How to maximize gains while minimizing risk is the quintessential investing query. But while significantly reducing risk is possible (as I’ll show you in a minute), you cannot remove it entirely.  Investors may seek out the “Holy Grail” — a trade with a high return and no risk — but in reality they’re just shifting risk. For example, people who illegally trade on insider information can take huge positions and make an enormous, nearly “guaranteed” reward with seemingly no risk. In reality, the market risk has shifted to a legal one. If caught, the trader faces the potential… Read More

How to maximize gains while minimizing risk is the quintessential investing query. But while significantly reducing risk is possible (as I’ll show you in a minute), you cannot remove it entirely.  Investors may seek out the “Holy Grail” — a trade with a high return and no risk — but in reality they’re just shifting risk. For example, people who illegally trade on insider information can take huge positions and make an enormous, nearly “guaranteed” reward with seemingly no risk. In reality, the market risk has shifted to a legal one. If caught, the trader faces the potential disgorgement of those profits and incarceration. The same is true of fraud such as Ponzi schemes like the Bernie Madoff hedge fund scandal. Risk remains — just in a different form. Law-abiding investors must accept that risk and reward are inseparable. The good news is that maximizing return and minimizing risk is possible using a trend-following system. Or should I say, it is possible when you learn to overcome the emotional difficulties which often stand in the way of profitable trend following. In my 20 years of managing money, I’ve found this is the key to success in the markets. Read More

There’s a financial formula used by some of the largest banks on Wall Street, including Goldman Sachs, Morgan Stanley, JP Morgan and Bank of America. It’s the secret behind many of their top money-making strategies — they’ve been using it for decades to rake in billions for themselves and their wealthy clients. I use the formula myself… and I’ve been able to generate an average annualized return of 18.4% with one of the easiest and most conservative strategies in the market.  The formula I’m talking about is called the Black-Scholes model. Read More

There’s a financial formula used by some of the largest banks on Wall Street, including Goldman Sachs, Morgan Stanley, JP Morgan and Bank of America. It’s the secret behind many of their top money-making strategies — they’ve been using it for decades to rake in billions for themselves and their wealthy clients. I use the formula myself… and I’ve been able to generate an average annualized return of 18.4% with one of the easiest and most conservative strategies in the market.  The formula I’m talking about is called the Black-Scholes model. If you’re at all familiar with options, then you may have heard of it before. It’s the most important development in financial engineering. It allows ordinary investors to profit from options just like Wall Street traders. It was developed by Fischer Black, Myron Scholes and Robert Merton in the early 1970s. Their formula provided a rational way to determine how much an option is worth. Thanks to their discovery, the three received the Nobel Prize in economics. To understand why it’s important, you have to consider how things were before their… Read More

For the inexperienced, the world of options trading can be daunting… even confusing, but once you understand the basics of how options work, they are as simple as buying or selling stocks. That’s why we recently featured a quick primer on call options (here) and put options (here). Today I’m going to explain how options are priced and how that knowledge has helped my readers and I close 85 straight winning trades. It all starts with the idea of arbitrage, which means looking for assets that are equivalent to each other,… Read More

For the inexperienced, the world of options trading can be daunting… even confusing, but once you understand the basics of how options work, they are as simple as buying or selling stocks. That’s why we recently featured a quick primer on call options (here) and put options (here). Today I’m going to explain how options are priced and how that knowledge has helped my readers and I close 85 straight winning trades. It all starts with the idea of arbitrage, which means looking for assets that are equivalent to each other, but are traded in different markets. If one market is mispricing the asset, an arbitrage trader can make a nearly risk-free profit by buying in the cheaper market and selling in the more expensive market. Let me explain. If bananas cost the same to produce in Brazil and the United States, but are sold for twice as much in the states, then Brazilian producers will ship their product to the more expensive market until prices have corrected. Years ago, the classic example of arbitrage focused on stocks traded… Read More

If you had bought shares of Amazon.com (Nasdaq: AMZN) in April 2012, you’d be up 175%. That’s an impressive return, especially considering the S&P 500 is only up roughly 50% during that time. But if you’d followed my Amazon trade last week, then you would have made the same amount in three days. And no, the 175% return is not an annualized gain. #-ad_banner-#I spotted the trade using my earnings algorithm. It’s a system that helps me predict — with impressive odds — whether a company… Read More

If you had bought shares of Amazon.com (Nasdaq: AMZN) in April 2012, you’d be up 175%. That’s an impressive return, especially considering the S&P 500 is only up roughly 50% during that time. But if you’d followed my Amazon trade last week, then you would have made the same amount in three days. And no, the 175% return is not an annualized gain. #-ad_banner-#I spotted the trade using my earnings algorithm. It’s a system that helps me predict — with impressive odds — whether a company will beat or miss earnings estimates. It helped me become one of the youngest successful traders on the Philadelphia Stock Exchange, and I continue to use it to this day to give me an edge in the markets. So when my algorithm signaled that Amazon had good odds of beating analysts’ estimates when it reported on July 23, I immediately sent an alert to my readers. I recommended they purchase call options on Amazon, which would allow us to amplify our gains if shares moved higher. Read More

Recent market commentary is starting to remind me of the periods in 2000 and 2008 just before the bottom dropped out of the market. Leading up to the bursting of the tech bubble, for example, analysts increasingly ignored valuation and warnings that earnings expectations were too high.  Similarly, housing prices peaked well before the stock market’s top in 2007, while the Fed had raised rates four times in 2006. Still, no one believed that the economy could slow.  #-ad_banner-# This time around, earnings for the second quarter are looking weak, the U.S. economy contracted 0.2% in the… Read More

Recent market commentary is starting to remind me of the periods in 2000 and 2008 just before the bottom dropped out of the market. Leading up to the bursting of the tech bubble, for example, analysts increasingly ignored valuation and warnings that earnings expectations were too high.  Similarly, housing prices peaked well before the stock market’s top in 2007, while the Fed had raised rates four times in 2006. Still, no one believed that the economy could slow.  #-ad_banner-# This time around, earnings for the second quarter are looking weak, the U.S. economy contracted 0.2% in the first quarter of 2015 and estimates for the second quarter are as low as a tepid 2% growth… yet no one seems to care.  Take Apple (NASDAQ: AAPL), for example. Only one analyst of the 20 covering its earnings release cut expectations for the stock, despite the fact that the company forecast next quarter sales that fell short of expectations. Piper Jaffray (NYSE: PJC) analyst Gene Munster even raised his price target by 6% to $172 per share, more than 37% above the current trade. Apple is just one example, and while I won’t attempt to predict a stock market… Read More

After the pain and suffering caused by the global financial crisis, not to mention the losses many investors experienced, a lot of people still feel disillusioned with Wall Street. Maybe you’re one of them. I don’t blame you if that’s the case. After all, the crisis we experienced wasn’t a market anomaly. It was a house of cards built by large banks, risky traders and short-sighted government policies that came crashing down on our heads. But if you’re one of the many investors who has used this painful experience as an excuse to sit out of the market, my advice… Read More

After the pain and suffering caused by the global financial crisis, not to mention the losses many investors experienced, a lot of people still feel disillusioned with Wall Street. Maybe you’re one of them. I don’t blame you if that’s the case. After all, the crisis we experienced wasn’t a market anomaly. It was a house of cards built by large banks, risky traders and short-sighted government policies that came crashing down on our heads. But if you’re one of the many investors who has used this painful experience as an excuse to sit out of the market, my advice to you is stop. It’s one of the worst mistakes you could make with your portfolio. #-ad_banner-# In fact, I would argue that if the events of the financial crisis taught us anything, it’s how incredibly important it is for individual investors to take charge of their own portfolios. One of those ways is to exercise the certain rights and freedoms that go along with stock ownership. Unfortunately, most shareholders rarely exercise their full rights. As one of the fathers of value investing, Benjamin Graham (also Warren Buffett’s mentor), wrote in his classic book “Security Analysis”: “It is a notorious… Read More

I consider myself lucky to have begun my career before the catastrophe of the dot-com crash. I got to see up close what a boom and bust looks like. As a 20-year-old on the Philadelphia trading floor, it was truly shocking. Friends, family and colleagues were getting suckered into companies that had no real business being publicly traded, let alone recommended by financial advisors. #-ad_banner-#It was this jarring experience that taught me invaluable lessons about the market, and today I would like to share with you an alarming trend I’m currently seeing that reminds… Read More

I consider myself lucky to have begun my career before the catastrophe of the dot-com crash. I got to see up close what a boom and bust looks like. As a 20-year-old on the Philadelphia trading floor, it was truly shocking. Friends, family and colleagues were getting suckered into companies that had no real business being publicly traded, let alone recommended by financial advisors. #-ad_banner-#It was this jarring experience that taught me invaluable lessons about the market, and today I would like to share with you an alarming trend I’m currently seeing that reminds me of those tragic days in early 2000. In the beginning they laughed at me when I said it was all a pipe dream. But in a few short months, I witnessed fellow traders with much more experience than me break down in tears. Some never recovered. It was hard to watch, and I was fortunate to not get caught up in the frenzy. I was able to sidestep the wreckage and come away in the black. Most importantly, that experience has helped me spot and profit from many corrections since. Read More

In the battle between the bulls and bears, the bears are making some excellent arguments. The market’s price-to-earnings ratio is above its historical average. The cyclically adjusted price-to-earnings ratio (also known as CAPE) is reaching highs not seen since the 2008 financial crisis. #-ad_banner-#The bears argue that the bull market has gone on far too long and that we’re reaching the peak of the business cycle. But one of the most compelling cases from a technical standpoint is the ”Dow Theory” divergence. According to ”Dow Theory,” developed by Charles Dow in… Read More

In the battle between the bulls and bears, the bears are making some excellent arguments. The market’s price-to-earnings ratio is above its historical average. The cyclically adjusted price-to-earnings ratio (also known as CAPE) is reaching highs not seen since the 2008 financial crisis. #-ad_banner-#The bears argue that the bull market has gone on far too long and that we’re reaching the peak of the business cycle. But one of the most compelling cases from a technical standpoint is the ”Dow Theory” divergence. According to ”Dow Theory,” developed by Charles Dow in the late 1800s, we should see both the Dow Jones Industrial Average and the Dow Jones Transportation Average in uptrends during a bull market. That makes sense, because transportation companies ship what the industrials produce, and strength in both sectors is consistent with a growing economy. But the transports have been weak since the beginning of the year, failing to confirm new highs in the industrials. In the chart below, you can see that these two indices typically trade in tandem, but recently transportation stocks have begun to stray.   This… Read More

Earlier this year, I made the case to readers of my premium options service, Profit Amplifier, that a market correction could happen sometime this year. Just a few months later, that time has come. I recently warned investors about trouble brewing in Russia and China, and I was on the front lines during the dot-com bubble and its subsequent burst. Fortunately, I accurately foresaw both the dot-com bust and the 2008 financial collapse as well. And I not only survived both events, but prospered. #-ad_banner-#This time around, often-overlooked warning signs suggest hundreds of popular… Read More

Earlier this year, I made the case to readers of my premium options service, Profit Amplifier, that a market correction could happen sometime this year. Just a few months later, that time has come. I recently warned investors about trouble brewing in Russia and China, and I was on the front lines during the dot-com bubble and its subsequent burst. Fortunately, I accurately foresaw both the dot-com bust and the 2008 financial collapse as well. And I not only survived both events, but prospered. #-ad_banner-#This time around, often-overlooked warning signs suggest hundreds of popular investments will be in danger of experiencing 10% to 30% drops. And at worst, we could see a full-blown, longer-term correction. But once again, my readers and I have the chance to not only protect ourselves, but even profit handsomely from the trouble that’s on the horizon. And we’ll do it in a very simple, easy-to-understand way — by using put options. Given current market risk, it’s crucial you understand how options work. In early June, I introduced you to the basics of call options. Today, I’d like to discuss put options, which will… Read More

As an economist for the state of Iowa, I learned that economic stimulus can affect growth — but only if given time to work. Of course, patience is not something investors or the markets are known for.  The lagging nature of stimulus on the economy can be excruciating for those with a stake, especially when the market wants instant gratification. This often manifests in whipsaws, where stock prices jump on news of economic stimulus, only to fall when the stimulus doesn’t come through in immediate economic growth. With this in mind, and with a little patience, you can make good… Read More

As an economist for the state of Iowa, I learned that economic stimulus can affect growth — but only if given time to work. Of course, patience is not something investors or the markets are known for.  The lagging nature of stimulus on the economy can be excruciating for those with a stake, especially when the market wants instant gratification. This often manifests in whipsaws, where stock prices jump on news of economic stimulus, only to fall when the stimulus doesn’t come through in immediate economic growth. With this in mind, and with a little patience, you can make good money as the rest of the market misses out on the bigger picture.  #-ad_banner-# For instance, a surge in stimulus measures in one country may soon jumpstart its economy. As a result, a key trading partner could see its market jump as well. Plus, Warren Buffett has taken an interest in this beaten-down market. And one of my favorite strategies offers a chance to get paid while we wait for a rebound.  China Ramps Up Stimulus Measures As of July 8, the Hang Seng index in Hong Kong had plummeted 14% in just a month… Read More