Porter: 'The Single Most Amazing Thing I've Ever Learned About Finance'

Editor's note: Investors are set to make a fortune as the market kicks into the final rally of this historic bull market.

But that doesn't mean it's time to throw caution to the wind.

As you'll read in today's edition of our weekend Masters Series – the conclusion of a two-part interview with TradeStops founder Dr. Richard Smith – a couple of simple tweaks to your investment approach could help you make three times more money on the exact same stocks in your portfolio...

Porter: 'The Single Most Amazing Thing I've Ever Learned About Finance'
An interview with Dr. Richard Smith, founder, TradeStops

Sam Latter: I know you've mentioned that TradeStops can help investors get in and out of the market at the exact right time.

But we also hear from people like our friend Chris Mayer, who preaches the benefits of a "coffee-can portfolio," where you buy the best stocks you can find and just hold them for 10 years, regardless what's happening in the market.

Would you say one strategy is better than the other, or do you think both strategies are appropriate for certain people?

Richard Smith: I have a ton of respect for Chris. I think he's one of the best analysts out there, and I have personally made a significant amount of money off of some of his recommendations. The coffee-can portfolio approach might be right for some people that really don't want to think about their investments at all.

But I like to be a little more active with my own investments. I like to use great investment ideas from different analysts – Chris, Steve Sjuggerud, Porter Stansberry, etc., and build my own portfolio. TradeStops really allows you to do that.

You know, we're all in this to make money and have a little fun. And TradeStops is a way to do just that. You can use great investment ideas from these world-class analysts, but also find your sweet spot in the market.

Sam: Sure. And if you loaded a coffee-can portfolio up with tech stocks back in 2001, you'd just now be breaking even on companies like networking giant Cisco (CSCO) and software titan Microsoft (MSFT). All of those high-quality names, had you bought them at the top, you'd be just breaking even.

Changing gears a bit, Porter likes to make big, bold claims. And he has called risk-adjusted position sizing "the single most amazing thing I've ever learned about finance." Can you explain this idea and how TradeStops uses it?

Richard: Yes. And I agree with Porter. This is really the thing that I'm most proud of, having it made available to individual investors in TradeStops.

It's simple, really. The idea is that you put more of your money into your less-volatile, less-risky positions, and less money into your highly speculative, swing-for-the-fences positions.

But you have to stay in long enough to really capitalize on the opportunities. If you have a really volatile stock, some of the junior gold miners for example, or some of the oil explorers, those things can swing 50% or 75% up or down in a year. Your ability to endure those swings is a combination of the volatility of the stock and how much money you've put into that stock.

Say you put $10,000 into a volatile stock that falls 75%. Suddenly, you're down $7,500. Are you OK with that? Is that a loss you can live with? Having the right position sizes and putting more money into your less-volatile stocks and less money into your more-volatile stocks is huge. In all of my analysis and back-testing, that's the single biggest way to improve individual investors' portfolios.

Sam: And that's the exact approach that Porter, Steve, and Doc Eifrig are using in the Stansberry Portfolio Solutions product to deliver market-beating gains this year.

I've read that TradeStops can help Stansberry Research readers as much as triple the gains on stocks they already hold. That's one of those things that sounds too good to be true. How is this possible?

Richard: It comes down to two simple things...

One thing, as we just talked about, is risk-adjusted position sizing. That's not something people do naturally. Most people tend to put the same amount of money into each of their positions. But whether you're Warren Buffett or Porter Stansberry or Sam Latter, you need a system to help you get out of your own way. That's exactly what TradeStops does, and it's why TradeStops can help you dramatically improve your investing results.

The second thing is simply making sure you stay in your winners until your stops take you out. Often, when it comes to winners, investors feel like 100% or 200% gains are enough. But you need to let the market's craziness work for you. You need to stay in these winners and let them return 1,000%... 2,000%... heck, even 10,000%. You only have a few chances to do that in your investing life. And if you sell at 100%, you miss out on those life-changing opportunities. Let those winners run away and get out of control, and don't sell until TradeStops tells you it's time.

Sam: You used that second idea to ride out huge gains on alcohol giant Constellation Brands (STZ), right?

Richard: Yes, Constellation Brands is one of my personal favorite stocks. I learned about that stock from Extreme Value editor Dan Ferris probably six or seven years ago. Dan took profits last November for an incredible 631% gain in about five and a half years. But I decided to let TradeStops tell me when to sell, and I'm still in the trade. It has been fantastic.

Sam: TradeStops also has some features that help people identify investment opportunities in the market. Are your indicators suggesting any interesting places to put your money to work? And are there any sectors that your indicators say to avoid today?

Richard: Oil recently flashed "buy" in TradeStops. Oil is interesting. It's more volatile than people think. The commodity itself is actually more volatile than most of the equities. So while oil may move up or down 30% or 35% in a year, oil giant ExxonMobil (XOM) might move about half as much in either direction. It's important to be able to navigate the energy markets, but oil is a buy right now according to my indicators.

I'm also bullish on emerging markets. Brazil in particular has been a strong performer. I like gold, too. And I think the U.S. dollar may have a short-term rally, but the long-term trend is down, which should be good for commodities and equities.

Sam: Lastly, is there anything we haven't covered today that you wanted to make sure to mention?

Richard: Actually, I just added a feature for lifetime TradeStops subscribers that I'm excited to talk about. It's coverage of a dozen of the world's most successful investors: Warren Buffett, Bill Ackman, David Einhorn, George Soros, etc.

I'm essentially curating their portfolios inside of TradeStops and making their picks available to TradeStops subscribers. So now, in addition to the investment insight you get from Stansberry Research, you can also tap into some of the world's best-known investors and bring their ideas to the table, too.

I'm constantly enhancing the service to make it more and more possible for individual investors to build their own portfolio of 25, 30, even 50 stocks... companies that they feel passionate about, think have a great chance for success, and can use TradeStops to help know when to buy, when to sell, and how much to invest. It's an incredible system. I've worked hard on it for 15 years, and I'm really proud of what we've accomplished.

Sam: Well I know one thing that both Stansberry Research and TradeStops strive for is empowering individual investors. So we thank you for all your help and thank you very much for sitting down with us today, Richard.

Richard: Thanks for having me, Sam.

Editor's note: For years, TradeStops has helped folks invest with confidence... make more money... and risk less. And right now, Richard has agreed to make a special offer exclusive to Stansberry Research subscribers. Learn about this incredible deal – and how to squeeze every penny of profit from this historic bull market – right here.