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A Radical Approach to Generating Retirement IncomeBy
Thursday, October 27, 2011
It's the great con of Wall Street and the lottery.
Most everyone loses... yet there is no shortage of folks who can't wait to play again and again.
I've been investing and trading for myself and Wall Street banks for nearly 30 years. During that time, I've noticed at least 19 out of 20 investors fail for the same reason: They get the odds working against them instead of for them.
In my Retirement Trader advisory, we take the opposite approach most folks take: We get the odds working for us... and taking this approach has allowed us to close 41 straight trades for winners.
As I explained last July, we've been so successful as traders because we think like long-term investors: We study the fundamentals, locate shareholder-friendly companies trading for great prices, and then take a "radical" approach to buying them... something the average investor never considers...
When the average investor buys a stock, he figures he's going to end up with one of three outcomes. One... the stock rises in value, and he makes money. Two... the stock goes sideways, and he breaks even. Or three... the stock goes lower. He loses money.
Three outcomes, and only one way to win.
At Retirement Trader, we turn that thinking on its head. When we trade, we win in all three of those scenarios...
To get this incredible odds-boost, you just need to understand one simple tool. And once you get familiar with how it works, you'll find this kind of high-probability trading is as easy as clicking your mouse. Here's how it works...
Health care giant Johnson & Johnson (JNJ) is one of my favorite stocks to trade. It's cheap, it treats its shareholders right, and it's got one of the market's strongest tailwinds at its back.
Back in April, JNJ's share price was languishing in the bad press surrounding some product recalls. But the problems were short term. And the company had released higher-than-expected earnings. The balance sheet was strong, JNJ was still churning out dividends, and the price was right.
So we put on a trade that could have turned out one of three ways: If the stock went higher, we were going to make a quick 8% in three months (about 30%-40% annualized). If the stock stayed the same or even dropped a few percentage points, we were going to make that same 8%. If the stock dropped more than that, we were going to own JNJ shares with more downside protection than if we bought the stock outright.
Compared to the average investor, we were going to end up ahead no matter what happened.
And we did it by selling puts.
Before you say, "Oh, it's an options trade. That's too complicated and risky," hear me out. I guarantee it'll be worth your time.
When you sell a put, you're agreeing to buy a stock below the market price within a set time. You get paid for making that agreement. If the stock never drops below that price, you get to keep the cash. If the stock does drop below that price, the cash ensures you get a discount to that price. It's like getting paid to offer $250,000 for a house the buyer is asking $300,000 for.
Here's the real beauty of this strategy: You don't have to be exactly right about how or when a stock will move up in price. Many factors work in your favor. So even if the shares go nowhere, you still profit.
You're only agreeing to buy the stock below today's market prices, so you're safe as long as it doesn't completely tank. And you don't have to be right forever – just for two or three months (your obligation to buy expires with the option).
It is, of course, possible to lose money on the deal. Every investment carries risk, and no one can predict the future. But selling puts gives you huge odds in your favor. It generates income and hedges your risk by getting you much lower entry prices on any companies you end up buying... great companies like Intel and Coca-Cola.
This kind of trade is much safer than simply buying stocks outright.
If you do it right, you won't actually buy many stocks – you'll simply collect premiums and earn about 15%-30% a year on your capital. All you have to do is be prepared to buy if the time comes...
And if you do end up buying one or two stocks, that's fine, too. If you follow my simple rule and think like a long-term investor, your entry prices will be low, and you'll end up buying dividend-paying companies that treat their shareholders well.
If you've never sold puts before, ask your broker for help setting up your account for these sorts of trades. Spend time reading about the strategy, and make sure you're completely familiar and comfortable with it before you get started.
The effort you invest will pay off many times over. Imagine winning almost no matter what happens with the stock price. That's how we've compiled our incredible track record in Retirement Trader.
If you're looking for a conservative, high-income, retirement-friendly trading strategy, you can't find a better tool than this.
Here's to our health, wealth, and a great retirement,
Doc Eifrig
Further Reading:
Once you've followed Doc's advice today, you're ready to start safely doubling or tripling the trading gains you normally make in your retirement account – with much less risk. To get started, read up on the three simple trading rules every retiree needs to learn.
Market NotesSTOCKS AND OIL ARE THE SAME TRADE Of all the commodities moving in lockstep with stocks, few do so with more reliability than crude oil.
Regular DailyWealth readers are familiar with a dangerous trend you'll never hear from your broker or the nightly news. That trend is how stocks and commodities are moving in the same up-and-down fashion, at the same rate. While many folks take a position in commodities thinking they are diversifying their portfolios, they are actually making a big, concentrated bet.
We often compare the benchmark commodity index with the benchmark S&P 500 stock index to display this correlation. Today, we display it by showing how crude oil is trading relative to the S&P 500.
The chart below plots the performance of crude oil (black line) alongside the performance of stocks (blue line) over the past two years. As you can see, the two "different" ideas are actually joined at the hip... and are basically the same trade. So... to the question of whether you should go long oil... or go long stocks? We say, "What's the difference?!"
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