How to Handle Days Like Last Monday and Earn 164% More On Your Money

Keith Fitz-Gerald Jan 06, 2016
17 

Over the past 12 months we’ve had several major market corrections and, each time, I’ve counseled you to buy into the madness because history shows beyond any shadow of a doubt that’s the path to enormous profits.

And, each time, I get a blizzard of emails, and this past Monday was no exception…

…but what happens if the markets go down further?

That’s a logical question and one I get a lot.

So I thought we’d answer that today with a quick look at how to combine two Total Wealth Tactics for maximum profits and minimum risk, especially on big down days.

It’s powerful stuff and not just because of the profit potential either.

The real message here is that the tools I’m going to share with you today can give you the confidence boost you need to buy on big down days when everybody else and their mother has their finger on the “sell” button.

As usual, I’ve got a few easy to understand examples so you can put what you learn to work straight away.

Here’s how to protect yourself from a market dislocation – and profit when everybody is losing.

Fifteen Reasons to Keep Monday’s Market Turmoil In Perspective

Monday came unglued in a hurry and that, in turn, sent a lot of investors packing.

To be clear, panic wasn’t quite the order of the day, but you could certainly feel it creeping in around the edges following weak data from China and the severing of diplomatic relations between Iran and Saudi Arabia.

By the time I hit the airwaves on Varney & Co, futures were set for a triple-digit drop on the open.

As usual, I couldn’t wait to buy.

And, as usual, the numbers gave me the perspective I was looking for.

Since 1928 there have been only 15 declines of more than 1% on the opening day of a new year. Eleven out of the prior fourteen occasions, the S&P 500 was up an average of 3.34% over the balance of the month with a median gain of 5.03%, according to Bespoke Investment Group, LLC.

Yearly data isn’t much different. Since 1928, the S&P 500 has risen an average of 2.90% following a worse than 1% close on the first day of a new year 57% of the time. It’s worth noting that the median gain over the same time frame was 7.22%, also according to Bespoke.

Will the markets turn around this time?

I have no idea, but I don’t care much, either – I know that there are specific tactics that can help me profit from markets that are moving higher or lower. Like a chef, I’ll simply adjust the ingredients in my recipe for higher profits.

Lowball Orders are something we’ve talked about several times and, bar none, one of my favorite tactics for exploiting temporary price drops.

These Tactics Let You Turn Market Dips to Your Advantage

Lowball Orders take away the advantage normally held by the world’s biggest, most ruthless traders because they help you specify a price you want to pay for any stock well in advance of an actual market rout. Or, a day like Monday.

What you’re hoping to capture by using them is exactly the sort of triple-digit swoon that sends everybody else packing.

It doesn’t really matter why the market craters. A drop, for example, can be because the markets overreact to news in China, Putin’s latest move, or as was the case this time around, events in the Middle East heating up.

Your goal is to buy at levels others believe are impossibly low at a time when other traders are not thinking clearly about the potential that they’re giving up by selling.

But sometimes, even Lowball Orders aren’t enough.

Here’s where the questions usually start or the hands go up in my audiences.

Many investors worry that big down days don’t happen in isolation. And, they’re right – big down days often run in twos or threes.

That’s why, not surprisingly, they resist buying in because the markets “could” keep going lower even if they’ve used a Lowball Order to buy in at a huge discount in the first place.

Here’s what they’re missing.

There’s nothing written anywhere in any investment book I’m aware of that says you have to buy all at once.

In fact, there’s a huge argument to be made for buying in stages using another of my favorite Total Wealth Tactics – dollar cost averaging.

If you’ve never heard the term before, dollar cost averaging is a Total Wealth Tactic that helps you buy a specific amount of any investment on a regular basis.

What I like about dollar cost averaging it that it helps keep risks low yet returns high, because it prevents you from investing a single large amount at the wrong time… like now, for example, if you’re one of millions of investors worried prices could drop further.

I’m also a big fan of the discipline dollar cost averaging instills because it takes emotion out of the equation.

And finally, dollar cost averaging forces you to buy more shares when prices are low, while fewer shares are purchased when prices are high. Over time, your basis – a fancy way of saying your total cost – actually drops and that, in turn, means you have that much more upside.

Imagine investing $10,000 into Apple in September 2008.

You’d be sitting on 421 shares worth only $5,313 as of March, 3, 2009, when people thought the end of the financial universe was upon us.

Had you dollar cost averaged in for three months starting that same September, though, your holdings would be sitting on 581 shares worth $7,333 on the same day.

Both are losses and that’s no fun. But here’s where it gets interesting.

Apple would have to rise only $4 per share for you to break even if you’d dollar cost averaged in using monthly Lowballs, versus needing gains of $11 per share for you to break even if you went all in.

More to the point, 12 months later you’d be sitting on profits of 37.98% because of dollar cost averaging versus barely breaking even had you invested all at once.

Today you’d be sitting on profits of 496% and your $10,000 would be worth at least $59,600 for having dollar cost averaged into the Cupertino giant versus only 332% and $43,200 for having invested all at once.

I think that’s a powerful and very compelling 164% performance advantage that capitalizes on your skepticism yet keeps you in the game…

…even if stocks still have a ways to go before they find another bottom.

I’ll be back Friday with a look at a subject that many consider taboo, especially lately.

Until next time,

Keith

17 Responses to How to Handle Days Like Last Monday and Earn 164% More On Your Money

  1. Larry says:

    Are you suggesting, Keith that a person should invest in stages with all stocks or just certain ones? Thanks.

    • Keith says:

      Good morning Larry.

      That depends on your perspective and your risk tolerance.

      My take is that at times like this it never hurts to do so. That way you’re ensuring discipline, focus and, more importantly, giving yourself a position that benefits no matter whether stocks go up or down from here.

      Most investors think only about potential losses when the far more expensive part of the equation is the opportunities they miss. Especially on big down days when the set ups as sweet as molasses on a cool fall day.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  2. Paul says:

    Could this be the new norm in the markets? As the ‘baby boomer’ generation starts hitting 70 years of age requiring the minimum distribution from their IRA and 401K’s, won’t this have swings in the markets for no apparent reason or understanding? Shouldn’t the banks start to benefit from this towards the end of 2016? Thanks

    • Keith says:

      Hello Paul.

      That’s a sharp question. Computerization now accounts for an estimated 60-75% of total stock market volume on any given day so the notion of pull backs may be a thing of the past. It’s more like a dog-pile now or a rugby scrum depending on your perspective. That means you need to be in to win (and catch the move) before everybody else realizes that its happening.

      Volatility, I’m afraid, will be our constant travelling companion as a result.

      That sounds scary, but don’t forget something we talk about all the time – chaos creates opportunity.

      I’ll be with you every step of the way.

      As for the banks, I think so but the earnings are not going to be evenly distributed. I’ll have more on why in an upcoming column.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  3. Barry says:

    Hi Kieth & Happy New Yeear

    Love your market comments and big picture , lowball orders and whenever I see u on TV , enjoy your interviews

    Can u comment on Esko Bionics slide since they announced this finacing

    http://ir.eksobionics.com/press-releases/detail/562

    & that came after
    ReWalk Robotics (RWLK) Stock Continues to Rise Following V.A. Deal that cuased the stock to almost triple, even with a market correctyion its still a double since
    http://www.thestreet.com/story/13404252/1/rewalk-robotics-rwlk-stock-continues-to-rise-following-v-a-deal.html

    it seems like ReWalk beat Esko to the punch Re the VA, its like a stamp of approval

    how do u see this playing out for Esko sales in the medical & other fields and the log term performance of the stock thats now back to where u originally recommended it

    Please update Esko & CWCO as u feel appropriate but know water is a super trend , just worrying if we backed right horse in light of VA Re Walks endorsement

    Thanks , Barry

    • Harold Hansen says:

      Keith,
      Yes , could you comment on re-walk and EKSO
      I read that the va said that EKSO was the best thing they’ve
      Ever seen
      What’s shaken between these 2?
      Thank You!
      Harold

      • Keith says:

        Hello Harold.

        I tackled those in the Total Wealth Update on Sunday, January 10th which you should have in your email.

        Bottom line – EKSO is still the far superior play here.

        By the way, ReWalk is down 70% from where it traded the day I recommended Ekso as the most promising way to play the coming human augmentation boom. You can bet I’ll be watching its future valuations closely.

        Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  4. Neil Watts says:

    Can you please comment on why the highly recommended SunEdison (SUNE) has dropped over 41% in recent days?

    • Keith says:

      Hello Neil.

      That’s not a stock I’ve recommended but a quick review suggests two things are happening:

      1) the broader markets are getting clobbered and, by proxy, so is anything in the energy space.

      2) Hedge fund manager David Tepper’s Appaloosa Management has sued SunEdison in an attempt to prevent SunEdison’s TerraForm Power from buying some of Vivint Solar’s assets as part of another acquisition. It hasn’t helped that Jim Cramer observed that Tepper is correct in his filing – the deal is NOT in the interest of TerraForm shareholders of which Appaloosa is a 9.25% owner.

      Stick to Unstoppable Trends and “must have companies” instead for a less volatile ride.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  5. william woischke says:

    Can you tell me about SUNE. I still have, but down 40%. Should I hang on?

    • Keith says:

      Hello William.

      Please see my prior comments to Neil regarding SUNE.

      Now, let’s address the 40% you’re down.

      If you’ve got the stomach and the risk tolerance for a loss like that, then great. However, most investors don’t.

      That’s why I’d encourage you to revisit some of the many risk management techniques we’ve talked so frequently about including trailing stops, how to take emotion out of a trade, and position sizing among others. If you’re going to ride a stock down 40% you want to make sure you’re clear on why and whether that fits with your individual investment approach. Or, not.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  6. Susan says:

    Hi Keith,
    I bought Ekso as recommended by you and it’s been sliding ever since. Please let me know what is your advise and thoughts on this stock.
    Thank you

  7. Robert L. ("Bob") Coyle says:

    As an avid reader with 75 years under my belt … a degree in biology … a second in theology … studying for my MBA … and a former Registered Investment Advisor, I feel EKSOlent about my “Sunny Ears” (Sun Edison and Auris Medical). Thanks to Keith and his colleagues, I’m positioned for the long term with EKSO, SUNE and EARS. Thank you, Money Map Press and The Passport Club! Robert L. (“Bob”) Coyle, CLU (Chartered Life Underwriter)

  8. halbert says:

    Hi Kieth,
    Would you explain how and where to use “TRAILING STOPS”

  9. halbert says:

    Hi Kieth,
    As a new investor to Money Morning, Would you explain HOW and where to use TRAILING STOPS? I bought shares of ETE, (which also has WMB in its portfolio). The stock moves 20 % up or down almost daily. I also bought CHNI on your recommendations and use TRAILING STOPS on both…Halbert

  10. halbert says:

    I want to learn how and when to use the TRAILING STOPS on the stocks mentioned above…I tried looking up the information, but was not helpful. Does 50 DMA COME INTO PLAY?…Hal

  11. Ines says:

    How do I place a low ball order.? When I buy from my Fidelity account, only the current price is available to me

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