How to Trade the Ebola Stock Market Sell-Off

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Editor's Note: Chief Investment Strategist Keith Fitz-Gerald has consistently been ahead of the game with his market insights and recommendations. We're sharing this Total Wealth with you as originally published last week before the markets fell off because we believe that the ongoing Ebola outbreak will continue to be disruptive to markets all over the world. But as we've seen many, many times before, out of chaos comes opportunity, and Ebola will be no different. Here's Keith...

I believe Ebola may be the most serious threat to humanity since the bubonic plague of the Middle Ages. Already it has spread to a dozen countries, including the U.S., and more than 4,000 people are dead. According to Dr. Bruce Aylward of the World Health Organization (WHO), mortality rates are rising and now sit at 70%.

This outbreak is more grim proof that the global trend of war, terrorism, and ugliness is indeed a growth industry.

That's the next trend we'll be discussing, though it's easily my least favorite both personally and professionally. But it's very, very important. So please stay tuned for that in the weeks ahead.

In the meantime, Ebola clearly qualifies as "ugliness." It has the potential to be a serious market event before it's brought under control. Recent trading suggests, in fact, that it already is by virtue of the fact that some $1.5 trillion has already been wiped from the exchanges on Ebola-related fear-driven trading.

Key Takeaways to Protect Your Wealth from Ebola

Here are three key tactics that will help you stay in the game and in pursuit of the longer-term profits we know are out there.

1) Make sure your trailing stops are in place. I recommend using these across the board to ensure that your money is protected against catastrophic loss.

2) Cover your downside with investment choices that will profit in a fall. Shorting UAL is one way to hedge the short-term potential associated with a single company in a single industry. But to hedge your whole portfolio, I like a specialized inverse fund called the Rydex Inverse S&P 500 Strategy - Investor Class (RYURX) that rises as the S&P 500 falls. Studies show that having between 3% and 5% of investable assets in inverse funds not only takes the sting out any short-term market drop, but helps reduce overall portfolio volatility so you can remain focused on opportunity rather than fear.
3) Be ready to buy. Every short-term market event ultimately passes. Ebola will, too. When the corner turns, you'll want to cover your bases and load up. It will be tough if the disease really creates panic, but absolutely the right thing to do for your financial success.

So we need to talk about it logically - no hype, no conspiracies, and no nonsense. I mention those things because they're all emotional inputs that can cloud your thinking and have a seriously negative impact on your money.

Here are the tactics you need on hand for the Ebola market event.

Ebola and the Airline Industry

Air traffic is the main component to Ebola's spread, as the report from the Laboratory for Modeling of Biological and Socio-Technical Systems at Northeastern University makes clear. According to Prof. Alex Vespignani, as reported by Reuters, the risks "change every day the epidemic continues."

Other experts like Dr. C.J. Peters and virologists of the CDC and the U.S. Army's Medical Research and Development Command are cautioning that Ebola could mutate and become transmissible through the air.

While there have been some politicians calling for bans on flights coming out of West Africa, these seem unlikely to be enacted. The White House, the WHO, and other groups have made it clear that they view the idea of cutting off the three countries in which Ebola runs rampant as not just politically unfeasible, but also impractical as a tool to fight the spread of Ebola.

Yet, there's nothing officials can do about people's personal inclinations.

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Keith Fitz-Gerald

About the Author

Browse Keith's articles | View Keith's research services

Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.

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