Not a subscriber? Click here to learn
more.
|
| Home | About Us | Resources | Archive | Free Reports | Market Window |
The Only Way to Buy Stocks for 500% GainsBy
Friday, January 29, 2010
Ninety-nine percent of stocks under $10 a share are purchased because people love to "swing for the fences."
People love controlling 1,000 shares for less than the cost of a sofa. And they love having the chance to make thousands of percent on a single stock. The feeling comes from the same part of the brain that craves a visit to Las Vegas... or at least a $1 lottery ticket. Most financial advisors and mainstream authors will tell you not to join this "99% club." They'll tell you it's too risky. They'll say you might as well go buy that lottery ticket. I'm writing to you to sayforget both schools of thought. Throw the gambling mentality in the garbage. Throw the mainstream advice in there as well. You see, I know you can make a lot of money with under $10 "swing for the fences" stocks. In today's essay, I'll show you how. Before we get into the nuts and bolts, let's define what makes for a "swing for the fences" stock. It's small – typically under $500 million in market cap. It often carries more risk than your normal stock. But it offers incredible upside, often as much as 500%, 1,000%, even 2,000%. For example, one of my biggest "swing for the fences" winners was a chemical company called Ashland... In late 2008 and early 2009, Ashland fell on tough times. Demand for its goods had collapsed in the recession. Plus, it had taken on over $2 billion in debt after acquiring one of its largest competitors at the top of the market. Management was forced to cut the dividend by 75%. Shares dropped from a high of $56 to under $10. Now, even at $7 a share, where my readers bought, Ashland carried a lot of risk. If the economy didn't stabilize, the company would likely default on its debt... and wipe out shareholders. But if the economy did stabilize, that debt wouldn't be a huge problem. Plus, Ashland's acquisition, while expensive, would end up saving the company a ton of money. Take a look at how things worked out...  In mid-2009, the economy did stabilize. Demand for all of Ashland's business segments surged and the company aggressively paid down its debt. If you bought at $7, you'd be up nearly 500% in less than a year. We swung for the fences... and hit one out of the park. What if it hadn't worked out and we'd lost everything? Well, that wasn't going to happen. I told my readers to put a 30% stop on their position. And I told them to keep their position size to less than 3% of their trading capital. That's the only way to be a winner over the long term when you're trading in this kind of situation... You must be willing to cut your losses. Remember, these stocks are risky. If you're the kind of stock buyer who ignores stop losses and says, "Oh, it will come back eventually," then this strategy isn't for you. (Actually, if that's the case, no trading strategy is for you. Stick your money in a savings account and back away from the market.) You must keep your positions small. I have a friend who owns shares in a tiny company looking for oil in Northern Iraq. It's a hugely risky play. But his position is small. As he says, "It's money I can afford to lose." If it doesn't work out, no problem. But three years from now, he might wake up to find the company has hit it big... and his shares are up 2,000%. If you follow these rules, you'll experience what I call the "Babe Ruth effect." Babe Ruth struck out a lot. But when he connected, the ball left the park... his team won games... and it more than made up for small mistakes. With "swing for the fences" stocks, you don't have to be right every time. That's impossible. But by keeping your losses small and focusing on high-potential positions, you'll come out with tremendous gains. Good investing, Frank Curzio P.S. Another safe way to play the "swing for the fences" strategy is to find a small-cap company riding the coattails of a much larger firm - like when a small company called Wonder Auto Parts landed a deal to supply the alternators for one of China's biggest carmakers, shares rose more than 1,340%. In fact, I recently uncovered a similar situation taking place at the world's most popular computer and cell-phone maker. Click here to see our full write-up.
Further Reading:
My Embarrassing Penny Stock Secret Market NotesIT'S TIME TO BUY GOLD STOCKS!
Traders take a note from Jeff Clark: Gold stocks are ready for a quick bounce.
In his morning e-mail for traders, our colleague noted how the recent market decline has punished gold stocks far worse than your typical sector... producing a trading opportunity. You see, a market moves in waves. While these waves are impossible to accurately predict, they do have a tendency to stage "rubber band" snapbacks after big moves. As you can see from today's chart, the big gold stock fund (GDX) just suffered a big move. It's down 16% from its January high. Now look at the "pane" at the bottom of the chart. This displays an indicator called RSI. This indicator simply measures how "stretched" an asset is to the upside or downside. Note how gold stocks rally each time the RSI dips into "oversold" territory (red arrows). Now note that gold stocks are as oversold and abandoned as they have been in a year. Expect a rally soon. |
Stat of the weekTest In The Daily Crux
Recent Articles
|
