“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.”
If you’re like most investors, you’ve spent the last few days glued to your TV set.
And you probably don’t like what you’re seeing.
Yesterday’s 1,089-point whirlwind swing in the Dow Jones Industrial Average was the cruddy ending to an 8% dip in the markets over the previous three days.
And now, a lot of those TV watchers are panicking.
However, the last thing you should do now is give in to your emotions, join the panicky crowd and dump your stocks.
Instead, you should remain disciplined in your strategy.
When we started out, I told you that “The road to wealth is paved by tech.”
And not a thing that’s happened over the past week or so has changed that.
That said, there are some moves you should be making to protect the wealth that you have built – and to make even more money while others are panicking.
After all, being in the market when it goes down is much less painful than being out when it goes up. If you pull out now, you run the risk of missing out the inevitable rally that will produce double- and triple-digit returns in the stocks you now hold.
To prepare yourself for that rally – to remain disciplined – here’s what you need to do now…
Why You’re Staying In
I just said that being out of the market when it goes up is far riskier than being in when it goes down.
For proof, all you need to do is look at any long-term chart of any of the major markets. There are far more up days than down days in there.
After all, the market brought us gains of 26% in 2013 and 12.4% in 2014. And since the bull market began in March 2009, it’s up 175%.
In other words, the best time to get out of the market is never.
And here’s the good news. This type of market brings with it great buying opportunities for tech investors because the earlier rallies that were making some stocks so expensive are largely gone.
I know your goal is to find stocks that can double in price – at least.
I’ll be bringing you some on-sale stocks that will do just that in the days and weeks to come.
Is the recent market turmoil a needed but temporary correction or the beginning of an extended down cycle?
It doesn’t matter.
You can use this three-part strategy to protect your gains – and to pump up your portfolio.
Moreover, I’ve found the one investment that will act as “sell-off insurance” for the rest of your investing life.
Portfolio Pumper No. 1: Lower Your Exposure
There are major tech profit plays available in any kind of market. But you have to play to win – which you can’t do sitting on the sidelines.
For instance, if you’d invested in Apple Inc. (Nasdaq: AAPL) at the bottom of the 2009 economic meltdown – when the stock sank all the way down to $11.17 per (split-adjusted) share – you’d be sitting on a profit of 832%.
To feel more confident about staying in a down market, just cut back on the amount of money that you’re putting at risk.
I suggest cutting your standard position by at least half.
For instance, if you would normally invest $2,000 in a stock, cut it to $1,000.
That way, you can still invest for the long haul in great tech companies like the next Apple, but you also have plenty of cash available for when the market sorts itself out.
Portfolio Pumper No. 2: Make Split Entries
This step involves buying a stock on a “split entry” basis.
We’ve been doing a lot of this in my paid services –Nova-X Report and Radical Technology Profits – and my readers there are picking up a lot of shares at a discount now because of it.
I call this strategy the “Cowboy Split.”
It entails buying a portion of your target stock at the going market price, and then putting in a lower limit price for the rest of the position you intend to buy.
Here’s how it works. Suppose you wanted to buy XYZ Digital Corp. and the stock is now trading at $100 a share. Let’s further assume it’s off by 20% from its recent high, making this an attractive entry point.
The broad stock market may be down. But you also know that if you wait to see if the stock will fall even more, you might just miss a sudden rally.
What is a savvy investor to do?
You buy half of your intended position at the market price of $100, and then put in a limit order to buy the second half at a further discount – let’s say at $80 a share.
This way, you catch any rally that occurs with the first half of the money invested, and you also set yourself up to take advantage of any more sizable declines.
Should the market trigger your “lowball” limit order, you would then have an average purchase price of $90 a share.
When the stock regains its previous price of $120, you will have increased your profits by a bigger margin – a total return of 33% versus the 20% you would have made by simply buying all of the shares at the market price of $100.
But there are additional ways to skin this cat.
The beauty of the split-entry system is that you can stagger your buys even more if you want. You can cut your entries up into thirds or even quarters, and then stair-step your limit orders down or up to get an even bigger bang for your buck.
Obviously, the Cowboy Split method also keeps your risk lower, because if the stock market continues to go down, you at least spent less money for your shares.
And if the stock never falls but instead takes off on a run, you still have a position in the stock and will make a profit on that.
Portfolio Pumper No. 3: Play “Moneyball”
I named this strategy after the book and movie Moneyball, about how the Oakland A’s won 20 straight games in 2002 (and a division title) with a shoestring budget and no big stars in its starting rotation.
Simply put, you’re not looking for home runs – you just want to get on base as often as you can.
The more often you get on base, the more runs you have a chance to score.
And scoring is what it’s all about in the stock market, because when you check the standings of your portfolio, the return-on-investment (ROI) percentage is what matters.
Let’s say you invest $1,000 once again in XYZ Digital Corp. After the stock advances, you want to protect your gain and score – collect your profit – before any sudden outs end your time at bat.
For each investor, the profit target will vary. During strong bull markets, I advocate the “free trade” strategy: When you double your money (make 100%) on a stock, you sell half and let the rest ride – in effect, leaving you to play with the “house’s money.”
But when the market is volatile, you ought to consider taking some profits by selling half your position when a stock is up 50% or even less.
At that point, you can further protect yourself by putting in a “trailing stop” in place to exit the remainder of your position if the stock falls back to your original purchase price.
If a stock continues to decline and you get “stopped out” of your position where you originally bought in, you still will have made a gain on the entire investment.
And if your trailing stop does not get triggered and eventually the stock hits a new high, you might get a home run.
Each of these three Portfolio Pumpers can help you make money in any market.
And that brings me to the way you can make money even in a bear market – without having to play the tricky game of shorts and puts.
How to Make Money – Now
Yesterday, the Dow Jones plunged 588 points – 3.6% – its biggest decline since August 2011.
But on that same day, our “Sell-Off Insurance” card soared 17.6%.
This wasn’t a fluke. This investment has experienced big upward price spikes every day over the past week – in fact, it’s up 52.4% over the past five trading days.
During market dips like this – and to prepare for corrections – you should always have a “hedge.”
I’m not talking about the sophisticated shorts and puts hedging strategies that Wall Street pros use.
This Sell-Off Insurance card is a single security that’s easy to buy.
It’s the iPath S&P 500 VIX Futures ETN (NYSE Arca: VXX), which tracks the Chicago Board Options Exchange Market Volatility Index, also known as “The VIX.” Often referred to as the “fear gauge” or the “fear index,” the VIX represents one measure of expected volatility in the stock market in the 30 days to come.
In other words, “The VIX” soars in value when investors get scared – as they do when markets decline.
And because the VXX tracks this fear gauge, this asset soars in value when markets decline.
That’s the insurance.
Then, when we see another dip coming, we’ll add to it and watch your portfolio rise while other investors are heading for the hills.
We don’t ignore risk in a bull market, and we don’t run away and hide during a correction.
There’s a happy medium.
In the coming weeks, we’ll be using the three-part Portfolio Pumper strategy to maintain our discipline.
And together, we’ll take advantage of the current buying opportunities out there. We’ll take advantage of some low-lying fruit that we haven’t been able to reach previously.
So, don’t take on more risk than you can handle. But if you want to get on the “Road to wealth,” you need to use this Portfolio Pumper strategy to stay disciplined – and you must remain in stocks.
For a time, though, we have to a get choosier about which stocks you put in your portfolio.
And I’ll see you on Friday with our latest “choice.”
- Strategic Tech Investor: Starting Today, I’m on a Mission for You.