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Three Simple Trading Rules for a Safe RetirementBy
Wednesday, August 19, 2015
At first glance, it sounds ridiculous... 228 for 236... a 96.6% win rate.
I've been investing and trading for over 30 years. I've read investment advisories for nearly that long. I've worked at several of Wall Street's most prestigious firms. And I can tell you from experience that when someone claims to win more than 90% of the time, you should brush them off as delusional, using "massaged" numbers, or a criminal who trades on illegal insider information.
The stock, commodities, and futures markets are simply too big and complex for someone to win all the time. Even for great traders, a 60% win rate is more realistic. Heck, traders who make sure their wins are huge and their losses are small can make millions by being right just 30% of the time.
With this warning in mind, I do think it's worth pointing out a secret we've used in my Retirement Trader service to generate a 228-for-236 trading record...
We think like long-term investors.
There's a lot that goes into that – more than I can discuss today. But I can explain the most important pieces and show you an opportunity that fits perfectly into our strategy...
First, we take fundamentals into account. Often, when folks look to make short-term profits in the stock market, they focus exclusively on chart patterns and complicated computer programs. While several successful traders I know rely on this kind of "technical analysis," most folks will start seeing patterns that don't really exist. And a "can't lose" system can turn into a "can't win" system overnight.
Instead, I look at how "healthy" a company is. I check cash flow, profit margins, debt, and so on. I look to place leveraged trades (using options) in great companies like Coca-Cola and Intel.
The second advantage we have over most traders is we only bet on companies that treat their shareholders right. Most traders get excited about the latest IPO, the hottest penny stocks, and the next big resource investment. Sometimes, these can be high-reward trades. But they're incredibly risky. The IPO can flop, the penny stock can collapse, and the next big gold mine can turn out to be just another empty hole.
I'd rather have the deck stacked in my favor... So what I do is look for companies that buy back shares, have a history of increasing dividends, and bring in enough cash to keep doing both. These are the marks of a solid, conservatively-run company. After all, you can massage a financial report a hundred different ways to fake a profit. But you can't fake a cash dividend. When you're buying a company that has a long-term-focused corporate attitude, the chances of a catastrophic loss are much smaller.
Finally, when we don't see the right setup, we WAIT. In short, a lot of amateur traders hop in and out of positions, incurring fees and sweating to catch the next big win.
But I don't take a trade unless the "stars are aligned." In fact, I made it a condition of my contract before I signed up to write Retirement Trader. I refused to publish a "hot trading tip" every week. Safe investment and trading opportunities don't pop up just like that... The markets don't adhere to anyone's schedule. And success only comes from waiting patiently for what billionaire investor Warren Buffett calls the "fat pitch."
One fat pitch we just took a swing at in Retirement Trader is insurance giant MetLife. This company is a perfect trade...
It's selling for about 10 times earnings. And at 3.9 times cash flow, it seems reasonably priced.
Most impressive is that MetLife has simply been getting more and more efficient over the last three years. From 2012 to 2014, its return on equity has gone from 2% to 5.3% to 9.6%. Estimates suggest that trend will continue on to the 10%-11% range. That's a great return for an insurance company.
In short, everything was lined up. And we played it by selling puts, which should hand us a 10.2% return in two months. (That annualizes out to 61%.)
If you're ready to start safely doubling or tripling the trading gains you normally make in your retirement account – with much less risk – these are the kinds of trades you need to make. You need to think like a long-term investor... and stick with these three simple rules.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig
Further Reading:
Last month, Doc shared one of the greatest income-producing tools for retirees. "If you're looking for a conservative, high-income, retirement-friendly trading strategy, you can't find a better tool than this," he said. Learn more here.
Options expert Jeff Clark has also shown subscribers how to profit on stocks... without buying shares outright. "Only a fool would risk $1,000," he writes, "when he could profit just as much with $50." Get the details here: Almost Everyone Who Owns Stocks Is a Fool.
Market NotesA BUSINESS MODEL FOR LONG-TERM SUCCESS Owning everyday brands that dominate their markets is a fantastic business model... just look at today's chart for the latest proof.
Prestige Brands Holdings owns several over-the-counter (OTC) health brands and household cleaning products... the products you find in supermarkets and your neighborhood corner store. You probably own many of these products and don't even realize it... brands like Comet bathroom cleaner, Clear Eyes eye drops, Efferdent denture cleaner, and Dramamine motion-sickness treatment.
These products tend to have large market shares and are available almost everywhere. Many of Prestige's brands rank No. 1 or No. 2 in the market and are as synonymous with their products as Kleenex is with tissue paper or Google is with search engines.
Prestige has enjoyed steady, long-term growth. Shares are up 570% over the past five years, and they just hit a fresh all-time high. As you can see below, the company's business model isn't sexy... but it works.
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