Forget About That Buffett Guy

Wait! You can't say that on The Motley Fool!

What do you mean? I can't say what?

You can't tell readers to forget about Warren Buffett! He's the king of value investing! The money he's made with Berkshire Hathaway (NYSE: BRK-B  ) is more than even Han Solo can imagine! Who are you to be saying --

Hang on, hang on. Bear with me. I've got nothing against value investing or Warren Buffett. I've been a big fan of both for years. It's just that, with so much changing in the world right now, I'm thinking that there's a lot of money to be made if people also learn to invest like George Soros.

Soros? I saw that guy on the TV. He's the one who says he sells his investments when his back hurts. Guy's got a billion-dollar back, maybe, but me, I stick with the Doan's pills. I don't need that.

Look, just shut up and listen. Soros is a guy who has made billions with investments that anticipate big changes -- sector swings, currency swings, economic changes -- on a global scale.

Wait a minute. He's the guy who shorted the British pound and freaked out the Bank of England, right?

Yeah, back in 1992. He --

Look, my IRA's done well and everything, but forget the Bank of England, my IRA's not even big enough to get me an account at Goldman Sachs (NYSE: GS  ) . I could short all the shares I could borrow -- if I could short with an IRA, which I can't, which is another thing -- and even with a small cap it'd be like a fly landing on a horse's butt. Not even. Are you kidding me?

You're missing my point. Let me try again. Buffett, and most other good investors, invest from the "bottom up," right? They may look at trends, but then they look at specific companies, at their financials and management and prospects.

Guys like Soros stay at the level of the trends -- big global trends, things like interest rate shifts, commodity price movements, exchange rates, government monetary policies, stuff like that. If you learn to understand the relationships between these things, you can anticipate shifts in the trends and make big money -- even when the U.S. stock market is stinking it up.

I can't do that. I'm a Peter Lynch guy. I buy what I know, you know? I know my new iPhone is the best gadget I've ever owned, and the iTunes store is a brilliant idea, so I took a look at Apple (Nasdaq: AAPL  ) stock. It's had a big run in the last year, but it looks to me like there's a lot of growth left, so I bought some. Isn't that what you've been telling me to do?

Sure, and that's totally fine. But what if the U.S. dollar tanks and the prices of all the little Asian-made components in the iPhone go through the roof in dollar terms?

Then I guess I won't be upgrading for a while.

Or you could buy an ETF that makes money if the dollar declines, like PowerShares U.S. Dollar Bearish. Or if you think the whole technology hardware sector is going to get whacked, you could buy a double-short sector ETF like ProShares UltraShort Semiconductors, which is designed to go up $2 for every $1 the Dow Jones U.S. Semiconductor Index goes down.

That index has all the big names -- Intel (Nasdaq: INTC  ) , NVIDIA (Nasdaq: NVDA  ) , Applied Materials (Nasdaq: AMAT  ) , Marvell Technology (Nasdaq: MRVL  ) -- so if you think they're all going down, you can use that ETF instead of shorting them. And you can't short in an IRA, but you can buy an ETF.

So, you're saying I should --

No, hang on. That was just an example. I have no idea what semiconductor prices are doing these days, and anyway, don't go buying one of those double-short things unless you're really sure you know what you're doing. My point is that you can learn to use ETFs to do the kind of thing that guys like Soros do, and you can do it in your IRA, and you can do it on as small a scale as you want. 

But I like buying stocks.

So keep buying stocks! But if you learn to use ETFs to invest in global trends, you give yourself a broader range of things to invest in and a way to make money no matter what the market is doing. You can even use them with your stocks, to hedge sector risks or add exposure. Remember how I keep telling you to think in terms of your whole portfolio? ETFs can make it easy to put your asset allocation strategy into action.

You're saying I can make money no matter what the market is doing?

Yes. That's the point. If you use tools like ETFs, you can make money whether the stock market is going up, down, or sideways. Options also are a great tool in this regard.

Wait a minute. Options?

Don't worry. Done properly and with fundamental analysis as the foundation, this is actually a pretty conservative strategy in terms of risk -- but it's plenty profitable. Seriously, the market has been great recently, but you know there's a chance it'll go right back down again. The strategy I'm advocating isn't for everyone, but it can sure help you sleep better at night.

If you're interested in learning more, the Motley Fool Pro service is designed to help you build wealth and beat the market with stocks, ETFs, and options strategies. David Gardner and Jeff Fischer are great about explaining everything at a very basic level. You'll have no trouble following along, and you'll learn a ton in a hurry. The service is opening up to new members again soon. Enter your email address in the box below, and they'll send you more information.

This article first ran June 19, 2009. It has been updated.