2 Investing Strategies Perfect for Today’s Market
Issue #2655
- WEALTHY: 2 safe and profitable ways to invest (Jon Herring)
- HEALTHY: 4 steps to getting the most out of in-home workouts (Jon Benson)
- WISE: Warren Buffett on diversifying
ALSO IN THIS ISSUE:
- Using Google AdWords to find new products – and then sell them (Howie Jacobson)
- Why you should keep an eye on your competitors (Paul Lawrence)
- It’s Good to Know… about wind power
- Add “assuage” to your vocabulary
== Highly Recommended ==
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“Wide diversification is only required when investors do not understand what they are doing. “
Warren Buffett
2 Strategies Perfect for Today’s Market
By Jon Herring
For decades, stock market participants have been led to believe that “investing” is safe… while “trading” is risky. But the way most people “invest” is about the riskiest way you could possibly manage your money. The prevailing advice has been something like this:
“Diversify your investments. Buy quality companies and hold them until you retire. Whether it is stocks or real estate, the values always go up over time.”
That is… until they don’t.
The past two years have shown us how unwise (and unsafe) that advice really is. Diversification helps very little when everything is falling. And while real estate and the markets generally do rise over the long term, that is not much consolation if your retirement is five years away. Millions of people have paid for these misconceptions with huge losses in a short period of time.
Michael Covel, the author of Trend Following: Learn to Make Millions in Up or Down Markets, points out some major pitfalls of the “investing” mindset:
“Investors put their money, or capital, into a market, such as stocks or real estate, under the assumption that the value will always increase over time. Investors typically do not have a plan for when their investment value decreases. They usually hold on to their investment, hoping that the value will reverse itself and go back up. Investors typically succeed in bull markets and lose in bear markets.”
Most investors have no idea how to respond to or, better yet, how to capitalize on a falling market. Clinging to the idea that the markets “always rise over time,” they “hang on” and continue to lose.
If you have any money in the markets – even if it is just your 401(k) – you need to begin thinking of yourself as a trader. That doesn’t mean you have to buy and sell stocks every day, or even every month. But it does mean having a selling strategy for when the market goes against you. It should also mean having a strategy to make money when the markets rise… and when they fall.
There is no doubt that we are in the worst economy in decades. Corporate earnings are falling. Unemployment is rising. And while the stock market recently experienced its sharpest rise since 1933, the overall trend is still down.
But what is bad for the economy and terrible for the market does not have to wreak havoc on your investments. By employing the right strategies, you can multiply your wealth safely in just about any market. In fact, there are a number of strategies that have never been as safe or as profitable as they are today.
Here are two that you should consider right now:
1. Selling Covered Call Options
Selling (or “writing”) covered calls is one of the safest ways to generate extra income from the stocks in your portfolio. And due to the volatility in today’s market, option premiums are currently much higher than their historical averages. As a “seller” of options, that works in your favor. This is a strategy that could easily and safely generate 20 percent annual income for you.
Selling covered calls is probably the lowest-risk form of options trading. It involves selling someone the right to buy a stock that you own at some time in the future. For this privilege, the option buyer pays you cash up front, thus lowering your cost basis for the shares you’ve purchased.
Here’s how it works…
Let’s assume you own 100 shares of stock ABC. The stock is trading for $10 and the July call options on it – with a “strike” price of $11 – are selling for $1. So by selling one call option on your 100 shares of ABC (each call option represents 100 shares), you immediately receive $100 in your account. Therefore, your cost basis on this transaction is $900 ($1,000 – $100).
There are three possible outcomes to this trade:
• If ABC is trading for more than $11 before the option expiration date, the buyer would exercise his right to purchase the 100 shares of stock from you for $1,100. (He would then turn around and sell those shares, making a quick profit.) In this case, you would make 22 percent, based on your cost basis of $900.
• If ABC is trading for less than $11 but more than $9 at the expiration date, you would still own the shares – at a gain – and you would pocket the cash you received up front. You could then repeat the process to generate another round of income.
• If ABC is trading for less than $9 at expiration, you would be holding your shares at a loss. But the income you received up front by selling the call option would offset that loss. And, again, you could repeat the process to recoup more of the loss and generate additional income.
The key to this strategy is to use it with stocks that you would like to hold for the long term. They could be stocks you already own or stocks you buy specifically for the purpose of writing covered call options – stocks you believe to be very safe and cheap. And you should employ this strategy at a time when option premiums are large – as they are now. Ideally, you will be selling options that expire within three to five months.
By writing covered calls on high-quality dividend-paying stocks, you can get an extra bonus. Best-case scenario, you keep the option premiums, you keep the dividends, and you keep the stock too!
2. Selling Put Options
Selling puts is a strategy that can generate an annualized yield in the neighborhood of 30 percent to 50 percent. When executed properly, this strategy can be highly profitable and carry very low risk. That is especially true in the kind of market we have today, where fear is high and option prices are elevated.
This is a great way to buy stocks at a discount. Let’s say you would love to buy IBM at $81 a share, but it’s selling at $89 a share. In this case, you could sell the $81 put option. If the price falls below $81 before the option expiration date, you get your shares at the price you like. If the price stays above $81, you keep the premium and you can repeat the process.
You can also sell puts with the goal of generating income. In this case, you’d want the puts to expire worthless so you can capture the option premium. To accomplish this goal, you sell puts that are “out of the money” on stocks you believe to have very little downside risk… and which you would be willing to purchase at a much lower price.
Here is an example…
Let’s assume that stock XYZ is selling for $13. We’ll also assume the stock has already fallen by a significant amount (not too hard to find in today’s market) and you believe the rock bottom liquidation value of the company is $8.
With the stock trading at $13, the July $10 put option is well out of the money and selling for $1.50. You decide to sell those puts. When the trade closes, $150 will automatically show up in your account for every put contract you sold.
The only way you could lose money on this trade is if XYZ trades below $8.50 ($10 minus $1.50) on or before the option expiration date in July. That would be a 35 percent drop from the depressed level the stock is trading at when you sell the puts.
And in the unlikely event that you are obligated to purchase those shares below $8.50, you should still come out okay. After all, the liquidation value of the company is $8 a share, which makes the downside risk very small.
This strategy should be employed on stocks where you believe the downside risk is minimal. And you should only employ it on stocks that you would be glad to own at a price below where you sell the put.
You should also have a reasonable understanding of the true valuation of the company. For this reason, I would exclude most financial and insurance companies, as few people (including insiders) have any idea how much these companies are worth or what is on the books.
By selling put options, you could buy super-high-quality stocks as much as 50 percent cheaper than today’s historically low prices. Plus, you’ll get cold, hard cash deposited in your account instantly… adding to your annual income!
Where You Can Learn These Strategies… and a Lot More!
By no means are these the only strategies that can be highly profitable in today’s market. We are also seeing a once-in-a-generation opportunity in high-quality corporate bonds. Invest in the right ones and you can enjoy significant capital gains plus income… without taking stock market risk.
This is also an excellent market for shorting stocks. But you should not just go out and short any stock. The inevitable bear market rallies could put you in the poorhouse. The lowest risk opportunity is to short those stocks that are almost certainly going to zero – companies with an impaired business model and a massive debt load. There are dozens, if not hundreds, of them out there.
The good news is that putting these strategies into action can be a lot simpler than you may think. The better news: You don’t have to do it on your own…
Nine top investment experts have been asked by Investor’s Daily Edge and Mt. Vernon Research to share their number one strategies and top recommendations that are making a fortune in today’s market. It will take place in June, at the Turnberry Isle Resort & Club in Miami.
To learn more about this conference and the once-in-a-lifetime opportunities we’ll be discussing (including the two strategies I introduced you to today), click here.
Get Revenge on Wall Street’s Low-Life Sewer Rats
There’s no shame in admitting you were conned by Wall Street… you and about 300 million of your fellow Americans.
All those proper looking men in their fancy Brooks Brothers suits and ties. So classy and dignified and respectable.
But it turns out they were little more than sleazy carnival barkers, shills with one hand shaking yours and the other reaching for your back pocket.
Finally they’re being exposed for the lowlife sewer rats they really were.
If you are rethinking your investments… and who isn’t… now there’s a better way. Come join nearly 1,000 of your fellow Early to Risers in a new society we’ve dubbed “The Liberty Street League.”
It’s the “Off Wall Street” alternative for independent thinkers looking for respectable gains even in these hard times.
Just a few dollars is all you need to get started. Here’s a quick intro…
Online Marketing in 3 Steps
Find a problem. Solve it. And charge people for the solution.
If you’re wondering why your online business isn’t doing better, put it through this three-part marketing audit.
• Have you found a problem? A problem that matters to people? To enough people?
• Are you selling the solution to that problem? The best solution? A solution that’s different enough from the other options? Can you prove it?
• Are people willing to pay for the problem to go away? Are they able to pay for it? Does your marketing make it clear that the benefit outweighs the cost?
If your site passes this three-part test, Google AdWords will drive qualified prospects to your Problem/Solution/Charge factory. And you’ll make money.
If you aren’t sure, AdWords will help you find out… quickly, efficiently, and inexpensively. You can test your value proposition with your target market. And test variations until you either hit the magic formula… or drop it and find something else.
[Ed. Note: Howie Jacobson is an expert in using Google AdWords to create monster sales for your online business. Get his complimentary AdWords ER Report "Why Most AdWords Campaigns Fail - and How to Make Yours Succeed" at www.AskHowie.com.
Find out how Howie increased his income five times - by accident... and how his unintentional good fortune can make YOU rich right here.]
How Your Competition Can Help Your Business
You should be making it a habit to study your competitors’ advertising promotions. If they’re direct marketers, get on their mailing lists. If they use other channels to market their products, keep track of what they’re doing with those media.
Why bother? Because by keeping an eye on your competition, you can improve your own marketing efforts.
Be especially on the alert for sales promotions that you see over and over again. If your competitor keeps running the same ad… you can be pretty sure it’s working (i.e., bringing in lots of money). That’s your cue to try something similar.
[Ed. Note: Paul Lawrence is an entrepreneur and business author who's started over a dozen profitable enterprises with under $100 in capital. For more information on his Street Smart Business Program, click here.
For 12 marketing methods that can help you reach your prospective customers exactly at the moment they want to buy, pick up a copy of the Amazon.com bestseller Changing the Channel: 12 Easy Ways to Make Millions for Your Business.]
In-Home or in the Gym?
By Jon Benson
I am frequently asked: “Jon, can I work out in my home or do I have to go to a gym?”
The answer: You don’t have to go to a gym. You can work out in your home – with little to no equipment – and make very good progress. Here’s how…
1. Get yourself a really good plan. Having a plan is crucial. If you try to “catch a workout,” you will probably end up being inconsistent.
You can find thousands of systems that may work for you on the Internet or in books. Just pick one and USE it. Don’t try to wing it.
2. Make a commitment to stick to that plan. Results for in-gym training tend to be better (on average) than in-home training. One big reason: When you pay for it, you’re likely to take it more seriously. (This is not always the case, of course. Some people waste their money on a gym membership.) But if you have a good system and you commit to it, you can do well.
3. Include lots of variety in your workouts. Home workouts are not nearly as exciting as going to a gym and being around other fit-minded folks – not to mention all that equipment. It’s up to you to keep it interesting by making sure your system includes plenty of variety.
4. One more thing: Keep track of your progress. Making progress is key, in the gym or at home. So no matter which workout environment you choose, keep a written record of what you’re doing. And every time you perform a particular exercise, add a rep or two here and there or some extra resistance. Perhaps less rest between sets.
Always try to do a little more. Some days you will, others you may not – but maintaining a mental attitude of progress is essential.
The bottom line is this: If you can make the commitment and get yourself a good, solid, in-home plan, you can make in-home workouts work for you.
[Ed. Note: Fitness expert Jon Benson just released his in-home fitnesss plan, The 7 Minute Muscle Body System. It requires only bands, a rubber ball, and your bodyweight to tone your body and help you burn fat. Try it for yourself.
For effective strategies for burning fat, getting fit, and feeling better than ever, sign up for ETR's FREE natural health newsletter right here.]
It’s Good to Know: “The Answer, My Friend, Is Blowing in the Wind”
Despite a recession-related dip, the “green energy” industry is still pretty hot. And it’s about to get hotter thanks to new federal regulations mandating that the country draw more of its power from alternative/renewable sources. One of those alternatives is wind. Jobs in the wind-power industry grew 70 percent last year, and associated industries (like windmill manufacturers) expect significant growth.
U.S. wind farms had a combined capacity of 25,300 megawatts by the end of 2008. And in 2009, industry watchers expect wind to generate enough electricity to power nearly 7 million homes. Texas is the king of wind power, with 7,118 megawatts produced each year, followed by Iowa with 2,791 and California with 2,517.
(Source: Associated Press)
== Highly Recommended ==
You Can Keep Your Current Job While You Quickly Transition Into Your New Business
How in the world do these money-making programs expect you to work tons of hours building up a new business while holding down your current job? Many just aren’t practical. But I’ve found a new program that is loaded with methods to get you into a new business while you are working at another job.
You can put in as little as 2 to 3 hours a week in your new business, and still bring in nice profits fairly quickly – often in just a week or two. And once your business is bringing in enough income, you can quit your current job and focus full-time on your new business. You get to choose which business to get into (there are 20 to choose from), there’s no limit on what you can make, and it is easier than ever to get started.
There is, however, a limit on how many people I am sharing this with. You’ll learn why when checking out all the exciting details here.
Word to the Wise: Assuage
To “assuage” (uh-SWAYJ) – from the Latin for “sweet” – is to make milder or less severe.
Example (as used by Euripides in Medea, edited by David R. Slavitt and Palmer Bovie): “If only she would come outside / and let us meet her – face to face; / perhaps our words could turn / her anger’s tide, perhaps / we could, if not erase, / at least assuage her rage.”
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Copyright ETR, LLC, 2009
Selling covered calls on stocks you want to hold a long time? The article claims this but does not explain why. To me it doesn’t matter whether or not I want to hold on a stock or not. The key is to select a stock that returns a good percentage rate. And the lower the initial cost the better the rate tends to be. As a matter of fact the best return is a stock on which the option purchaser exercises the option the next day after purchasing it. Then you-the seller can begin all over with the same stock or any other.
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