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27% Annualized Returns... By LOSING More Than WinningBy
Thursday, October 30, 2014
Our company just performed an internal "audit" of our track records...
I didn't know what the results would be.
After hundreds of hours invested, the audit team at Stansberry Research announced the results...
Two things stand out:
I am proud of our performance so far... The overall result is excellent. What is more interesting to me is how we got there. These two little facts tell the story:
That is how you make money. What this shows is this: You don't need to be right 100% of the time, or even 80% of the time...
What you need to do is simple: You need to make your winners bigger than your losers.
"Winning percentage" is not an important number to me... The important number is the dollar value on your portfolio statement. Is your portfolio value going up? A lot? Then good!
If your portfolio value is up – by a lot – then should it matter to you how you got there? What if you only "got it right" one out of three times? It shouldn't matter.
I am happy being WRONG two out of three times – if my typical winner is 43.7% and my typical loser is negative 6.8%. I will take those "loser" odds any day.
So how do you end up with 43.7%-gain winners and 6.8%-loss losers? The most important thing you do is you cut your losses early. You use trailing stops. Also, you let your winners run.
Most individual investors that I know do exactly the opposite of this... They let their small losses turn into bigger ones, by waiting for them to recover.
Also, most investors take a small profit, never letting their winners fully bloom. Right now, in True Wealth Systems, we are sitting on a 270% profit in a position we recommended in 2012.
Are you willing to continue holding a position that you have a 270% profit in?
If not, you need to change your mindset... Here's the correct mindset:
I am willing to concede many small battles... to win the war.
This isn't war… this is investing. You NEED to be willing to have some casualties, in order to grow your portfolio.
You need to be willing to admit you might be wrong – probably more than half the time – in order to make the most money.
This is not rocket science. It's basic math. If your losers are small, and your winners are big, you will do well. And you can do well even if you have twice as many losers as winners.
So please, change your mindset.
Don't think you have to be right every time. Think about keeping your losers small, and allowing your winners to soar.
Then, maybe, you can end up with a compound annual gain of 27%-plus, like we achieved (through 2013, according to our audit) in True Wealth Systems.
Good investing,
Steve
Further Reading:
Steve recently told readers why it's still a great time to invest in U.S. stocks. "The way I see it, this moment – right now – is the absolute perfect moment to be in as an investor," he writes. "Conditions in America are perfect." Get the full story right here.
Steve's True Wealth Systems computers "have a fantastic track record in biotech"... And Steve says the opportunity in this sector today is still great. Find one of his favorite ways to take advantage of the trend here: How to Make 343%.
Market NotesMORE PROOF THE U.S. ECONOMY ISN'T FALLING APART More proof that things can't be all that bad with the economy: Transportation stocks just hit another new high.
Over the past four years, we've run dozens of charts that prove "things can't be all that bad" in the U.S. economy. We've featured charts of "real-world" indicators like soaring home-improvement stocks, soaring hotel stocks, and soaring financial stocks. Transportation stocks are another great example... We figure if folks are shipping lots of raw materials and manufactured goods across the country, it's a good sign for the U.S. economy.
Below, you'll see a two-year chart of the Dow Jones Transportation Average. This index tracks the most important trucking companies, railroad firms, airlines, and freight shippers. Major constituents of this index include FedEx, Delta Air Lines, UPS, Union Pacific, and Norfolk Southern.
As you can see, transportation stocks have soared over the past two years. And despite a steep sell-off earlier this month, the index just rallied to a new all-time high. It's more proof that things can't be all that bad in America.
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