell.You might be a genius and your product might be the best. You might be the best author in American history, but if your cover stinks and Americans never buy your book then your contents will never be read and your ideas will never make it out to the marketplace. Is this fair? Yes. Americans do judge books by their covers and they do judge businesses based on their perceived value. If your website stinks, they think you stink. If your sales presentation stinks, they think your product stinks. My friend, if you can’t sell your product to the people then do not start a business. If you can’t convince people that you have added a significant amount of value to the product or service, then you need to stop with the process of starting a business before you start.4. Do not EVER build a business model that is not ultimately scalable and duplicatable without your direct participation in the business.Although there is nothing wrong with hard work, there is something very wrong about exchanging your time for more indefinitely. Short term, we all have to exchange our time for money. To start my first businesses I had to work nearly 80 hours per week on a concrete construction site by day while working as a home-health aid for the elderly at night. Did I have to exchange my time for money? Yes. But ultimately I was able to exchange this money for a business that I was able to create. At first this business was a part of me. It did not work without me. It had no pulse without me. Without me it did not breathe. When I took a week off, it took took a week off. When I lost focus, the people around me lost focus. However, over time and with the intense encouragement of my wife and the intense desire I had to achieve more in life I was able to overcome the mental obstacle block and belief that, “I had to do everything related to my business.” My friend as you build and grow your business make sure that you avoid getting yourself into a business trap. Do not build a business around the personality and drive of a single person. Although this business model will make you feel sexy and popular, it will limit your growth and your time freedom. As you grow your business, make sure it can expand with the infusion of extra capital, more real estate and more people, not just more and more of you (because your family needs you too).”The secret of success lies not in doing your own work, but in recognizing the right man to do it” – Andrew Carnegie5. Before you invest a dime into any business, determine exactly how much money you are willing to invest in its success or failure.As you get yourself mentally geared up to start any business, you are going to be the most positive of mindsets. Every new business is exciting on paper. When it is just an idea it is fun, ambitious and inspiring. However, once you give life to this idea by infusing it with your hard earned capital it is no longer so fun. It is now a job. And once it is a job, things get serious. As things get serious, more and more capital is needed to buy a few more of these things and those things. A little more marketing is needed, and a few more pieces of new technology are needed. Soon money is flowing out of your wallet, like its the final 2 weeks before Christmas. If you are not careful, you will lose your shirt during this time. Do not fall into this trap. Set a limit on the amount of cash you are willing to infuse into your business and do not exceed this amount no matter what. Do your planning. Build your proformas and then stick to it. Do not get excited. Stay focused on making a profit.6. Focus on becoming an expert and guru in your area of strength instead of focusing on improving your weaknesses.I don’t enjoy small talk. I hate minutia. I do not like long-winded conversations about nothing. I am irritated by those that provide general criticisms. Those who talk and are not doers annoy the hell out of me. I am able to be in the presence of mediocrity without confronting it. I cannot stand accounting minutia. Filling out forms causes me anxiety attacks. I can’t remember my address, or nearly any information that I don’t deem to be necessary for everyday function. These are my weaknesses. What are yours?I think and talk about the big picture. I love “big ideas.” I get lots of things done because I keep conversations short. I often arrive to work at 1:00 AM on Monday morning so that I can get everything done that I feel I need to get done. I have relentless followup with subordinates who would otherwise fail if left to their own, “I didn’t have time” alibis. I delegate the accounting minutia. I have my wife and coworkers fill out all forms for me. I have my address typed into a document that I can easily access from my computer. I refuse to attempt to memorize anything, so I make checklists for everything. These are my strengths.My friend, if you lived 3 life-times we would not have enough time to improve all of our weaknesses. So why even attempt to? Spend your time honing your God-given skills. God gave you skills. Use them to get paid. People will pay you to watch you pursue your passions. People will never pay to watch me make small talk at a birthday party. People will pay me for getting things done. People will never pay me for being good at filling out forms. People will pay us, if my assistant fills out the contractor identification form correctly. Spend your time improving your God given skills. Avoid what you are not good at and delegate what you cannot stand doing.7. Focus your effort on one thing and one problem until you solve it.So many entrepreneurs hop from one idea to the next. They love moving to greener pastures. You will never gain success in your industry or line of work until you have developed mastery in it. How many hours are needed to develop mastery of something? In Malcolm Gladwell’s book the Outliers, he delves into the factors that went into creating the highest levels of success on the planet. His thesis is essentially that those who spend a disproportionate amount of time doing one thing ultimately become the best masters at this one thing, thus they get paid the most for their mastery of this one thing. His study focuses on the lives of Bill Gates, Robert Oppenheimer (the genius who created the A-bomb), and numerous other top performers. Essentially he believes that the “10,000 Hour Rule” is the true key to top success in any field. However, regardless of how you feel about Gladwell’s research, the basic truth remains. You will never be good at something unless you stick with it until you master it.”Concentrate your energies, your thoughts and your capital. The wise man puts all his eggs in one basket and watches the basket.” – Andrew Carnegie”The men who have succeeded are men who have chosen one line and stuck to it.” – Andrew Carnegie8. Your opinion is not valid, but the customer’s is.In the world of entrepreneurship we can often get excited about our new idea. We have this new idea that we believe that everyone will love. However, after we explain to a group of guys a church camp and a group of people at work and then a few more people at the local gym, we begin to realize that this idea makes the concept of marketing “dehydrated water packets” to be a good one. The fact is, the more you explain the idea, the more people ask you, “What the hell are you talking about?” As you slowly become more and more frustrated with “the people that just don’t get your ideas” you have two options available.You can act like Colonel Sanders and spend your entire life trying to convince America that your idea is good (KFC did not become a reality until the last few years of the legendary Colonel Sanders’ life), or you can realize that its time to move on to another “great idea.” As for me, I do not want to be a life-time sacrificial martyr for a good idea. However, you might want to be.
As a general rule I would encourage you to keep this in mind. Humans are the ones that buy your products and services. If they don’t get it, they won’t buy it. Crystal Clear Pepsi was cool, but the people didn’t get it.9. Realize that 80% of your success will ultimately come from 20% of your efforts.If you want to Google “Pareto’s Principle” then you will quickly discover what I am talking about here. Essentially it all breaks down like this. As your company markets and markets, you will soon find that 80% of your business comes from 20% of the marketing sources. As you begin spending more and more time in the office, you will begin to see that 80% of your effectiveness comes from 20% of the activities that you do on a daily basis. So without getting too philosophical with you on this point, I will encourage you to periodically stop and ask yourself, “What 20% of activities am I personally doing to create 80% of my success?”10. Win-Win situations are the only sustainable business solutions.Everybody is always trying to pull a fast one on somebody else. He is always trying to take advantage of them. They are always trying to get what he has without him knowing. The two of them are always trying to plot to make a quick-buck from those guys. But at the end of the day, the only sustainable solution is creating an endless stream of “mutually beneficial relationships.” The late great Andrew Carnegie believed so much in this philosophy that he devoted nearly his entire post working-career to writing, and spreading this “Gospel of Wealth” as he called it. He believed that American business would thrive like never before if only the people would realize the power of working in harmony with our fellow man in a synergistic way that allows both parties to achieve their goals. Carnegie believed in this principle because it worked for him.

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