How RealMoney Can Prevent a Disaster

Check out Eric Oberg's latest piece on the Temporary Liquidity Guarantee Program.

One of the advantages of subscribing to RealMoney is having one of our pros warn you away from buying a certain stock or making a specific trade. Sidestepping an investing disaster can sometimes mean the difference between retiring early and not being able to retire at all.

RealMoney contributor Eric Oberg, a former managing director at Goldman Sachs, made two of these disaster-preventing calls last Dec. 22, when he wrote a compelling argument warning subscribers against two exchange-traded funds (ETFs) that are designed to provide gains by shorting the indices they follow.

Oberg's article, "Why Short Sector ETFs Aren't So Smart," warned investors against ProShares UltraShort Financial ETF(SKF Quote), a short play on financials, and ProShares UltraShort Real Estate ETF(SRS Quote), a short play on the real estate market.

Both have been disasters. Since Dec. 22, the SKF has underperformed the implied short of its counterpart long fund -- the Ultra Financials ProShares(UYG Quote) -- by 84.6%, while the SRS has underperformed the implied short of its counterpart long fund - the Ultra Real Estate ProShares(URE Quote) -- by 90%.

Subscribers who followed Oberg's advice saved a lot of cash. A $100,000 investment made in SKF on Dec. 22 is now worth only $48,600. A $100,000 investment made in SRS on Dec. 22 is now worth only $41,900.

Both SKF and SRS were based on underlying indices that were based on being down, and yet somehow, these funds had the wrong execution of an idea that proved correct.

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Dave Morrow

Editor-in-Chief