Editor’s Note: Jim’s article today recounts a 100% gain in two weeks by correctly anticipating a geopolitical move that passive index investors had no way to act on. That same forward-looking discipline is what sets Personal Finance apart after 51 years in print. His latest briefing applies it to the biggest rotation in markets right now — and the specific companies he’s positioned around it. Read the briefing →

Three weeks ago, I declared “This Kalshi Inspired Oil Trade is a Bet Worth Making.” The price of oil was falling fast despite public gambling sentiment via predictions market website Kalshi that had the odds of a lasting nuclear agreement between the United States and Iran this year at less than 50 percent.

For that reason, I suggested buying a call option on the ProShares K-1 Free Crude Oil ETF (CBOE: OILK). A call option increases in value when the price of the underlying security goes up.

My reasoning was straightforward. If the United States and Iran could not agree to a lasting nuclear deal, then the odds of another spike in oil prices this year are far greater than what the energy markets were indicating.

If that happened, then OILK should rise in price in lockstep with oil prices. In turn, our call option would appreciate proportionately.

On July 6 while OILK was trading around $47, the call option that expires on November 20 at that strike price could be bought for $4. For this trade to be profitable, OILK must rise above $51 before that option expires.

I said then, “I do not know how the war in Iran will turn out but I feel oil prices are too low given the circumstances. If the Strait of Hormuz closes again and oil prices skyrocket, I could double or triple my money on this trade.”

Two-week Two-bagger

You already know what happened next. The United States and Iran could not agree to terms and both sides resumed fighting.

At first, crude oil prices edged up only slightly. But once the fighting turned deadly, the White House vowed revenge and oil prices rose quickly.

On July 23 while OILK was trading above $55, the intrinsic value of our call option exceeded $8. That means we more than doubled our money on this trade in a little over two weeks, or what I like to call a two-week two-bagger.

To be clear, I do not like profiting from someone else’s misery. However, I also don’t like seeing my investment portfolio suffer due to inaction.

I have no control over what happens next in the Middle East. And except for perhaps a few dozen people in the world, neither does anyone else.

In that regard, we are all at the mercy of conditions beyond our control. However, that does not mean there is nothing we can do about it.

Withering on the Vine

I believe we are a long way from some semblance of normalcy being restored to the stock market. The S&P 500 Index is very close to its all-time high despite rising inflation, tepid economic growth, and a war in the Middle East with no end in sight.

Also, we have a general midterm election this November. A large dose of partisan politics sprinkled on top of all those issues should keep Wall Street in a risk-off mode for the next several months. And depending on how that goes, it may not be until 2029 that there is stability in the financial markets.

That dynamic poses a problem for passive index investors, who can only watch their portfolios wither on the vine. Until then, the global financial markets will be in a constant state of flux with no clear direction.

Index investors have a choice. They can either stay the course and accept the increasing likelihood of having nothing to show for it until geopolitical and economic stability have been restored, or they can take a proactive approach to managing their portfolios.

Proof of Concept

Doubtless, owning a diversified portfolio of index funds dampens short-term volatility. However, being a proactive investor does not necessarily mean taking more risk, either.

Constructing a portfolio on the supposition that it is impossible to anticipate future events is also risky. Having money tied up in an inert investment portfolio lessens your future purchasing power.

That’s why I periodically revise the equity portfolios that I manage for Personal Finance. Unlike an index fund, I will add or remove holdings from those portfolios as circumstances dictate. That way, I can skew my portfolio according to current circumstances instead of long-term averages.

I can support that assertion with actual performance. During the first half of this year (through June 30), the 16 equity positions in the PF Growth Portfolio that were in place at the start of this year delivered an average return of 54.6 percent compared to a 10.1 percent rise in the S&P 500 Index.

Admittedly, that result is skewed by the extraordinary performance of two of our holdings. During the first half of this year, Western Digital (NSDQ: WDC) was up 271 percent while Dell Technologies (NYSE: DELL) gained 245 percent.

Removing them from the equation results in an average return of 25.5 percent for the rest of the portfolio, which is still more than double the return of the index. That degree of outperformance cannot be attributed to luck or random behavior.

I believe index investors are in for a rough spell over the next two years. Having a proven system for correctly anticipating how Wall Street is going to react to chaotic events is the key to getting ahead in this market.

The Iran war, a two-week double, a portfolio that ran more than five times the market in the first half of this year — what connects all of it is the same thing: a system built around anticipating how markets react to events before everyone else is already positioned. I’ve been applying that framework at Personal Finance for more than a decade. Right now it’s pointing me toward a specific group of traditional businesses quietly using AI to widen their margins — the ones getting overlooked while the crowd is still fixated on the chipmakers. The full briefing lays out the four catalysts, the framework, and the portfolio. Read the AI Margin Rotation briefing →