Research ETFs Before You Invest

Dr. Stephen Leeb, PhDLeeb Capital Management

ETFs Are Not All Created Equal

When it comes to stock market investing, you can buy ETFs or you can buy single “equity securities” otherwise commonly known as stocks. Let me start off by saying; there’s a very broad variety of ETFs. And I think a lot of these ETFs have been created in response to the need to diversify among these companies.

Buying one singular stock gives you one share in one company. On the other hand, an ETF gives you a small share in a lot of different companies. And you can achieve this two different ways. Either buying the individual stocks of companies held in an ETF (electronically traded FUND) or buying shares of a particular ETFs that collectively holds those same companies. For any DIY investor- you can set up a brokerage account and purchase singular securities or buy ETFs online.

At this point, I think we should warn investors that not all ETFs are created equal. You’ve got to really look under the hood and make sure that they’re not synthetic. There are some robotics ETFs that aren’t really involved in robotics. They are kind of assumed… There are lots of caveats to watch out for.

I think that a majority of people are good at using the internet and should research as much as possible. Not all ETFs are even ETFs. There’s a whole slew of things to stay away from. You definitely have to look under the hood. Any ETF is required to tell you about the companies it holds and you can do the research on those specific companies. You can find extensive presentations those companies have created, publicly available on the company’s website.

You also want to stay away from ETFs that are so-called twofold and threefold. If a particular group of stocks goes up- they go up twice as much. It seems very enticing- avoid it.

The records of these particular investments are horrible and it’s horrible over a long period of time. It’s just the mathematics- they’re terrible ideas and it’s so easy to get ripped off. You want an ETF which counts only stocks, which includes only stocks, it doesn’t have financial instruments like notes. When you see the word ‘note’ associated with what you’re buying, be skeptical. Do the research because you want to know exactly what you own.

ETFs Are NOT Created Equal- Learn How To Research Before Stock Investing by Dr. Stephen Leeb, Ph.D.

Due Diligence Pays Off

Rule of thumb, especially for new investors that are just picking this up, if you don’t understand what an ETF is or what it claims it is- forget it! Make sure you understand what the ETF represents. It should represent only a collection of stocks or a particular commodity.

For example, as in the case of gold ETFs, all it represents is they have gold backing up exactly what you’re buying. Other ETFs like green ETFs will have stocks like Deere, Caterpillar, maybe even liquefied natural gas, solar, or wind stocks, etc. and that’s all they will have. The ETF should contain particular stocks that you can research. If there’s anything that you cannot research about what an ETF says it has or does, forget it. Understand exactly what you’re buying. That is really important. It’s not that difficult, it really isn’t. The internet is a wonderful place to do that research.

There’s so many ETFs that people just don’t understand and they’re actually being used as a marketing ploy. This is something that I’ve been realizing, as well as there being a lot of ETF providers coming out of the woodwork. Just look around social media and you will notice certain trending investment topics and all of the sudden they create an ETF because there’s a buzz around it.

And again to my point, without any meaningful research, anyone can buy an ETF. Catherine Woods (Kathy Woods) for example got a lot of publicity because she’s been investing in stocks for a long time that have done very well. And so many investors got burned when they jumped on that ‘hot stock’ bandwagon. I mean, if you get a buzz feed on Facebook about Kathy Woods, the exact wrong thing to do is mindlessly buy ARKK. This is a terrible idea unless you are very comfortable with exactly what companies ARKK holds. Go to the internet and find out exactly what consists of Kathy Woods ETFs and exactly what you’re buying shares in. This is a hard lesson learned for some investors but everybody should take the opportunity to educate themselves and avoid blindly investing in something they know nothing about. That’s what the internet is best at- it’s great for learning and being involved.

And again, it really does matter, every investment you make… matters! If you purchase stock in a particular company- you are basically providing that company with more value. Let’s use the company John Deere, for example. If you buy stock in Deere, it makes Deere a more valuable company. They are better able to raise money when needed, etc. So, it really does matter not just for your own financial well-being but obviously for the well-being of the investment world.

Any recommendation requires for you to do your own due diligence. Research the company’s track record, board of directors, leadership and decide whether or not it’s a company that you really believe in. If you’re convinced, then yes. With any recommendation, I think it should be from your own research or comfort level with a particular stock.

How Investors Can Profit In A Changing World

We really recommend focusing on trends of the developing world and the commodities needed in order to affect this transition. It may behoove you to structure an investment portfolio that is tailored to what the world needs to secure a very bright future for humanity. It’s important to focus on these long-term macroeconomic trends. It’s important to diversify your portfolio with some income and value stocks, combined with ETFs that are in alignment with your own personal investment goals. It’s okay for some investors to take controlled speculations, but not wild speculations. It’s always a good idea for your portfolio’s core holdings to consist of big cap, small cap and income stocks.

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