Revisiting one of the biggest controversies in our business... How to achieve a win rate of almost 99%... Ignore the fear mongering... How to regularly generate thousands of dollars through the stock market... A free video series from Dr. David Eifrig...
In September 2012, Stansberry Research Editor in Chief Brian Hunt and I produced a four-day Digest series addressing one of the biggest controversies surrounding our business at the time...
Dr. David "Doc" Eifrig had just closed his 85th consecutive winning position in Retirement Trader. His track record was unparalleled. It was one of the greatest accomplishments in the history of our industry... But readers were skeptical. Some of you outright accused us of lying.
Honestly, we couldn't blame anyone for their skepticism... "85 for 85" is almost too good to believe. Still, we jumped at the opportunity to make this a teaching moment... And we shared the secrets behind one of the greatest trading strategies out there.
As longtime Digest readers know, we believe that the strategy Doc uses in Retirement Trader – selling put options – is one of the safest and most consistent ways to generate income in the markets.
And if you follow a simple set of rules when using this strategy – some of which we'll cover this week – you'll see it's hard to lose.
Since we first ran this series, Doc has had a couple losers. Still, after you read the latest numbers for Retirement Trader, we won't be surprised to see more hate mail pouring in...
Since launching his service in 2010, Doc has gone an astounding 189 for 191 – a 98.9% win rate. The average return has been 8.8% (or 50% annualized). To date this year, Doc has closed 41 consecutive winners for an average return of 7.8% (50% annualized).
As you could likely guess from the average returns, the goal with selling puts isn't to go for "home runs"... Instead, you hit lots of "singles" and "doubles." Over time, those consistent gains really add up.
As the market has marched toward new highs, values have grown scarce. But in September, the market experienced a significant correction. Even the highest-quality stocks pulled back.
The market is still worried about Europe and China's fragile economies... And Ebola and terrorist organization ISIS continue to dominate headlines and create panic.
But lower stock prices and higher volatility create the perfect environment for the disciplined put-seller. As Doc noted in his most recent Retirement Trader...
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Doc is so enthusiastic about the opportunity to sell puts today that he's releasing a new educational video every day this week until Wednesday. To close out "Options Week," Doc will host a live training session on Thursday night with an extended Q&A session.
At the end of today's Digest, we'll share the link to Doc's first video... In it, he explains how his Retirement Trader strategy has made his subscribers millions of dollars... and how you can start using this strategy immediately to collect income. Doc will also give you the clearest explanation of a put option you'll ever hear... And he'll explain why his strategy is actually less risky than buying shares of stock outright.
But first, we revisit the first installment of our Retirement Trader series, which we originally published in the September 20, 2012 Digest...
For the rest of today's Digest, we'll cover one of the most important – and controversial – topics in our business right now. The idea we are about to cover regularly gets us accused of "making up" numbers... of fraudulent marketing. We've received loads of hate mail about how we market this idea.
On the other hand, this idea is extremely important. It's an idea we want every single Stansberry Research subscriber to understand. We want our parents to understand it. We want our children to understand it. Knowing about this idea – and using it – is one of the real keys of successful investing. It's a "high level" idea most of our senior analysts and employees use to make money in the market. Some of the more advanced investors on our staff use this strategy almost exclusively. We're proud of this idea... and proud of the claims we are able to make about it.
OK... I hope you're interested... because learning this idea means taking a major step forward in your sophistication as an investor. It's moving from little league to the major leagues.
And I hope you're skeptical of anyone who claims he has profited on 85 of his last 85 trades. You see, that's the source of controversy surrounding one of our exclusive trading services, Retirement Trader. Editor Dr. David "Doc" Eifrig has put together an unbelievable track record in the service. We mean that literally. People don't believe that going "85 for 85" is possible. We've been accused many times of making up the numbers.
We're actually happy that many of our readers are skeptical of these types of claims. We certainly are. A healthy dose of skepticism is a great thing for consumers of financial services and information. And it's good to be skeptical of a claim that someone has gone "85 for 85." It's just impossible, right? Isn't it too good to be true?
Actually, no. It's not. In the case of Retirement Trader, what Doc has done for his readers is incredible. He has strung together a series of 85 consecutive winning trades. Doc has shown thousands of retirees how to safely and regularly pull thousands of dollars out of the stock market... and put it into their retirement accounts. It's no wonder we receive more positive – even gushing – feedback about this service than we do any other service we publish. We sometimes worry Doc has so many loyal readers, he has developed a "cult" following.
For example, here's an e-mail we received from subscriber Rick F., an experienced trader...
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As some of our Digest readers know (and to which Rick alludes), the trading method behind Doc's unbelievable track record is the options strategy of "selling puts." A "put" is an option. When someone buys a put option, he's buying the right (but not the obligation) to sell a stock at a set price (called the "strike price") by an agreed-upon future date.
So when you buy a put, no matter how low a stock's price falls, you can still sell for the strike price. You can think of a put option as insurance. The buyer of the option is paying a small premium to insure his position against a decline in price. But what most people don't realize is that individual investors can also sell someone that insurance and collect the so-called "option premium."
Again... Most folks find it easier to think in terms of insuring a home. When you insure your home, you are essentially buying the right to sell your house to the insurance company for a certain value, under certain conditions, for a limited period of time. In return, you pay the insurance company to accept those terms – whether or not you ever exercise the terms of the policy.
Put options work the same way. When you sell a put option, you're acting like the insurance company. You're agreeing to buy someone else's shares of a particular stock for a set price, under certain conditions, for a limited period of time. In the case of your house, you'd exercise your policy in a disaster... when a fire or catastrophic weather damage wrecks the value of your home.
In the case of a put option, the holder would exercise his right to sell us his stock if the market value of his shares falls below the price we agreed to pay.
When you sell a put option, the trade works one of two ways. You either collect the entire premium without any obligation... or you end up buying shares at a discount. Considering the latter outcome, it's important to only sell puts on companies you want to own.
As an example, let's walk through an actual trade Doc recommended in Retirement Trader...
On November 22, 2011, Doc sold January 2012 $25 puts on Microsoft. At the time, shares of Microsoft were trading for $24.79. In this example, $25 is the strike price. As long as shares of Microsoft traded for more than $25 by the expiration date (in this case, January 20, 2012)... subscribers who followed Doc's recommendation would book the entire premium with no obligation to buy shares. (After all, why would the buyer of that put exercise his option and sell shares for less than he could get in the open market?)
When Doc made his recommendation, the option premium for selling those puts on Microsoft was $1.15 per share... An option contract covers 100 shares, so readers following his recommendation immediately collected $115 for every contract they sold.
On January 20, 2012, the Microsoft options "expired worthless." Shares of Microsoft were trading at $29.71 on the day the options expired – well above the $25 strike price. And Retirement Trader readers kept the entire premium for a 23% return on margin.
That word "margin" is important. When you sell put options, your brokerage requires you to set aside 20% of your potential obligation. Using the Microsoft example... If we sold one option contract, we were responsible for 100 shares at $25 (or $2,500). In this case, we'd deposit $500 (20% of $2,500). Because we collected $115 in premiums and only had to deposit $500, we made 23% on the trade in about two months... That's a 142.3% annualized return.
We'll end today's discussion of selling puts here. I encourage you to read and re-read today's Digest. Once you understand how to sell puts – and how profitable this strategy is – you'll have a hard time doing anything else in the market.
Editor's note: In tomorrow's Digest, we'll explain the secret to making this strategy work. If you sell puts the wrong way, you can lose a lot of money. However, if you use this strategy properly – as Doc's track record proves – you can make a fortune.
To watch Doc's first educational video on selling puts (it's completely free), click here. And to make sure you don't miss Doc's live training event on Thursday, November 6 at 8 p.m. Eastern time... Reserve your spot by clicking here.
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In today's mailbag, subscribers share the lessons they took away from Porter's Friday Digest. What's on your mind? Send your e-mails to feedback@stansberryresearch.com.
"Before I respond to Porter's query with regard to the investment lesson take away for the week, and I haven't finished reading Friday's Digest as of yet, I should note that I have been extremely impressed by the amount of energy, devotion to quality, and insistence on integrity which is demonstrated, revealed, and embodied in the work that everyone at S&A produces. With each passing year I continually have my expectations exceeded. There simply have not, yet, been the correct positive adjectives invented to accurately portray the value that you and your company provide to the average investor. THANK YOU!!! Though this hardly does the service you render justice.
"Now to what I believe Porter is trying to communicate as a timeless and 'most important lesson.' If I get this wrong it certainly is not fault of yours. I believe the take away is 'to be patient and to buy great businesses at great prices.'" – Paid-up subscriber Sean B.
"The lesson I derived: that when you are familiar with a company and see an opportunity with high potential returns and low down side risk, put a substantial part of your assets into the investment. I would emphasize, know the company and the industry well, and have an idea of the intrinsic value before jumping in, however." – Paid-up subscriber Bob Cowan
"I see several themes, but perhaps they tie together as the 'anaconda strategy.' Don't chase the market, wait for it to come to you. Wait. Wait for great companies to be on sale. Wait until the low stock prices have scared everyone else away. Then, buy big, and then wait some more. Wait for the market to recognize value. Wait for the dividends to roll in. Wait for your investment to return many times what you paid for it. It isn't as important exactly what you buy, or your stock picking theory – as long as you patiently wait for those rare can't lose moments to come along, and then act decisively. I think it was Jim Rogers who said, 'Wait until you see money just lying around unclaimed, then pick it up.'" – Paid-up subscriber Stephen Kovaka
"In its simplest form I would say to have cash when stocks are up. In order to do that I have to sell when stocks are running higher (NOT lower) or at least accumulate cash when stocks are high and deploy the cash when stocks are cheap. You have been saying to sell for the last 8-9 months so the prudent investor needs to back off and wait for that extreme pull back in this decade. Day to day buying of stock weather top down or bottom up is relatively ineffective unless there is an extreme pull back. I'm not a pro but I would say buy great companies with P/Es lower than 10." – Paid-up subscriber Mike Stucke
"I know from having read S&A's newsletters and many free reports that the obvious answer is not always the one I think of first. There is so much info that at times I try to over process to get to a conclusion faster. So I cheated and looked at your answer. I did this to avoid over-analysis on my part. History of dealing with others close to me to try get me to test my resolve. I knew it was the obvious answer, however, my mind refuses to believe that everything presented to me is not a test to try to confuse me. That is why your newsletter and services are so refreshing to me. You don't mince words even when you're offering a subscription to one of your services. I have so much appreciation for all who provide information and recommendations through S&A. Thank you. You have my utmost respect. Also, I love the history you guys use to educate. I love hearing about the life and times (especially when he goofs) of Warren Buffett." – Paid-up subscriber Vickie Carpenter
Regards,
Sean Goldsmith
November 3, 2014
Dan Ferris: What makes for a great business...
Editor's note: Today's idea won't make you a better investor overnight. But understanding it will give you an advantage over the vast majority of investors... And it will put you in the company of legendary investors like Warren Buffett. If you want to make a fortune in stocks, you can't afford to ignore the idea that Extreme Value editor Dan Ferris discusses in today's Digest Premium...
Stansberry Research: Legendary investor Warren Buffett has often said his ideal investment is a wonderful business trading at a fair price. While many investors are familiar with P/E ratios, price-to-book values, and other measures of value, we hear relatively little about what actually makes a great business. Dan, can you describe what makes a great business?
Dan Ferris: Well, great businesses can be defined a number of ways, but most of them share a few common traits. In my opinion, one of the most important traits is what's known as a durable competitive advantage. Put simply, it's an advantage over the competition that is likely to last for a long time... and often has already lasted for a long time.
In capitalism, when a company is extremely successful, you inevitably get competitors coming in. If a company is making an 80% gross margin, someone will come along and say, "I'm going to undercut them and earn a 70% gross margin." Then someone else comes along and says, "I'm perfectly happy with 60%." Before you know it, it's not 80% anymore... it's 8%.
When a company is able to sustain superior performance over a long period of time, it's a clue there's something special going on... that the company has a tangible advantage in its industry. That's an invaluable trait... and one most of the world's best companies have.
Wal-Mart is so big and efficient, it can do anything any other retailer can do... only much cheaper. Exxon Mobil is like that, too. So is UPS. UPS owns an enormous global transportation and logistics network. It's very difficult to compete with. Burlington Northern and other American railroads have an excellent durable competitive advantage. They own thousands of miles of railroad track, and nobody wants anyone to build more railroad track. Once you get a railroad built through a particular area, chances are folks won't want to allow another to be built there. People don't generally like to have railroads and pipelines in their backyards.
Stansberry Research: A durable competitive advantage. What's another trait?
Ferris: Another important one is thick profit margins. A thick profit margin generally indicates a business is efficient at allocating capital and controlling costs, so more of its revenue can be retained as profit. It also means the business has a built-in buffer of safety... meaning the risk that a drop in revenue will cause an operating loss is much lower.
Obviously, this means some industries are much more likely to produce great businesses than others... But if a company can maintain a relatively thick, stable profit margin compared with other businesses in the same industry, it's another big sign you're on to a great business.
Thick profit margins are universally desirable. Everybody in business would much rather net $0.20 in profit for every dollar of sales than $0.02. When you're able to hold off competition AND make a thick profit, that's as good a financial result as a business can ever get.
A third characteristic of a great business is low capital expenditures. This basically equates to being able to employ a relatively small amount of capital and get incrementally more growth out of it.
A great example here is Microsoft. Microsoft didn't need to build a factory to produce its new Windows operating system. It didn't need to build a mine or buy a million trucks or a million planes or anything of the sort. It required just a small capital investment, next to none really. It might have needed to hire a few more people. And so it can make a huge return on it. That's a great characteristic.
Warren Buffett often gives the examples of Coca-Cola and See's Candies, because they've required little capital to grow... and they earn so much more now than when he first invested in them.
Editor's note: These kinds of companies dominate their industries, sport recognizable brand names, gush cash, have fortress-like balance sheets, and pay large (and growing) dividends. Dan recently published a book where he teaches readers how to identify these stocks – which he calls "World Dominating Dividend Growers" – and more importantly, when to buy them. If you want to earn safe, steady, and growing income, this book is a must-read. Learn more about it here.
Dan Ferris: What makes for a great business...
Today's idea won't make you a better investor overnight. But understanding it will give you an advantage over the vast majority of investors... And it will put you in the company of legendary investors like Warren Buffett.
If you want to make a fortune in stocks, you can't afford to ignore the idea that Extreme Value editor Dan Ferris discusses in today's Digest Premium...
To continue reading, scroll down or click here.