InvestingDaily.com

Account Information

  • My Account

    Manage all your subscriptions, update your address, email preferences and change your password.

  • Help Center

    Get answers to common service questions, ask the analyst or contact our customer service department.

  • My Stock Talk Profile

    Update your stock talk name and/or picture.



Close
FEATURED STRATEGY

This Two-Minute Market Move Could Make You Rich

This Two-Minute Market Move Could Make You Rich[Revealed] How to generate instant income from the stock market. Over and over again. At will. This technique is so powerful – and safe – we’re guaranteeing you can use it to generate $1 million (or more) in retirement cash. And we’ll even send you a $1,000 check to kickstart your journey. Go here for details.

 

This was the Easiest 100% Gain We’ve Ever Made

By Jim Pearce on August 18, 2017

I have said repeatedly over the past couple of months, the stock market is priced for perfection with little room for error. An unexpected event or new information regarding a company can generate huge fluctuations in value. As I’ll explain below, long-time investors need to begin thinking differently about valuing stocks.

Once upon a time (actually, about 30 years ago) a stockbroker would spend most of his or her time perusing financial statements of the companies they followed to build a case for buying its stock. Only after several days of compiling data and analyzing industry trends would a decision be made whether to recommend a stock to clients or continue to watch it until conditions were more favorable.

However, every once in a while, an unexpected development might alter the fundamental thesis for owning a stock, at which time the entire process would be repeated to determine if a change in opinion was in order. But it would take a change of substantial magnitude to justify going through the arduous process of calling every client that owned the stock to explain why it should be removed from their portfolios and obtain their approval to do so.

Those days are long gone. Since the advent of the PC and Internet, most financial advisors rely on an in-house research team or an external advisory service to handle that aspect of the portfolio management process. With so much data available from myriad sources, it’s simply too much work for one person to do on their own while also managing client accounts. Because so much of that data is financial or numerical, it can quickly be aggregated and run through a spreadsheet to identify potential buy and sell candidates.

The inevitable result was a proliferation of algorithmic trading programs that employ a set of mathematical formulas to assign value to a stock. That technique worked well when only a small minority of money was managed this way, but as its popularity rose it eventually eliminated the pricing inefficiencies it was designed to exploit.

Combined with the exploding popularity of index investing, the outcome is a relatively small set of large-cap stocks trading in unison based on algorithms that employ nearly identical formulas. This dynamic has been driving the market higher.

The Upside of Surprises                                                      

For that reason, it’s only when something truly unexpected crops up that one of these stocks will trade in a manner contrary to the overall market. Most often it comes in the form of a quarterly earnings report that is much better (or worse) than expected or contains forward guidance that is revised substantially upward (or downward). Other times it is the sudden departure of a key executive that roils existing shareholders, or the emergence of a possible takeover rumor that excites new investors.

Attempting to capitalize on these types of situations is sometimes referred to as “event-driven investing,” and will be increasingly valuable once the current bull market runs out of steam. The trick, of course, is being able to anticipate such an event, and know how to capitalize on it. That’s why Investing Daily hired Linda McDonough two years ago to run its Profit Catalyst Alert service. Linda spent several years at a hedge fund executing an event-driven trading process.

The beauty of event-driven trading is that you don’t have to be in a stock very long, nor do you have to commit a lot of money to it, to generate huge profits. The stock market’s reaction to these sorts of events is usually swift and severe, and leveraged investments such as options can be used to magnify the change in value of the underlying stock.

For example, last month Linda recommended buying a put option on weapons manufacturer Sturm, Ruger & Company (NYSE: RGR) based on her belief that its second quarter earnings report would be far worse than expected (note: a put option increases in value when the underlying stock drops in price). Two weeks later those same puts had doubled in value as nervous shareholders began unloading the stock before the company confirmed Linda’s hunch on August 2. That’s a 100% gain in less than a month, based on nothing more than just the fear of bad news.

Of course, not every trade works out that neatly, but it illustrates the degree to which the stock market has become sensitive to any news that disrupts the “Goldilocks” environment in which it currently exists. As an investor, you need to pay close attention to any events that may affect the value of your holdings, and be prepared to take immediate action if any of them become subject to an event that could significantly alter their value.


You might also enjoy…

 

12 Stocks Virtually Guaranteed to Go Up in 2018

You may not believe it, but I have a calendar in my hands right now that tells me the exact date and time when a few stock are practically guaranteed to go up. 

Twelve of them, in fact.

And if you were to invest in them following the simple buy and sell instructions found in this calendar…

You could be making $1,181… $11,814…. and as much as $190,916 more than by using a “buy-and-hold” strategy.

And here’s the best part…

I’m giving away a few copies of this calendar to interested investors (First come, first served).

With this calendar, you could get higher profits with less risk.

Click here to get the full story, and to claim your copy.

Stock Talk — Post a comment Comment Guidelines

Our Stock Talk section is reserved for productive dialogue pertaining to the content and portfolio recommendations of this service. We reserve the right to remove any comments we feel do not benefit other readers. If you have a general investment comment not related to this article, please post to our Stock Talk page. If you have a personal question about your subscription or need technical help, please contact our customer service team. And if you have any success stories to share with our analysts, they’re always happy to hear them. Note that we may use your kind words in our promotional materials. Thank you.

You must be logged in to post to Stock Talk OR create an account.

Create a new Investing Daily account

  • - OR -

* Investing Daily will use any information you provide in a manner consistent with our Privacy Policy. Your email address is used for account verification and will remain private.

Stock Talk

  1. avatar
    John Ryan Reply August 21, 2017 at 8:51 PM EDT

    I am trying to go back and view the data (charts) you show in my system, I am having difficulty finding the data that aligns with your presentation, are these 2016 examples?

    Thanks,
    John