How to Go Bottom Fishing Without Fear of Losing Your Money
Almost every investor who’s put money into the markets since last October has tried to go bottom fishing… only to get separated from their money.
In some cases, that’s a little. In others, a lot.
Frankly, how much money was lost doesn’t matter – they tried to pick a bottom in stocks they loved or indices they wanted to buy, only to watch ’em drop further and their account statements turn from green to a sea of red.
Today, we’re going to talk about a simple, powerful, and proven tactic that can keep you in the hunt for unlimited profits yet guard against unexpected losses when the markets take a turn for the worst.
It’s ideal for current market conditions when you’re just one headline or data point away from calamity.
Bottom fishing is the stuff of legends.
You’ve got to do it if you want to build your fortune.
That’s because market history shows very clearly and beyond any shadow of a doubt that the biggest profits go to those who wade in at the “worst” possible moment.
… Warren Buffett regularly buys into markets others fear and specializes in companies where the prevailing wisdom is often wrong. And, he’s worth roughly $84.7 billion.
… The legendary Jim Rogers is noted for taking the opposite side of “the trade.” He and co-partner George Soros famously ran the Quantum Fund up a staggering 4,200% over the course of ten years versus only 47% from the S&P 500 by doing just that.
… The late Sir John Templeton famously bought $100 worth of each stock trading below $1 in the New York and American stock exchanges on the eve of WWII, selling them for nearly four times as much after four years. Every $10,000 invested with his Templeton Growth Fund (MUTF:TEPLX) since inception in 1952 would be worth $12,403,812.74 today.
That’s the part most investors struggle with.
They want to make the big money they know is possible, but they cannot afford the losses that come from making blind bets if the markets run against ’em.
I know you know what I’m talking about.
We’ve all been there at one point or another during the course of our investing lives… and that’s nothing to be ashamed about. You’re not alone.
Chances are you’ve bought a stock that you thought ripe for a rebound, only to watch in horror as it immediately goes against you. Or, you’ve had a stop loss in place, only to see a stock you own plow through that without your exit triggering at the price you want. (Many investors, for example, don’t realize that trailing stops limiting a certain price turn into market orders when they’re triggered.)
Today I want to help you put that fear aside with a simple, proven, and very easy to use Total Wealth Tactic.
Take Nvidia Corp. (NasdaqGS:NVDA), for example.
I think the company is ripe for a turnaround before the company’s next earnings report which, at this point, is expected on February 14, 2019. And, let’s say for purposes of our discussion that you agree.
Shares are trading at $149.34, as I type, which means 100 shares will set you back a total of $14,934, excluding commissions – every penny of which is at risk from the moment you open the trade.
So let’s consider buying the March 15, 2019 $150 Put (NVDA190315P00150000) at the same time using a Total Wealth Tactic called the “Married Put.” It’s trading at $8.85 as I type.
If you’re not familiar with options, “puts” are essentially a bet that the underlying company – in this case Nvidia – is going to go down. You can buy put options for any number of reasons, but in this case we’re going to use them as “insurance.”
Options contracts are traded in something called “lots,” each of which represents the right, but not the obligation, to buy 100 shares of their underlying company at a specific price by a specific date.
Again, that’s Nvidia for purposes of our discussion and, since the next earnings announcement is expected on February 14, I’m suggesting the March 15 options… so that you effectively have a “safety margin” that carries you beyond the announcement.
Here’s the part that I really like. “Marrying” a put to the 100 shares of Nvidia you’ve purchased now limits your risk to $885.
$885… that’s the most you can lose if Nvidia disappoints in any way and shares get pummeled… and a 94.08% reduction in risk (from the entire $14,934 that would otherwise be in play had you not combined it with the put).
You’re locked in.
Here’s the cool part, though.
If Nvidia reports great numbers and goes your way – meaning higher – then you’ve got a few alternatives:
- You can sell your Nvidia shares and collect profits while also selling the put at a small loss to recoup part of the money you paid when you established this trade. Or;
- You can sell a few of your Nvidia shares to recover the cost of the put and ride the rally higher while leaving the put to run as additional protection just in case traders have other ideas.
- You can repeat this process any time you like down the line.
Either way, now you own a company poised for a huge turnaround and the ginormous profits that come from buying in when nobody else can imagine doing so.
The best part is that you can sleep at night.
And, I submit, that’s “worth” a lot in today’s turbulent markets.
Until next time,