Here's what I'm planning for myself:
First, I don't have final answers yet. I'm continuing to discover attractive investment possibilities, and I may shift emphasis over the next week or two.
(1) Cabot China and Emerging Markets Report
A portion of my investment capital (I'm not sure yet just how much) I'll continue to invest in the Chinese stocks recommended by the Cabot China and Emerging Market Report ($97 a year). This investment advisory newsletter has a stellar track record. These investments are in China, which insulates me from a potentially-falling dollar and inflation, and invests in the economy that I think stands the best chance of recovering first from this global recession.
(2) The Proshares UltraChina Profund (UGPIX)
This is another way to play the China card. A recovery to its year-ago peak would quadruple your investment.
One crucial question is: how do we decide when to sell? The answer may be to set a trailing stop at something like the 10-day, or 15-day, or 20-day moving average. That way, the sale will occur automatically if the equity falls below its customary level. (I'll try to write more about this when I can get deeper into details.)
(3) The Proshares UltraEmerging Markets Fund (UUPIX)
This index fund has the advantage of diversification among all emerging markets, rather than in China alone. It has the disadvantage of, possibly, not recovering as rapidly as UGPIX. This fund could more than quintuple your investment.
(4) The Proshares Ultra Basic Materials ETF, UYM.
As the world's economies rev up again, commodity prices are expected to rise again. This Exchange-Traded Fund (ETF) provides some diversification, and would nearly six-fold if it returned to its former June, 2008, peak. This ETF is also a hedge against inflation and a falling dollar.
(5) The Proshares Ultra Real Estate ETF, URE
There's no way to know when real estate will pick back up, but it's fallen so far that there may be no place to go but up. The goal is again diversification. If this index recovered to 20.8, you could quintuple your money in it.
(6) Suntech (STP)
As the chart below reveals, the largest Chinese photovoltaic manufacturer, Suntech, hit a high of $90 a share in January, 2008. It closed yesterday at $16.45. Like other alternative energy companies it was decked by falling oil prices and the recession. However, with new solar incentives in China and in the United States, Suntech should stand to profit from this move to alternative energy. There are January, 2010, $10 calls (-YOEAB) available for STP for $7.40 bid, $8.00 asked. Assuming a purchase price of $7.80 a share, you would be paying $17.80 for the ownership over the next year-and-a-half of a $16.45 stock, or $1.35 "temporary-ownership fee" for the option . (It's an option to buy the stock for another $10 a share, on top of the $7.80 you've already paid to buy the option, for the next year-and-a-half.) If the stock jumped $10 in price and you owned the stock outright, you would make about a 61% profit ($26.45/$16.45). Or on each option, if you chose to go the options route, you would make about $8.80 a share on a $7.80 option, or about 113%. In other words, if you chose to go the options route, you would not-quite twice as much as you would make if you simply bought the stock for $16.45 and sold it later for $26.45. If the stock jumped $20 a share, you would make about $36.45/$16.45 if you owned the stock outright, or about 121.6%. (You would 2.21-fold your initial investment.) If you owned the equivalent option, you would make $20 a share - $1.35 a share for the options premium = $18.85 a share, netting about $18.85 + $7.80 - $26.65 a share on a $7.80 option. $26.45/$7.80 is 3.4167. or in other words, expressing 3.4167 as a percentage, about 241.67%, or twice what the 121.6% you would make if you owned the stock outright. (Going the options route, you would 3.4167-fold your initial investment.)
Actually, you can magnify your gains by "expanding the margin" as your stock rises in value. For call options, you can do this by selling your calls and buying calls at the next higher striking price. If you buy calls "deep-in-the-money" like this, paying about half the price of the stock, and the stock doubles, you will (to a crude approximation) quadruple your money. If you buy calls "at the money", buying calls with striking prices equal to the current price of the stock, you will roughly 8-fold your gains.
So what's the downside? Your money can fall as fast as it can rise. You can't go into debt with options the way you can with margin, but you can lose your original investment in your calls in a New York minute. With the insane leverage ratios you can get with a highly volatile stock like STP, you probably want to use only a little money that you could afford to lose to buy your options. If STP doubles and your investment 6-folds or 7-folds, wonderful. If STP falls back to 10, and the value of your option falls to $4.80, you haven't lost that much money, and you have until the expiration date of the option to recoup your losses. The stock is yours for $10 a share until January, 2010, for a January, 2010, option, and until January 2011 for January, 2011, option. (You won't show a profit unless it rises above about $17.50 a share sometime between now and its expiration date.) Still, the loss is small, and the gain can be very large.
Time to go to press. I'll try to work out additional examples of this, and of how to strategize, and how to minimize losses. (One problem is that if we choose to buy calls "at the money", seeking to cube our gains, our options will fall almost three times as fast as the stock itself. That means that we can't put very tight bounds on our stop-loss limits or the normal, daily fluctuations in the price of the stock would trigger stop-loss sales... false alarms.