[Strategy Week] Our 2016 Strategy An Accident?
I’ve spent the past 25 years researching and recommending trade candidates to hedge funds and institutional investors.
And in that time, I’ve learned a lot about the kinds of investing strategies that make money in good, bad, and “going nowhere” markets.
What I’ve learned is that there is always an opportunity to make money , regardless of the market conditions. You just have to be willing to think differently than the crowd.
Luckily for us, that’s not very hard. And it doesn’t mean you have to do anything overly complex.
What’s more, while the media likes to play up hedge funds as nothing but MIT trained geniuses using complex algorithms, the truth is that the mechanics behind many successful hedge fund style trades can be pulled off by any do-it-yourself investor with a little bit of guidance.
Of course, one kind of trade I used during my hedge-fund career could get complex at times: shorting.
For those of you who aren’t familiar, shorting a stock means you’re betting against it. You’re hoping for a decline in prices. And while you make money as the stock declines, at the same time you’re at risk for UNLIMITED LOSSES.
Think about it. A stock can only fall to zero. But it can go up an infinite amount.
And for short-sellers that’s a scary proposition. Helping my team avoid those losses on our short trades is where I earned my reputation as an analyst.
To be clear, shorting the market or specific stocks is NOT what I’m planning to introduce to you this week.
I only mention this because it was during my short-selling days where I first learned a surprising lesson that will serve us very well in 2016.
First, a short story. While some short sales are terminal (i.e., they end in bankruptcy for the company you’re shorting), most are temporary trade opportunities.
For those temporary trades, the one way to survive as a short-seller is to have iron clad rules for closing out your downside -bet when a trade starts to move against you (i.e., the stock starts rising).
But you cannot be at the whim of price movements alone or you will fritter away all your money closing your trades and then re-initiating them. A conundrum indeed.
So I was forced to develop a more robust system for finding stocks that were about to surge higher. And if everything I found pointed toward a stock soaring higher soon, my team closed out our downside bets.
Rule #1: Follow trading volume very closely. But don’t rely on it alone.
The first thing I discovered over time is that the trading volume that accompanies a stock’s move is critical in making a decision to close out a short trade. That’s because the stock market is filled with intelligent investors, and a relevant piece of news is typically greeted with high trading volume and a larger than usual change in the stock price.
After seeing a volume and price spike, a firm rule I used was to cover the entire short position in a stock when a significant catalyst in a company’s strategy would positively impact its profitability.
But there had to be a specific, measurable catalyst moving the stock higher. If there was, we closed the trade. End of story.
Again, we couldn’t afford to be betting against a stock that was about to double or triple in value.
And that can easily happen if a company makes a fast growing or strategic acquisition, adds an important new product line, expands geographically, gets a new medical approval from the FDA, sees a prior lawsuit that was impeding growth end, wins a large new customer, or sees the demise of a competitor.
The list is really endless and the market surprises us every day with new information.
I saw many stocks go on to double and triple due to strategic catalysts like this. Which eventually got me thinking…
Why don’t I use this exact same approach to make money on the upside?
Which brings me to an update on our 2016 strategy project.
Over the past few weeks I’ve been filtering through hundreds of stocks exhibiting the same characteristics I mentioned earlier. Each of them has recently seen large price moves on trading volume spikes. They also have what could be a strategic catalyst to drive shares significantly higher.
Tomorrow, I’m releasing an initial watch list of 25 stocks meeting my initial filtering criteria.
NOTE: Do not buy these stocks when you see them. Many of them aren’t suitable investments. They’ve passed my initial filtering but I have more vetting in front of me before recommending the best of them to you. Some of these stocks are losers in disguise, and I need to make sure that’s not the case before you buy.
Here’s what I’d like you to do. First, read over the material inside very closely. Next, I’ve decided to host a special webinar presentation on January 5th where I’ll walk through this strategy in even more detail and update you on the watch list.
If you haven’t signed up for our priority notification list, click here to join. When you do, you’ll also be the first to receive a copy of my watch list the moment it’s ready. You’ll also be preregistered for the special webinar I have planned on January 5th. Again, click here now to sign up.