I tend to buy stocks that are either market leaders in a with very strong growth and momentum(google, goldman, aaple) or stoccks that are somewhat obscure but have great fundementals and growth. Also I hold on to them for a long time so a 8% selloff doesn't phase me. I bought chap at 35 and it fell to 32. I held though. I bought TIE long ago and I'm still long and about break even. but osme go up and down but my winners have done very well and compensate for the losers.
Dont forget. There is also the time factor. If I put my money into an ETF on a dip in the market, then I am guaranteed a 10% in a few months of time. If I used an "ultra" etf, then I would get double the return of the regular ETF. With an ETF, I just have to worry about general market conditions and dont have to monitor earnings calls or other such events. I would rather make 25% with a mutual fund or ETF that I dont have to monitor then 30-35% with individual stocks where there is a lot of sweat and bother.
You are NOT guaranteed 10% in a month's time with an ETF. Your comparison here is illogical. There is no more benefit with the ETF. They are not magic.
Your right there is no guarantee of anything in the market, but... The ETF has the advantage of safety. I just need to track the overall market or a sector to game the ETF. Its far easier for me to analyze a chart of the S&P 400 then to track earnings calls and other factors. We all know by now that we can expect at least one good correction in any given year. Lets say you used the a weekly chart with Bollinger Bands to time your entries into the market with the midcap ETF. In April 2005, you can see on the chart that when the index encountered support on the 40 week moving average, that would have been an obvious wink-wink hint-hint entry point. Lets say you saw it bouncing up the 40 week and got in right around 635. Within 7 weeks, the average hit 700. 10%. Lets say you then waited until January of 2006 to sell which is logical considering the weakness usually encountered after January, sell at 780. 22% gain within 9 months. Then lets say you patiently waited for July weakness which has historically been the best time to buy into the midcaps. Lets say you waited in 2006 and got in at 725 (the low was at 713). Then waited until late January to sell at 825. 13%. Then you waited until the mini-panic, and then re-entered at 825. 7.8%. 1.13X1.078X1.22= 48% return 2-year return Now that is just with the S&P400. If you use the S&P600 or the Russell 2000, then the returns are juicier. When the market sells off, the small caps are dumped in the ocean, but they are quickly picked up later on in the game. For example, in May 2005 we could have picked up the IWM at 58 and then sold in January of 2006 for 72.5. 25% Then waited until July, picked some up for 67.5 and sold in January for 80. 18% Then wait until the minipanic, buy at 77.5 lets say. 11% 1.11X1.18X1.25= 63% Now if we use a leveraged Ultra fund, here are the returns: 1.22X1.36X1.5= 248% 2 year return You can also use leverage on the leveraged funds to even further magnify the returns. So if the previous poster had purchased the IWM in May/June and waited until now then he would be up 23%. Leveraged etf, 46% and sweating through earnings calls. If we took this strategy a step further and tried to game the IWM with the short ETFS then we can even further magnify the returns. http://finance.yahoo.com/q?s=UKK To backup my assertion of the 10% in a month, the UKK bottomed out on March 6 at 60 and one month later it was at 66. 10%. No returns are guaranteed, but its certainly easier for me to sit here with the stockcharts.com chart and figure out the bottoms of the market. Each year, the market sells off at one point or the other. Determining the bottom isnt so hard. In the past it usually sells right down to the 40 week moving average (or further) then it either double bottoms or round bottoms somewhere either on the average or right below it. Thats not hard to game.