1) A study out of Citigroup’s quantitative research group showed one of the best predictors of an earnings beat is a stock’s prior one-month performance going into the earnings report. Apple is up more than 10% over the past month, versus a 3.5% move in the S&P 500.
2) Technically, Apple has just broken out of an intraday bullish flag pattern. And it’s just broken the neckline of a bullish inverse head and shoulders pattern projecting a near term price target for Apple of $570. That out-performance indicates smart money is jumping into this stock before Apple reports earnings on Monday.
3) Analysts have raised their target price over the past week on Apple. Ed Parker with Lazard Capital raised his price target to $570 and reiterated a buy rating on Apple. Cantor Fitzgerald’s Brian White upped his Apple price target to $577 and believes the stock could surprise on the upside. And Goldman Sachs’s Bill Shope reiterated a Buy rating on the stockand a $560 price target last week. These analyst moves are usually a good predictor of a stock set to beat earnings expectations.
4) Apple now has a billionaire activist, Carl Icahn, who is hell-bent on forcing the company to deploy its cash to buy a huge chunk of stock back. Don’t be surprised if Apple on Monday announces another huge stock buyback or increase in its dividend payout.
5) Apple finally has price momentum and product momentum. After Apple’s Media day this week, people were excited for the first time in over a year about Apple’s new products, especially their new more powerful mini iPad. All of this shows that Apple is getting its buzz back. And this means the company will probably forecast better sales and earnings in 2014.
If you want to know what the world’s best Billionaire Investors and Hedge funds are buying, then you can visit The Billionaire’s Portfolio.
President of The Billionaires Portfolio
Providing Sophisticated Hedge Fund Strategies and Analysis For The Everyday Investor
With the stock market tracking back toward record highs, Apple back above $500 and Facebook working on a double for the year, finding value can be more challenging than finding the latest hot stock.
As I’ve shared in recent weeks, at billionairesportfolio.com we constantly scour the universe of stocks, through our many proprietary screens, to uncover undervalued stocks that have the potential to produce multiples on our investment. And despite the run-up in broader stocks, we continue to find great opportunities.
One of our favorite “deep value screens” not only identifies cheap stocks, but also situations where a rich, influential investor has taken a significant stake. As a shareholder, the presence of this type of investor can mean you have a partner on your side, working everyday to push management to unlock value in the company.
Selecting deep value stocks, with the presence of an influential investor that is hell-bent on unlocking value, is a very powerful formula. It’s especially powerful when we find situations where the big investor is down 10% or more on their investment. That tends to raise their sense of urgency and their aggressiveness with management. And that tends to result in bigger winners.
With all of that being said, here are five stocks that some top hedge funds and billionaire investors are down on, by 10% or more:
1) Transocean (RIG) – Billionaire Carl Icahn owns almost 6% of this oil and gas exploration company. Icahn’s average cost is $49. The stock currently sells for $45. This means you are getting a 10% discount to what Icahn paid for this stock. To even sweeten the deal RIG currently pays a 5% dividend.
2) J. C. Penney Company, Inc. (JCP) – Four different hedge funds own this stock, and all four paid a much higher price than where JCP currently trades. Glenview Capital, Perry Capital, Tiger Consumer and Soros Fund Management together own more than 15% of this stock. The average price that these hedge funds paid for JC Penney is more than $13 a share. If you bought JC Penney today you are getting a 41% discount to what these top hedge funds paid for their shares. Moreover, JC Penney is selling at distressed valuation levels. It has a price-to-sales of 0.13 and price-to-book of 0.68.
3) Dynavax Technologies Corporation (DVAX) – Two top hedge funds that own more than 8% of this biotech stock. The two funds, Orbimed Advisors and RA Capital Management, are both biotech focused hedge funds run by MDs and PhDs. They paid an average cost of $3.10 for Dynavax. That means if you buy Dynavax today you are buying it at 61% discount to what these top biotech hedge funds paid for their shares.
4) RadioShack Corp (RSH) – Three top hedge funds own Radioshack at much higher prices that what the stock is selling for today. Highfields Capital Management, top private equity firm Blackstone Group and Donald Smith & Company Inc. own more than 15% of RadioShack. The average cost these three hedge funds paid for RadioShack is $4.25. That is more than 20% above what RadioShack is selling for today. If you piggyback these top funds into Radioshack today you are paying a 20% discount to what these top investors paid for this stock.
President of The Billionaires Portfolio
Providing Sophisticated Hedge Fund Strategies and Analysis For The Everyday Investor
In our research at billionairesportfolio.com, we have looked at every private equity and corporate takeover deal going back more than 15-years. In our analysis of that history, we have found over ten statistically significant and predictive factors for companies that tend to be acquired.
At a high level, if you want to try to find companies that may be takeover targets, you want to look at stocks in sectors where there have been a lot of recent and historical takeover activity. Of course, a company that has little or no debt, plus lots of cash flow is very attractive. And if you can find a stock that satisfies those factors and is trading near a 52-week low, you have a very viable candidate.
Based on recent buyout activity this year, no sector is hotter for takeovers than retail . Still, a number of retail stocks are selling near their 52-week low and many of these companies have little or no debt, and lots of cash flow.
Below is a list of retail companies we think could be acquired for a significant premium in the next three to six months:
1) Aeropostale (ARO) has already seen private equity interest. Sycamore Partners recently acquired almost 9% of Aeropostale a month ago. Sycamore Partners has a history of taking companies private at a significant premium. Based on past takeover multiples in the retail sector, we believe Aeropostale could be acquired for as much as $15 a share. That would be a 66% premium to its current share price.
2) American Eagle Outfitters AEO +1.02% (AEO) has zero debt and currently is selling at very low multiples, based on enterprise value-to-free cash flow and enterprise value-to-ebitda. The company has a very strong brand name and is currently selling very close to its 52 week low of $13.14. When you consider previous takeover multiples in the retail sector, the incredible amount of free cash flow American Eagle generates (over $400 million last year), and the fact that they have zero debt, almost any private equity company should be interested in this stock. According to analysts, American Eagle is worth at least $20 on a takeover or a 52% premium from its share price today.
3) Body Central BODY -2.03% (BODY) is a retail company that focuses on young women’s apparel and accessories with stores located mostly in the east coast and south. The company has zero debt, a market cap of only $85 million and is selling right at its 52 week low of $5.15 (the stock price is currently $5.19). Based on previous takeover multiples in the retail sector analysts at Jeffries believe Body Central is worth more than $8 a shares on a buyout or a 54% premium from its share price today.
4) Francesca’s Holding Corp. (FRAN) is another female based accessory and clothing store with locations throughout the United States. The stock has zero debt and is currently selling near its 52-week low of $16.49 (the stock price is currently $17.08). Based on previous takeover multiples in the retail sector Francesca’s could be worth more than $26 on a takeover, or a 52% premium from its current share price.
Average investors make a lot of mistakes. Among those mistakes, they spend so much time worrying about complex stock picking issues and unrealistic “win rates.” They ignore the very simple things that are fundamental to investing. Perhaps the biggest mistake investors make is ignoring the concept of diversification.
Now, I’m not talking about adding gold or Chinese stocks to your portfolio. A basic, yet powerful diversification tool is position sizing. Most people blindly buy a fixed amount of shares of a stock, regardless of the price of the stock, regardless of the volatility of the stock.
An easy way to position size is to give each holding an equal chance to perform for you. This means for
each position you buy, you allocate the same amount of money.
Let’s look at a simple example: Assume I have a $100,000 account with a portfolio of 20 stocks … if TEN of my stocks over the next year do nothing (trade sideways), SIX stocks go up an average of 30%, TWO stocks go up an average of 150%, ONE stock drops 50% and another stock goes to zero (a 100% loss).
Would you consider that a success or failure?
My guess is most average investors would consider it a failure. They held ten stocks that didn’t go up. One went to zero.
My take: If you could replicate the performance of that portfolio, year-in and year-out, over your entire you life you would be the best investor in the history of the world. And your wealth accumulation (just on compounding that initially $100k over a lifetime) would land you in the top 1/10th of 1% of the wealthiest people in the world.
So, let’s do the math on the above portfolio scenario.
On a $100,000 account 20 stocks equal weighted would mean that you would invest $5000 on each stock. So TEN stocks that went up zero would still be worth $50,000. The SIX stocks that went up on average of 30% would now be worth $39,000 (on $30,000 originally invested). The TWO stocks that went up 150% on average would now be worth $25,000 (on $10,000 originally invested). The one stock that dropped in half would be worth $2500 (on $5,000 originally invested), and the one stock that went down 100% would be worth zero ($5,000 loss).
Okay, so let’s add these values: $50,000 + $39,000 + $25,000 + $2500 +0 = $116,500
Our $100,000 portfolio is now we worth $116,500. That is a 16.5% annual return. That’s double the average historical return of the S&P 500. And a 16.5% annualized return, compounded on a $100,000 initial investment, goes to $177 million in 50 years.
So now you see the value of diversifying. And the easy way to get diversification is through position sizing.
Put simply: It increases your odds of making money. And making money is THE PRIMARY GOAL in investing.
In past weeks, I’ve talked about some simple, yet powerful screens we run at billionairesportfolio.com
The goal for all of our screens is to identify stocks where the potential reward greatly outweighs the risk, or stocks that have an asymmetrical reward to the risk taken. Finding stocks with these characteristics is the genesis of deep value investing. This is also a key criteria we utilize at the billionairesportfolio.com.
In addition to searching through SEC filings for investors that are building controlling interests in companies, we like to run a series screens to try and find stocks that have a 100% to 200% potential upside combined with limited downside risk.
Here’s another example of one of the top screens we use:
First, we look for companies with a market capitalization greater than $25 million. For the second level of the screen, the companies much have more than three analysts covering the stock. Third, there has to be more than three analysts that have a price target on the stock. Finally, we want to find stocks that are trading at a huge discount to analyst consensus price targets.
Anyone that has worked at a hedge fund or mutual fund knows that Wall Street analysts move stocks. Stocks that have consensus analyst price targets well above their current share price, have strong sentiment and Wall Street sponsorship which usually pushes these stocks higher in the short term.
In running this screen for this this week in October, the following five stocks have hit our radar as high potential, deep value candidates. These stocks have an average analyst price target that is at least 200% higher than its current share price.
1) Ceres Inc. (CERE) has a current share price $1.46. The consensus analyst target price is $5.67. That gives us a “street projected return” of 288%.
2) GSE Holding Inc. (GSE) has a current share price $2.10. The consensus analyst target price is $6.40. That gives us a “street projected return” of 205%.
3) Kior Inc. (KIOR) has a current share price of $2.32. The consensus analyst target price is $7.10. That gives us a “street projected return” of 206%.
4) Echo Therapeutics (ECTE) has a current share price $2.55. The consensus analyst target price is $9.33. That gives us a “street projected return” of 266%.
5) Immunocellular (IMUC) has a current share price $2.67. The consensus analyst target price is $10.25.
That gives us a “street projected return” of 284%.
This gives us a great starting point to identify a stock that may be deeply undervalued coupled with strong Wall Street sponsorship and sentiment.
On Monday Blackberry’s biggest shareholder, Fairfax Financial , announced a bid of $9 a share to take the company private. This is not the end of the Blackberry saga, it’s likely just the beginning.
Of course, the investor behind Fairfax is Prem Watsa. Watsa’s Fairfax owns around 10% of BBRY at much higher prices, roughly $17 per share.
With an official bid now on the table, and a November 4 deadline, Watsa’s bid creates a virtually risk-free trade for other influential investors to enter the trade. By stepping in today, an activist investor or group would have a floor in Watsa’s bid, and the power to influence shareholders to fight for a higher price for their shares.
Moreover, we have 42 days to see if another buyer, with a better bid, will come to the table. In Blackberry, we have the real opportunity for a bidding war. An activist investor that enters Blackberry may find himself owning shares in a company with an implicit floor, while composing a bidding war.
Are there challenges associated with Canada’s takeover laws. Yes. Will that mean one of the world’s best technology providers in the cell phone/mobile computing space quietly goes away for half of its book value? Unlikely.
Back in 2011, there was a company by the name of America Online. AOL AOL -0.51% too was considered a rapidly dying business. It was hated by and poorly understood by analysts. But it had a fantastic balance sheet, and valuable patents and technologies. Starboard Value stepped in and acquired a huge position in AOL. They forced the company to sell its valuable patents and technology. In doing this they created instant value for the shareholders. AOL’s stock price went from a low of $10 in August of 2011 to over $40 in April of 2013.
Blackberry is a stock with about $5 in cash per share with zero debt. The company, according to a consensus of analysts has anywhere from $8 to $10 worth of patents and technology. Regardless of the synergistic value creation that those patents and technology could mean for another big mobile player (Apple AAPL -1.46%, Samsung, Microsoft MSFT -1.02% …) Blackberry is still selling for a substantial discount to its break-up value.
We may see three potential outcomes for Blackberry, with the involvement of an activist investor entering this situation:
Scenario 1 – Mr. Watsa has supplied a floor from which an activist investor can negotiate from on behalf of shareholders. The result: Virtually no risk and a potential premium to Watsa’s bid won for shareholders.
Scenario 2 – With an approaching November deadline and a bid on the table from Watsa, a rapidly evolving bidding war could ensue for the coveted Blackberry technology.
Scenario 3 – An activist investor could block Watsa, force the sale of Blackberry’s most valuable assets, and then force management to pay out a one-time special dividend to its shareholders.
Bottom line: With a takeover bid in place, Blackberry offers a very attractive asymmetric risk/return profile. The stock is just in need of at least one influential investor to fight for the highest value for shareholders in a Blackberry sale.
Consider this: Comparing a Blackberry outcome to the AOL outcome (where Starboard Value forced the company to sell patents and change its strategy), Blackberry could be worth anywhere from $21 to $25 a share.
Another interesting comparable: Dell.
According to Bloomberg, when Dell was taken private by Michael Dell and Silver Lake Partners, at under 6 times its EBITDA for the prior 12 months. The valuation ranked as the lowest multiple ever paid in a buyout of a technology company for more than $1 billion.
At $9 per share, BBRY would be valued at just 1.3 times EBITDA – a quarter of the cheapest takeover in the history of billion dollar+ tech takeovers.
At BillionairesPortfolio.com, I am always looking for deep value stocks that are owned by some of the world’s top hedge funds and billionaire investors.
Nothing represents a great value play more than a stock that is trading below the cash it holds on its books.
A stock that is trading “below cash” means the company has more cash on its balance sheet than its entire market capitalization. As billionaire hedge fund David Tepper put it “buying cash for less than cash” is one of the easiest ways to make money in the stock market.
Here are five stocks that top hedge funds own that are also trading below cash:
1) STR Holdings, Inc. has $1.74 per share in cash and has zero debt. The stocks sells for only $1.72. Top hedge fund Red Mountain Capital Partners owns nearly 15% of this stock.
2) Career Education Corporation has $3.44 in cash per share and zero debt. The stocks sells for $2.66. Blum Capital Partners, a top hedge fund/private equity firm, owns almost 14% of this stock.
3) AVEO Pharmaceuticals AVEO +0.96%, Inc. has $3.04 per share in cash and has zero debt. The stock sells for only $2.09. Billionaire and legendary hedge fund manager, Seth Klarman of the Baupost Group owns more than 7% of this stock.
4) The First Marblehead Corporation has $1.23 per share in cash and has zero debt. The stock sells for just $0.85. Value-based hedge fund Mangrove Partners owns almost of 10% of this stock.
5) Savient Pharmaceuticals, Inc. has $0.71 per share in cash and has zero debt. The stock sells for only $0.62 cents. Top biotech hedge fund Palo Alto Investors owns more than 13% of this stock.
Disclosure: Clients of Billionaire’s Portfolio, own shares of STR Holdings (STRI)
Dear Mr. Icahn and Mr. Smith,
I am writing you to respectfully recommend an investment opportunity that I think well suits your respective investment styles.
The stock is Blackberry. As you know Blackberry has put itself on the block and has given a deadline to sell itself.
And as you know, Blackberry has an influential investor involved, Prem Watsa, an investor that owns shares at much higher prices (roughly $17/share).
Now, Mr. Watsa is in position to take this company private. And that creates opportunity. Given the deadline Blackberry has self-imposed, if/when Mr. Watsa makes a public bid to take Blackberry private, this will create a virtually risk-free trade for other influential investors to enter the trade.
You will have a floor, in Watsa’s bid, and the power to influence shareholders to force that bid higher.
Moreover, as the November date approaches, the opportunity for a bidding war grows. You may find yourself owning shares in a company with an implicit floor, while composing a bidding war.
Are there challenges associated with Canada’s takeover laws. Yes. Will that mean one of the world’s best technology providers in the cell phone/mobile computing space quietly goes away for book value? Unlikely.
Mr. Smith, I recall you 2011 investment in AOL. AOL was considered a rapidly dying business. It was hated by and poorly understood by analysts. Sound familiar. But it had a fantastic balance sheet, and valuable patents and technologies. Your firm acquired a huge position in AOL in 2011, and instantly forced the company to sell its valuable patents and technology. In doing this you created instant value for the shareholders. AOL’s stock price went from a low of $10 in August of 2011 to over $40 in April of 2013.
Blackberry is a stock with $5.50 in cash per share with zero debt. The company, according to a consensus of analysts has anywhere from $8 to $10 worth of patents and technology. Regardless of the synergistic value creation that those patents and technology could mean for another big mobile player (Apple, Samsung …) Blackberry is still selling for a nice discount to its break-up value.
So I see three potential outcomes for Blackberry, with your involvement:
Scenario 1 – Mr. Watsa tries to take the company private. That supplies a floor from which to negotiate from on behalf of shareholders. The result: Virtually no risk and a potential premium to Watsa’s bid won for shareholders.
Scenario 2 – With an approaching deadline and a bid on the table from Prem Watsa, a rapidly evolving bidding war could ensue for the coveted Blackberry technology.
Scenario 3 – Force the sale of Blackberry most valuable assets and then force management to buy back stock or pay out a one-time special dividend to its shareholders.
Bottom line: Blackberry offers a very attractive asymmetric risk/return profile. And the stock is in need of at least one influential investor to demand the highest value for shareholders in a Blackberry sale.
On a parting note, comparing a Blackberry outcome to the AOL outcome (where Starboard Value forced the company to sell patents and change its strategy), Blackberry could be worth anywhere from $21 to $25 a share. Perhaps most intriguing, given the potential scenarios and the approaching November deadline, a large premium in Blackberry shares could come in just a few short months.
President of The Billionaires Portfolio
As I mentioned last week, as part of our research process for our online platform, billionairesportfolio.com, we look for investment ideas using a series of simple, yet powerful, screens.
The goal is to identify stocks where the potential reward greatly outweighs the risk. Finding stocks with asymmetrical risk/reward is at the core of activist investing — it’s a characteristic represented in every one of our picks in our premium research service, the Billionaire’s Portfolio. If you want to find yourself on the right side of big winners, if you want to own the stocks that show up on the news at night after doubling or tripling on the day, you need to focus on this risk/reward relationship in your stock selection.
Among the many screens we run through our research process, we like finding stocks that are trading at a huge discount to analyst consensus price targets. These are stocks that have consensus analyst price targets well above their current share price, that have strong sentiment and Wall Street sponsorship. That can prove to uncover deep value investment opportunities. In using this screen, we tend to “back into” finding the presence of a an influential investors, already involved in the stock.
Now, given the backdrop I’ve described, the following five stocks have recently hit our radar as high potential, deep value candidates. These stocks have an average analyst price target that is at least 100% higher than its current share price.
1) Emcore Corporation (EMKR) has a current share price $4.29. The consensus analyst target price is $8.63. That gives us a “street projected return” of 101%.
2) Global Geophysical Services (GGS) has a current share price $2.55. The consensus analyst target price is $5.57. That gives us a “street projected return” of 122%.
3) Uni-Pixel Inc. (UNXL) has a current share price $18.12. The consensus analyst target price is $45.26 That gives us a “street projected return” of 150%.
4) Virnetx Holding (VHX) has a current share price $19.74. The consensus analyst target price is $46.67. That gives us a “street projected return” of 136%.
5)Wi-Lan Inc. (WILN) has a current share price of $3.26. The consensus analyst target price is $6.57. That gives us a “street projected return” of 101%.
This gives us a great starting point to identify stocks that may be deeply undervalued, with the potential to be the next big winner that dominates financial news headlines.
President of The Billionaires Portfolio
Every week I like to run a scan for stocks that are selling at a huge discount to analyst consensus price targets. I use the following parameters for my screen:
1) Market Cap has to be greater than $100 Million.
2) There has to be more than three analysts covering the stock.
3) There has to be more than three analysts that have a price target on the stock.
The following four stocks have an average analyst price target that is greater than or equal to 200% higher than its current share price. Here they are:
1) Immunocellar, Symbol (IMUC) has a current share price $2.78. Consensus analyst target price is $10.25. Projected return 268%.
2) Merrimack Pharmaceuticals Inc, Symbol (MACK) has a current share price $3.47. Consensus analyst target price is $12.00. Projected return 245%.
3) Threshold Pharmaceuticals Inc, Symbol (THLD) has a current share price $4.37. Consensus analyst target price is $13.50. Projected return 208%.
4) OncoGenex Pharmaceuticals Inc, Symbol (OGXI) has a current share price $8.88. Consensus analyst target price is $26.90. Projected return 202%.
President, Billionaires Portfolio
One of the best indicators to find stocks that can break out quickly is short interest as a percentage of Float. Short interest as a percentage of float is the number of shorted shares divided by the float (the float is the total number of shares publicly owned and available for trading). Basically stocks that have a high percentage of their shares being sold short are ripe for a “Short Squeeze.”
A “Short Squeeze” occurs when short sellers are forced to cover their shares when a stock moves against them abruptly. This causes sellers to panic, and if they are leveraged they can be forced to cover their shares. Either way it creates instant buying in a stock.
A lot of traders look at a high short interest as a percentage of float as rocket fuel, because they know these types of stocks have built in buyers due to all the short sellers that might have to cover on abrupt move.
Yet looking at just short interest as a percentage of float can be dangerous, because the so called “smart money” hedge funds are usually the ones who sell stocks short. And they will not sell a stock short unless they believe there is a major fundamental reason for why the stock will go down.
But by combing momentum with a high short interest as a percentage of float, you are testing the will of the short seller, and how much pain they can take being short the stock when it is going against them and they are losing money. If their losses become too big eventually they will throw in the towel and this will cause the stock to breakout in a big way.
Here is a list of the top 3 stocks with the highest short interest as a percentage of float and with the best momentum. These stocks have been outpacing the market, and causing pain to the investors shorting these stocks. So eventually, you could see a short squeeze and a big move up in these stocks.
1) ITT Educational Service Inc. (ESI), this stock has an amazing 57.6% of its float short, yet the stock is up more than 100% over the last 5 months.
2) Radioshack Corporation (RSH), Radioshack has almost 40% of its float short, yet the stock is up more than 30% this month alone, and it has just broken out of a huge channel formation as well.
3) Miller Energy Resources (MILL) Miller has 35% or more than a 1/3 of its float short and the stock is up more than 50% since April.
As we complete our first rolling twelve month period, today, I want to give a brief summary of our performance.
Since inception (August 2012), our portfolio is up 35.7% versus 15.5% in the S&P 500. This includes a long period where we held a significant amount of cash, as we were building the portfolio. For every $20,000 invested our picks have produced gains of $7,131.
We became fully invested in June. And that’s when we have truly been able to show the power of our process.
Since June 1, the portfolio is up 20.1% versus 4.5% in the S&P 500.
What about today? Today, stocks, yields and the dollar has a technical sell-off. And predictably, the media and Wall Street salesmen are licking their chops — going to their wheel-house of scary market conjecture.
Our Billionaire’s Portfolio lost 1/8 of 1%. Meanwhile, the S&P lost over 1.5%.
This is what real investing is about. It’s not about picking up tips and clues from watching heavily made-up egotists on CNBC all day. It’s about investing in stocks where there is a clear catalyst at work and pent-up value. And we only do so when we have a very rich, powerful partner on our side, that owns enough stock and has enough influence to control his own destiny. When he wins. We win.
This is how you make money consistently in the stock market. This is what “absolute return” investing is all about. It doesn’t matter what the stock market is doing. When value in a company is unlocked, the stock goes up! This week was a very good example. When stocks were down for a second consecutive day, one of the picks in our portfolio, jumped over 30%. And today, stocks break-down, our portfolio holds firm.
If you are reading my blog. You have found the right place. Join me. Stop giving your money to uneducated brokers and untalented mutual fund managers. To subscribe to The Billionaires Portfolio please click here.
President of The Billionaires Portfolio
As many of you know who read this blog, I told my clients to sell Apple all during the early part of 2013. And then in May, I said the bottom was in. And I set a target north of $500. This call was well documented by Fortune Magazine and CNN Money. When I said the bottom was in Apple was trading $420. Today, it’s $496.
Now, back in May, I said that hedge funds would be the buyers of Apple’s stock. I said, “Here is the catalyst, Tim Cook the CEO of Apple, for the first time has come out and lobbied for Apple verbally in the public domain. This is a sign of leadership major hedge funds have been waiting for.”
And what did we hear yesterday? Only that the biggest and best hedge fund investor in the world, Carl Icahn, has taken a sizeable position in Apple.
Now, here’s where it gets better. You’ll find no shortage of people telling you about Icahn’s Apple stake today. But what people don’t know is WHY he’s in Apple. I’ll tell you. Icahn bought Apple because he thought the stock was undervalued and had bottomed, just like I did. BUT, he also wanted to protect his massive investment in Nuance (NUAN), the maker of Siri. See Mr. Icahn owns nearly 16% of Nuance, or an almost $1 billion dollar position. And he wanted to make sure that Apple not only kept Siri on the Iphone, but also, in my opinion, he wants Apple to buy Nuance.
Nuance is selling near a 2-year low. It’s extremely undervalued. And it could easily be acquired by Apple for just a blip on their balance sheet.
Apple has $43 billion in cash. Nuance currently has a market cap of $6.2 billion. So even if Apple acquired Nuance for a 33% premium or $10 billion (around $25 a share), it would still barely dent Apple’s cash position. This would mean great synergies for Apple to own Siri outright, which would increase gross margins on every Iphone they sell. But it would also give Mr. Icahn a big pay day in his Nuance shares.
So, how do I know all of this? Well, for one, apparently I’m the top Apple analyst around — did anyone else tell you the bottom was in in Apple in May, and subsequently give you the roadmap to a 20% return in just three months?
Also, I happen to have studied billionaire investors and top performing hedge funds for over 15-years.
And from this research, I have built what I think is the best investing process on the planet. And with the reach of the internet, I no longer have to sell my research strictly to institutions, dealing with the stiffs at big pension funds. I can share it with average investors too. And I do so through my premium stock picking research service called The Billionaires Portfolio.
The Billionaires Portfolio is the only service in the world where the average person can invest along side the the world’s greatest hedge funds and billionaire investors. And it works! In the past three months, my subscribers have owned a stock that was acquired for a 90% premium in one day. And another that was acquired that resulted in a 70% gain in less than three weeks.
If you would like to learn more about my Billionaires Portfolio service, please click here.
President of The Billionaires Portfolio
I have been following Apple’s stock for over twelve years, since working for a hedge fund that purchased the stock when it was less than $10. And I’ve been known for having some controversial views on the stock.
Despite all of the fanfare surrounding Apple going into this year — on this blog, for the early part of 2013, I told everyone to sell Apple. In fact, my views on Apple were so against consensus that I’ve even been called an Apple bear by Fortune.com and CNN Money — not true, by the way. I’m not a bear or a bull. Rather, I’m just a realist.
All of that said, for those of you that are consistent readers of my BillionairesPortfolio.com blog, you know that on May 18th, I flipped the switch on this stock. In fact, I said flatly that the bottom for Apple was in.
That’s been dead on. Not only did the bottom hold, but today we’re getting a breakout in Apple, just as I forecasted in late July (here). We’ve now completed an inverse head and shoulders pattern (bullish!) and my target for aapl is now north of $500. In fact, I think we see $550 before the year is over.
Remember the most important thing that moves a stock is money flow, psychology and sentiment. All three of these factors have been extremely positive for Apple over the past two weeks. With stocks breaking above 1700 last Friday, the mutual fund managers of the world have no choice but to plow any cash into the market – average investors too. And guess what’s first in line for mutual fund managers that are getting new inflows and have cash to put to work: Apple.
President, The Billionaires Portfolio
I have received hundreds of emails today from readers who want to know on Apple’s stock will go next, i.e. my price target. As everyone knows, price targets are very hard to predict, but I will go to the charts to give you my price targets on Apple.
Apple has almost completed a bullish inverse head and shoulders pattern. In order for this pattern to be completed Apple must close above $450 dollars. If Apple close above $450, the next take profit or price target is $500, which it could hit in the next month or so. Why $500? It’s a psychological round number, where funds and retail investors like to take profits. Also, it fills a gap that occurred in January of 2013. As most traders know, gaps tend to get filled, especially on heavily traded stocks.
The next major resistance level for Apple is 545-550. That’s also the target from the bullish inverse head and shoulders pattern.
President of The Billionaires Portfolio
Remember me? Hello? I am the guy who told you that Apple had bottomed in May.
Apple reported yesterday, where they announced a special $3+ dividend. I expect this stock will hit $450 again, and will go to $500 in the coming weeks.
If you don’t remember my famous blog post on Apple, you can read it here. I was featured on Fortune.com and CNN Money.
Now that you know how good I am, let me tell you a few other things about me and the way I do things.
First, I run an innovative online advisory service called The Billionaires Portfolio. It allows people like you to invest like a billionaire hedge fund manager. Does it mean you have to be rich? Of course not.
What it means, is this: If you want to get rich, you have to invest in situations that can produce big winners. That’s how billionaires got rich. And that’s how they continue to get richer. And there is no better way to put yourself on their path, than to follow their moves.
My service is up more than 35% in less than 11 months. For every $20,000 my subscribers are managing, they have gotten a $6,600 return. Not bad. They pay me $297 a quarter , and they get $6,600 in return. For those of you that are slow, that is a very good return on investment. Perhaps most importantly, my subscribers get to learn how professionals make money in the stock market. This is my service to society.
Now, here’s a bit about the way I do things: We are in the early stages of a mergers and acquisitions boom. And every stock in our portfolio is a candidate to be bought for a huge premium.
We have a basket of undervalued technology, energy and retail stocks that have a built in catalyst. That’s how you make money folks. You don’t blindly buy stocks and sit and wait and hope to make money. You only buy stocks where there is a catalyst at work to move the stock. That’s the difference between a pro and an amateur. I want to buy stocks that are going to make me money, not bore me to death.
How do I get a catalyst? A good start is finding stocks that have a powerful billionaire investor involved. I want a bulldog on my side that is fighting everyday to get rid of lazy management, sell of bad assets or sell the company outright – anything to unlock value.
We just followed a famous hedge fund manager into a small cap technology stock about three months ago and nine weeks later the stock was purchased for a 90% premium. Our stock jumped 90% in one day. We also just booked profits on a high flying semiconductor stock, SunEdison, where my subscriber made over 250% in less than nine months.
Look, I am telling you, we are going to see an incredible surge in small cap mergers and acquisitions over the next year, and you have to be fully invested in small cap value activist stocks to take advantage of it. The way to do this is to subscribe to my Billionaires Portfolio.
So look, I already made you tons of money on Apple. Now I am telling you we are about to see a boom in small cap M&A. This means that small cap value stocks will be THE game in town. You do not want to miss this next wave of buyout madness, as stocks will be taken over every day for 50%, 100%, 200% or more.
If you don’t want to join me, keep reading my blog. I will be back again to tell you how much money you have missed.
President of the Billionaires Portfolio
Investing is all about probabilities and risk versus reward. You want to invest in trades that have a high probability of winning and that have a huge upside reward versus downside risk.
I like commodities because they tend to be extremely seasonal and predictable.
Natural gas, for instance, is extremely seasonal. According to historical commodity data, natural gas tends to go up in August. In nearly 80% of all the past years that natural gas has been trading, if you would have purchased this commodity on August 1st and held it till the end of the month you would have a made a profit. Now that is what I call a high probability trade.
Natural gas prices are almost entirely driven by the weather. And if you live in the Midwest, Northeast or West Coast, you know that we are having record heat waves this summer. That means a lot of people are running their air conditioner. And what powers most utilities now? Natural gas.
So after yesterday’s extreme move in natural gas, which broke a huge downward trend line, I think we could see prices jump by as much as 20% by the end of August.
If natural gas pulls back at least two days in a row in the next week (pullback means two consecutive down or flat days in price) I will be a buyer of everything natural gas related.
I like the natural gas ETF (UNG), as well as call options on it. Another alternative, the 2x leveraged ProShares Ultra Natural Gas ETF (BOIL).
A Small cap natural gas stock that I like is Penn Virginia (PVA), this stock is deeply undervalued it is trading at 1/3 of its book value, and is currently breaking out of an inverse head and shoulders pattern. This could take the stock to $7 in a very short time frame. This would be mean an almost a 40% move for Penn Virginia. The September $5 Calls are attractive at $.40 cents or less, which means if Penn Virginia goes to $7, we are talking about a home run triple digit plus winner on those call options.
My favorite small cap natural gas stock is one that not only will benefit from rising natural gas prices, but also has the kicker of having three top billionaire activist hedge funds involved, who own more than 20% of this stock. We own a huge chunk of this stock in my Billionaire’s Portfolio service, and I believe this stock could go up 150% or more by the end of the year.
I want to share with everyone the most important lesson to becoming a good investor, the concept of asymmetrical risk reward.
The world’s greatest Billionaire Investors, Carl Icahn, Warren Buffett, and all of the top performing hedge funds in the world focus have mastered this concept.
Asymmetrical risk-reward means your expected reward can be multiples of your expected risk on an investment. In most case, if I do not find this risk-reward profile I will not make an investment.
At The Billionaires Portfolio as perhaps the most important part of our process, we are looking for stocks that can jump at least 100%, and more often 300% to 500%.
In general, we buy stocks that have the potential to be influenced by a huge catalyst — a takeover, the sale of a bad business unit, etc.. That unlocks value.
I also will only buy a stock or recommend a stock when I think the downside risk is little to none. How do I know if a stock has little to no downside risk? I make sure that the stock is deeply undervalued, many times trading for less than the breakup value of the company. And I want the presence of a catalyst.
The most identifiable catalyst is an influential or activist investor who already owns the stock and is pushing for the company to put itself up for sale.
Other catalysts include FDA Approvals (for Biotech Stocks), major political, legal, regulatory and macro changes that will affect the stock in an extremely positive way. But the best and most powerful catalyst I’ve found that can push a stock higher in the short term is to have an influential or activist investor who is already pushing for change to the company.
Catalysts driven stocks can give you a nearly 300% winner in nine months … or a 90% winner in one day. My subscribers have enjoyed both.
That’s my lesson for today — and it’s an important one.
If you want to see more examples of stocks that are so cheap they can go up 100% or more in one night, if you want to see stocks with asymmetrical risk reward returns, and stocks that have identifiable and powerful catalysts, then subscribe to my Billionaire’s Portfolio service at https://www.fxtraderprofessional.com/order/billionaireport/
President of The Billionaires Portfolio
I have told you that Bryan Rich is one of the best global macro strategists in the world. And I have told you that he has pretty much called every top and bottom in every asset class and every market in this year.
Yesterday, with Bernanke’s latest push-back on higher yields, once again, Bryan hit the nail on the head.
Let’s review some of Bryan’s calls … (and for those who are cynics, all of his calls are on this blog archived, and on his website www.fxtraderprofessional.com)
1) Bryan told my Billionaire’s Portfolio subscribers back in December that 2013 would be a very good year for stocks. Despite all of the fear (fiscal cliff, Europe, sequestration, slowing China, etc.), he said the next wave of global monetary easing that started in late 2012 was a greenlight to buy stocks. He was absolutely right. The S&P 500 is up more than 17% year to date, bonds have been killed and gold has been crushed. Bryan told you that you should be 100% allocated to stocks, no bonds, gold etc. Treasuries are down 7%, Gold is down 25% and stocks are up big.
Now, I know your shallow thinking broker or advisor put you in an asset allocation model, right? I’m sure it consisted of typical mix of gold, bonds and stock. With that, you’re only up about 7% right? That’s not OK! That’s horrible. Your broker/ advisor should be fired. So you took all of the downside when stocks crashed in 2008-2009… and for that you get 7% when stocks are on fire. That’s bad investing.
If your scared to fire your broker, call me I will fire him. I eat brokers for lunch. They are generally lazy, uneducated, and they have never traded or worked for a hedge fund. They suck money out of you like a leech. And they never make you any money.
3) Bryan called the top in gold not once, not twice but three times. And he did it on this blog! Gold is down 25% this year! Did your broker, market guru or slick CNBC guy tell you to sell gold? I doubt it. So you probably lost your kids tuition on gold. If you did, fire your broker and cancel that your financial newsletters, newspapers, TV shows — they are losing you money.
4) Bryan told you that Japan was the trade of the decade. He told you if you purchased a yen-hedged Japanese Stock ETF, you would make a lot of money. He has been dead-on again. My subscribers have made double digit returns in a week on this trade, and will continue to print money owing yen-hedged Japanese Stocks.
5) Bryan has told you to buy every dip in the stock market, even as the rest of the world was screaming from the roof tops to sell. He has told you that the Fed is on the investor’s side! The Fed wants the stock and housing markets to go up. They need it! Don’t fight the Fed. It’s their market right now. Bryan was dead-on. Your loser gurus and brokers who told you to sell in June look pretty stupid now right! Fire them. Life is too short for people who are wrong.
6) Bryan has told you a million times that the Fed will continue their monetary easing path (QE), even as the Taper talk started months ago. What happened? Yesterday we see Bryan was right again. The Fed is not going to do anything to jeopardize the rise in stocks and the stability in housing.
So how do you get Bryan’s spot-on top-down market analysis? It’s simple. You subscribe to my Billionaires Portfolio at www.billionairesportfolio.com.
Even if you don’t buy my favorite stocks, a portfolio that is up more than 26% in less than 11 months, you can at least have your money in the right place, at the right time through Bryan’s analysis. I bet your broker isn’t up 26%. If he isn’t, fire him.
Please do this for your kids and your wife. Do it for you. If there is one thing I can guarantee in investing, it’s that being an average guy that is sitting in the middle of the herd is a recipe of losing money. And that is how the industry is structured, for you to walk with the herd. Be strong, be confident and invest your own money, pull it away from those greedy banks and brokerage firms. Remember, they drove us into this horrible credit crisis. Do it. Be independent!
Be different. If you want to learn more go to www.billionairesportfolio.com.
President of The Billionaires Portfolio.
I am privileged to have a friend from graduate school that is one the smartest options guys at Goldman Sachs.
I see a lot of Goldman Sachs research on options, which includes a weekly report with all of their recommended option trades, as well as any published research, white papers, and studies that Goldman has done on options.
Given that most of the readers of this research are controlling hundreds, if not billions, of dollars, this is pretty special research.
I have been reading Goldman research on options for years. And I always pick up a ton of incredible trading tips and methods that the best investment bank in the world uses to analyze and trade options.
Today I will give you some nuggets that I think average trader likely don’t know, and need to know:
1) Implied volatility (“vol”) is the key element in analyzing options. When implied volatility is high, an option can become too expensive. When implied volatility is low an option can become cheap. That can create a trading opportunity. I should note, it all depends on why its high or why its low. Let’s assume there is nothing macro or micro level that has pushed vol around. Now, to know if vol might be cheap or expensive, you need to compare the current vol to its history. Where is it trading relative to the past three months, the past twelve months? Follow this screen and you will improve your options trading dramatically.
To get implied volatility for options you need a good platform that provides these statistics.
If you don’t have this type of platform, and most of you probably don’t, there are some ways to tell if implied volatility is low and the options are cheap. I call this the “eye test.” Look at a chart of the stock or ETF from which the option is derived. If the stock or ETF has gone sideways, or if its at a double or triple bottom, or a double or triple top pattern, there is a good chance implied vol. is low and the options are cheap.
Also, if the earnings announcement for a stock is close — within 1 to 2 weeks — you will likely find that implied volatility will be high, and the options will be expensive. That is why many people who have purchased options before earnings never make money. Even though the stock goes up, the option they buy already had it priced in through the inflated vol.
Now, onto tip number two …
2) You need to have a catalyst to trade options! There must be something that moves the stock or etf in a dramatic way such as a merger, a major corporate announcement, an activist investor, a major conference call/investor day, a new product launch, a major economic announcement, a change in the fundamentals of the economy, earnings announcements (but make sure you buy the option at least 2 weeks ahead of time), a potential sale or divestiture of the company. If you don’t have a catalyst such the ones listed above, don’t spend your money on options (unless you can actively hedge it).
3) There are two techniques I like: Using options as an outright bet on a spike in vol …and using options as a stock replacement strategy.
When focusing on cheap options with low implied volatility and a catalyst, you are implicitly long volatility (you’re betting on a move higher in vol).
I’ve talked about the stock replacement strategy many times on this blog. Its using options as a leveraged proxy for the stock or ETF. You look for a quick move in a short period of time. When you are using this secret stock replacement strategy, you must only buy in-the-money options.
I use both of these techniques when I buy options.
Bottom line this is just a little insight into how the richest most powerful investment bank in the world approaches options. And it reinforces what I always tell you on this blog — and what I do for my subscribers in my premium service (The Billionaire’s Portfolio). You have to follow and know what the best, most influential investors in the world are doing.
That’s right folks. I am calling the top in the housing market. Remember I am the guy who:
1) Called the top in Gold and Silver this year
2 Called the top in Emerging Markets
3) Called the top, then the bottom in Apple
4) And more importantly, I told you to buy to every dip in the stock market this year, therefore making you a killing if you trade options, futures or leveraged ETFs.
So now, me, the former top hedge fund manager, top Economist (educated at The Johns Hopkins University, trained by Fed and Treasury economists) and nationally quoted writer (Barrons, Forbes and CNN Money) … I am telling you that the Housing Market has topped and is in a bubble that is going to burst, BIG!
Why? It’s simple analysis of interest rates, understanding of hedge fund flows and basic psychology. If you were in the market to buy a house or condo just as early as May, you could have purchased a 30-year Fixed Mortgage for 3.5%. That is incredible. And that’s why people went out and purchased new and existing homes.
Now, that same 30-year fixed mortgage is being priced as high as 5%. That is a 50% increase in the total interest paid over the life of the loan. Not to mention, given the rise in housing prices, the price tag on homes in some areas of jumped as much as 35%+.
Who in their right mind would pay 50% more for the same asset two months later? That is exactly the choice being given to the new homebuyer right now. They will back off. And that is why we will see a huge dip in the sale of new and existing homes.
Bottom line: The spike in mortgage rates will cause major ripples through the mortgage and housing industry, and its stocks.
Secondly, around a third of the housing volume has been purchased by hedge funds and private equity funds over the last 2 years. That’s right, all those record home sales you heard about on the news has been driven by distressed hedge funds and private equity funds like Blackstone, who have purchased millions of homes out of foreclosure. But this game is over, for now. Many of these top distressed hedge funds and private equity funds have stopped buying homes for investment purposes because prices are too high, and there are not enough cheap homes to buy.
So put those two elements together and you will have a major shift in the demand curve. Both retail buyers and institutional buyers have stopped the presses.
If you own a home and want to protect its value, or you just want to profit off the housing bubble bursting once again, your friendly neighborhood hedge fund trader is here to help you!
So here is what you do: There is an ETF called the SPDR S&P Homebuilders (XHB). It has options. Put options here allow you to bet directly against the housing market, and these options are very liquid and cheap.
Also if you like to look at charts, take a look at a chart of the S&P Homebuilders (XHB), it has formed a bearish head and shoulders and is projecting a 25% decline for this ETF.
The September $29 (XHB) put options give plenty of time for people to realize that the housing market has topped, and for summer to pass as well (when a lot of people shop for homes).
President of The Billionaires Portfolio
Today I want to teach you how a billion dollar hedge fund, like the one I worked for, trades. Hedge funds are called “hedge” funds because they are structured to hedge against downside risks.
That means hedge funds are generally obsessed with risk and controlling risk — contrary to popular opinion. One of the ways to manage or minimize risk is to trade “market neutral.”
For market neutral strategies, funds will generally have a $1 short on their books, for every $1 in long positions. In this case, you’re betting on your stock picking ability, while stripping out the risk of the overall market.
So what can you do today if you want to trade a low volatility market neutral strategy? Use ETFs. ETFs are great. They are extremely liquid, easy to short and they represent an entire market, country, sector or asset class.
So if I were back at a billion dollar hedge fund, I would implement a market neutral trade today by buying $100 million dollars worth of US stocks while at the same time shorting $100 million dollars worth of emerging market stocks. As a retail investor you can execute this same trade through ETFs. In fact, since you don’t have to worry answer to investors about monthly volatility, you can get some extra juice by using leveraged ETFs.
So here is my aggressive billionaire’s market neutral ETF trade : I would be long the ProShares UltraPro S&P 500 ETF (Symbol UPRO). This ETF is leveraged 3X, or 300%. And I would be buy an equal dollar amount of the Direxion Daily Emerging Markets Bear 3X Shares ETF, symbol (EDZ). So, here you are betting that US stocks will continue to go up and that emerging market stocks will drop (or at least not go up as fast). I think this is a great trade from fundamental, monetary policy, and technical perspectives.
Now, if you want to get even more aggressive, I would put on an ETF market neutral options bet. This is a great strategy that even investors with a small account can use. Due to the recent unprecedented move in long term interest rates, I am very bullish on financial stocks (Financial stocks become more profitable as the yield curve steepens, as it is doing now). But because of this, I am very bearish on homebuilders (as higher mortgage rates will hurt future new home purchases). The chart on XLF, the financial sector ETF, looks very strong. Meanwhile the chart on XHB, the Homebuilders ETF, looks like it is starting to break down. The charts are confirming the fundamentals — the move in rates.
President of The Billionaires Portfolio
Last Friday, Bryan Rich, a former billion dollar hedge fund currency trader and global macro economist, shared with me a currency trading model that he developed back in 2005 with a PHD from Oxford.
Today, I want to share it with you. This model is very simple. It only trades one currency pair, the British pound against the U.S. dollar. And it trades just one time a day. Here is the amazing thing: It’s incredibly profitable and incredibly easy to trade.
Moreover, Bryan has created the most fascinating website I have ever seen in the trading world. It shows the full backtested results of this trading model going back over ten years of history. It shows an equity curve, monthly and annual returns, and full statistics on the model. But the coolest part, it allows you to design the model to suit your own objectives.
Folks, I have never seen this type of testing environment for free on a website. It allows you to run your own simulations with one simple input and the click of a mouse. With that, you get to see how your model would have performed historically. I ran a simulation risking 5% of capital on every trade and the program instantly generated my output: a return of 110% a year with the worst monthly drawdown of 35%. Wow!
On that aggressive approach, if I would have invested $25,000 in this model just ten years ago it takes my equity to over $25 million dollars! We’ve all heard about the tremendous wealth that has been amassed by trend-followers in the 80s. There were two things that described trend following: it was simple and it made lots of money. But markets change. And so does the competitive landscape. With that, the days of simple trend following are over. But with the increase in market volatility here to stay, Bryan’s breakout approach looks like the new era of system trading.
I urge you to go to https://www.fxtraderprofessional.com/backtester/ and see this model for yourself. I have never seen anyone in the industry make such a robust trading model available, in full detail, on the web. Trading models like this usually run at least $50,000 or come with minimum investments in the $500k range – especially when you consider the model that is built by a credentialed hedge fund trader and an Oxford PHD.
President of The Billionaires Portfolio
Folks, its time to remind you who I am and what we do here at The Billionaires Portfolio.
I get emails sometimes that frankly annoy me.
I am a hedge fund veteran with over 15-years of experience taking money out of financial markets. I am not market maker, floor trader, journalist or stock broker. These people only know how to generate commissions or sell you stories. I don’t listen to them. And I don’t care what they say. So please don’t email me and tell me what a 25-year old journalist at the Wall Street journal said about the stock market. My advice to you: Don’t listen to them.
Now, there is a stark contrast between what those people do for a living and what hedge fund professionals do. Those people get paid for having a pulse. Hedge fund professionals get paid when we make money – when our investment strategies, themes and processes WORK! We eat what we kill.
I am the real deal. I worked for a $1.4 billion dollar hedge fund started by a former Goldman Sachs Partner and Harvard MBA. He worked for the real Goldman Sachs (not a floor brokerage shop that was acquired by Goldman along the way). The one on Wall Street. When at its most powerful in the 90’s.
This man taught me everything I know. He was a brilliant investor. Not only was our performance great, but we also made money in the toughest of market conditions, in 2001 and 2002 — when no one was making money in equities.
Now, when I say I worked at a hedge fund, I’m not talking about some rinky-dink small time garage business with Mom and Dad’s money. Believe me, I see people these days, it seems that every Joe says he worked at a hedge fund. Let me be clear: We were the real deal. We managed portfolios for some of the top fortune 500 companies, pension funds and university endowments, and a handful of billionaires. The fund I worked for was so successful, and had such good performance, it was acquired for over $50 million dollars by a publicly traded asset management firm.
I say this not to brag. I want to help you understand the difference between me and 99% of the rest of the journalists, financial media and stockbrokers and hacks that try to give you advice. I worked for the best. I learned from the best. And I created real money and real value for people. And I do it consistently for my own accounts to this day.
So when I tell you information on this blog — like when I’ve told you to buy stocks, sell gold, sell emerging markets and sell gold — listen to me! I know what I am doing. I have excellent sources of information (real hedge fund managers) and I am usually right.
Please read through my former blog posts.
As I’ve said in prior posts, I am writing this blog and running The Billionaires Portfolio to help and educate you, the retail investor.
I don’t care what people think about me. I don’t care what the industry would think about this? I don’t care.
I want you to get the same tools that I provide to my rich clients. I want you to make 30% to 50% a year and be able to retire and send your kids to college.
That’s why I am doing this. I don’t need the money. But I like to make money. It’s fun. And the internet is an amazing tool to communicate with the world. Believe me, if I can destroy the business model that has been ripping off investors for a very long time, I will make a lot of money from it. And that’s what I intend to do.
I want to even the playing field between the rich and the middle class and I also want to expose the abuse that is going on in the brokerage and mutual fund industry. And I want to help you use the markets to make money. It’s not that hard, despite what all of these charlatans will tell you. I tell you almost every day in this blog how to make money.
Now, my lesson for you today: The way to make money in financial markets (the only way I was taught to make money) is to invest with a top-down view and to only invest when a potential catalyst is in play.
What does this mean?
First, a top-down view helps you understand the world and helps you determine which asset class and sector is best suited in a particular environment. Next, when you invest in stocks, all of the typical financial metrics (valuation, growth, etc) are all secondary to catalysts. Investing in stocks with catalysts means everything! It’s the only way to make consistent money. Only invest in stocks where an event can create a price adjustment for you. This is limited to just stocks. It’s the name of the game in currencies, commodities, bonds, real estate, etc.
If you learn one thing from reading my blog, that’s the takeaway. Investors that make a living and build wealth in financial markets win by participating in events (i.e. catalysts).
How do YOU do this? You subscribe to The Billionaires Portfolio, my premium service that is up 22% in less than 10 months. It’s crushing the stock market by more than 10%. But more importantly my subscribers – normal, every day people — have made real money and real profits. My average subscriber is up more than $4,000 and my service only costs $297 a quarter. That’s a good trade.
So sign up for my service. And don’t write me or second guess me about this blog. You are not me. You don’t have the quality of work experience, investing background or, quite frankly, the education that I do. I am good at what I do, because I learned from the best. And I continue to be good at what I do because I listen and I follow the best. And I work my ass off for my subscribers, 10+ hour days, 7 days a week. I don’t take vacations.
I don’t play golf. This is it. This is what makes me tick. For me, taking money out of financial markets is a competition. And I am a fierce competitor.
With all of that said, I want to tell you my take on Google and Apple, because I know it’s in every average investor’s portfolio. Here it is: It’s my take on all stocks, especially technology stocks. You buy them! Stocks are the only game in town and will be for the rest of the year. Global central banks want us to buy stocks (our catalyst). So buy them.
So from now on, if you are cynic, a crybaby, or if you wildly overestimate your abilities as an investor, don’t read this blog.
If you are a winner and a doer, if you are someone who takes control of their life, their money and their investments, and someone that wants to learn from the best, then please continue reading my blog. If you want to join me, subscribe to The Billionaires Portfolio. I wont you let you down.
President of The Billionaires Portfolio
The media does a very poor job of interpreting financial and economic data, and telling the story. In most part, they do a poor job because they have poorly aligned incentives. They need eyeballs to make money.
As such, they continuously try to find ways to create “shock value.” That can affect your psychology as an investor. And that can create a barrier to making money as an investor.
That’s exactly what we’ve seen throughout the crisis that has resulting in the masses losing money early on, and then losing even more money throughout. And mis-information is exactly what we’ve seen this week. After Bernanke spoke on Wednesday, both Bloomberg and MarketWatch immediately ran headlines that said the Fed was ready to taper by end of year. Untrue!
First, the Fed said nothing different in its prepared statement. They stayed the course. But, in Bernanke’s speech, he laid out a scenario where the Fed would reduce its purchases and perhaps even end QE.
But there is a huge caveat that waters down the “shock value” for journalists.
For the Fed to dial down its QE, they would first need to see their VERY optimistic projections about the economy achieved.
To be precise, they think that unemployment will go from 7.6% to 7.2-7.3% by end of the year. IF it does, they may reduce the size of their current QE program. And IF their projections by mid-year 2014 are right, they may end this third round of QE all together. Their projection of unemployment at that stage would be 7%. (We should note that the Fed has been overly optimistic and largely wrong on economic projections throughout the crisis).
Now, it’s important to understand, these are VERY aggressive projections about the economy. For the most part, throughout the duration of QE3 unemployment has gone sideways – in the mid 7 percent area. Now, all of the sudden, they expect dramatic improvement in the coming months.
Does it mean the Fed is going to reduce QE? No! Does it mean they will IF their optimistic economic projections come true. Yes, likely!
Guess what? An aggressively improving economy is highly positive for stocks! It’s not negative! Economic shock is the “risk” that has overhung the stock market for years. QE has served to quell that risk. Guess what else quells that “shock” risk? A dramatically improving economy.
That means, investors will look at the valuation of the stock market, relative to its historical average valuation (usually a P/E multiple) and they will find great value in buying stocks.
But the media likes fear. It gets eyeballs and generates advertising dollars. So they have painted a scenario where reduced QE means a stock market crash. That could not be further from the truth. People that make money in stocks, use these mis-interpretations by the broader market as a gift to BUY, not sell.
And that’s precisely what sophisticated investors are doing.
Now, the real topic the media should be covering: Why is the Fed so optimistic about the economy all of the sudden?
It’s all about Japan. In a research note over the weekend to my clients, I said “IF the Fed does decide to ‘taper’ its current bond buying program earlier than they previously indicated, it’s a flashing message that the Fed thinks the impact of Japan’s (inflation-seeking) policies are going to pack a punch – enough so, that they could be concerned that the positive economic impact in the U.S. could be sharp enough eliminate the need for their QE program all together.”
Again, understand the Bernanke (the Fed) has committed trillions of dollars toward keeping the U.S. economy afloat in recent years, and has a vested interest in keeping stock values high and house prices on an upward trajectory. They would do nothing to jeopardize that.
Remember, the rest of the world continues to be early into a second wave of monetary easing – not tightening. That underpins the very dynamic that the Fed is hoping for – creating an environment where people are willing to take more risk, spend money and invest money.
Unfortunately, many of you can be influenced by the drama on CNBC or from scanning the headlines on the Wall Street Journal. With that, we know that some of your perceptions about the stock market are influenced. So today, I wanted to make sure you understand what the Fed REALLY said. And what the real backdrop is for the economy and the stock market.
Recall that throughout the past nine months, the stock market has risen nearly 20% (and our Billionaire’s Portfolio has risen as much as 30% during the period) all while the media was telling you to panic about one event or another. And sadly, many that hold themselves out to be investing professionals have been educated by watching CNBC and reading the opinions of journalists. We’ve told you along the way not to succumb to the bad information. If you have listened, well done!
With the potential for more global monetary stimulus to come next month, from the BOE and ECB, keep perspective on this (June) consolidation period for stocks. And we are given a gift to now buy against the prior all-time highs of 1576.
Cofounder of The Billionaires Portfolio
I have been blessed in that I have worked for and had clients who were Billionaires. But there is one Billionaire I met during my hedge fund days that I will never forget, because he was one of the best options traders I have ever seen.
He had a 5 Step system for trading options that I use for my all my options trading today. I am going to share this with you today and I call this ” The Billionaires 5 Rules of Options Trading”
1) Never ever buy an Option (a Put or a Call) unless there is a catalyst or event. This means you only buy an option when there is an event that will dramatically move the price of the stock up or down. These events or catalysts can be anything from: Earnings Announcements, Fed Meetings, Economic Releases, an Activist Hedge Fund buying a stock to any type of corporate change, CEO, sale of a business unit, merger or acquisition. The key is to buy the option before this event occurs, you never ever want to buy an option after the catalyst or event. So in summary only buy an option when there is catalyst or event that will dramatically alter the price of the stock.
2) This Catalyst or Event must occur before the option expires. An easy example of this is Earnings, you only want to buy an option that expires more than a week after the earnings date. Again this means when you buy an option make sure you leave yourself enough time so that your option does not expire before the catalyst or event occurs.
3) The Option must be Cheap. This can be hard to measure but I like to keep it simple, I personally don’t like paying more than a $1 for any option. But if its a high priced stock, I will only buy the option it gives me at least 25 times leverage or more on the stock. Meaning divide the price of the stock by the actual option price. For example if the stock of XYZ is $100 do not pay more than $4 for the option on that stock, that’s the easiest way to make sure the option is cheap.
4) Only buy options in stocks that have low volatility. This means you want to buy options on stocks that have moved sideways of flat for months at a time. Look at a chart if there has not been a significant uptrend or downtrend in the last 3 to 4 months, there is a good chance that the volatility in the stock is low and the options are cheap. Also if you have options software, you can compare the stock and its options implied volatility and underlying volatility to its historical implied and underlying volatility. This may sound confusing but its the same premise value investors use, they buy stocks when they are cheap in comparison to what they historically sold for, so you want to buy options when the volatility is low or lower than what it historically has sold for.
5) Only buy options if you can make 200% or more on the option. This is very important, too many people buy options with no exit plan or profit target. You have to set a goal or sell point when you buy an option and to make it worthwhile from a risk reward standpoint. The option should have at least a 200% or more upside. Why 200%? because there is a good chance when you buy an option, you will lose the entire value or premium of the option (or 100% of your investment in the option) therefore to be rewarded for that risk you need to be able to make 200% or more in that option. Simply stated only buy an option when you have at least a 2 to 1 reward to risk scenario.
Now I will give you a real life example of an options trade I just made, where I only followed 2 of the 5 steps and it cost me dearly on my trade.
About two weeks ago I purchased a large quantity of put options on Silver, (The Silver ETF, Symbol SLV), that expired on June 28th. The option was very cheap I paid .$50 cents per option. So I followed steps 3 and 4, in that I purchased a cheap put option ($.50 cents) whose volatility was low, so the options were cheap not only in price but also cheap in terms of Silver’s historical volatility as well.
My big mistake though was not having the proper catalyst, I thought Silver was going to drop in price but I just wasn’t exactly sure why? I thought initially it would drop because the Job Numbers that were released 2 weeks ago would be strong and therefore would cause Silver to sell off. Also I thought Silver had broken a huge downward consolidation pattern and therefore it would drop 10% in the next couple of weeks.
Well the Job Numbers were good, and Silver sold off and I was up 100% on my Silver put options in 2 days, but instead of following the Trading Rules my Billionaire friend taught me, I took my 100% profit and went home.
Because of this I did not follow the 200% or more profit rule and I did not have the right catalyst, which turned about to be the Fed Meeting I therefore missed out on one of the biggest moves in Silver’s history, its 7% decline today.
By not following my Billionaire friend’s 5 Trading Rules for Options, I missed out a huge trade. I would have made 400% on my Silver Puts today instead of the 100% I made two weeks ago. So I learned first hand how much it can cost you by not following each and every one of the 5 rules above.
So my lesson to you is not only are these 5 Rules for Trading Options important, but even more important is that you make sure before you buy an option that you have followed each and every one of the 5 rules I stated above. Meaning do not buy an option unless it meets each and every one of the 5 rules.
To make it easy for yourself print out these rules and then before you trade an option make sure that you can check off each rule before you buy the option. If you do this I promise that not only will you greatly improve the success of your options trading but you will make a lot of money in the process as well.
President of The Billionaires Portfolio
I want everyone who owns a stock or ETF to read this: Bryan Rich as you know is a global macro hedge fund manager and top global macro strategist who publishes a weekly research piece to his institutional clients (his clients include some of the top hedge funds and wealthiest families in the world). Bryan is also very astute at analyzing and predicting what the FED is doing.
I have summarized below some of the key points from his research piece as well as the link to his actual research note.
“In recent weeks, people have become panic-stricken about the possibility that the Fed could reduce the size of its current QE program or “taper” it.
This topic has become a dominant focus and created much fear and uncertainty for average traders and investors. But, again, as we’ve seen over and over throughout this crisis period, people are focused on the wrong thing — they can’t see the forest for the trees.
Sure the Fed’s third round of QE, kicked off in September of last year, has been a big deal. It signaled/confirmed that even after two rounds of QE, trillions of dollars worth of backstops, bailouts and global stimuli, the global economy was at risk of another deep downturn. Unemployment was persistently high. Deflation was returning as a reasonable threat.
As such, the Fed’s third act was the warning signal for the rest of the world. And as such, we’ve seen another round of global monetary easing as the response to economic data that had been revisiting the levels we saw in 2009, when the global economic crisis was at peak intensity.
Now, after nine months and nearly $800 billion pumped into the financial system, U.S. employment is better. But it’s still too high and stagnating. And inflation is running at the lowest on record.
With that, what can the Fed do?
Answer: They can keep the QE spigot wide-open. And keep hoping higher stock prices can be the antidote.
Okay, so QE hasn’t directly produced inflation and solved the world’s problems as the Fed might have expected when they launched it in late 2008, but it has produced a direct benefit and an indirect benefit. The direct benefit: The Fed has been successful at driving mortgage rates lower, which has ultimately translated to rising house prices (along with a slew of other government subsidized programs). That has been good for the economy.
The indirect benefit: As Bernanke has said explicitly, “QE tends to make stocks go up.” Stocks have gone up. That has been good for the economy.
But we need a lot more.
As I reiterated in my last Big Picture piece, “the Fed has told us explicitly that it wants employment dramatically better, and inflation higher. They have gotten neither. Their best hope to achieve those two targets is through higher stocks and higher housing prices. While their monetary policy has hit the wall, unable to produce growth, higher stocks and higher housing prices are their only chance. Strength in these key assets has a way of improving confidence and improving paper wealth. Increasing wealth makes people more comfortable to spend. Better spending leads to hiring. A better job market can lead to inflationary pressures. That’s the game plan for the Fed. But they are in the early stages. “
The other HUGE source of assistance to the Fed is Japan.
It’s Japan, not the Fed, where everyone’s attention should lie. Japan can be the answer to the global economic crisis. The Fed is now a mere sideshow.” Read more …
President of The Billionaires Portfolio
Once a week now on this blog I will be trying to educate and teach my readers about trading. Why? First, I love educating and teaching. And I know there are so many secrets and tips I can share from my trading and hedge fund days that can really help the everyday investor.
Secondly, I was a teaching assistant in graduate school, and loved every minute of it teaching undergraduate economics. Speaking of grad school, I used this secret options strategy to pay for most, if not all, of my tuition using just a $4,500 trading account.
Since I was a poor grad student I only had a small trading account, so I had to figure out a way to build a diversified portfolio with just a little bit of capital. And that’s when I figured out my secret options strategy.
This secret options strategy is very simple. It focuses exclusively on buying cheap options, or what I call penny options.
Penny Options are one of the real secrets of investing. Penny options are options on liquid ETFs and stocks with a premium less than a $1.
By using penny options, you can build a diversified portfolio, even with a trading account as small as a few thousand dollars.
And now, not only can small investors trade penny options, but investors now have access to mini options. Mini Options are 1/10 the size of regular options. A mini option controls 10 shares, instead of 100 shares like a regular option. Mini Options are offered on widely owned stocks like Amazon, Google and Apple. Again, a Mini Option costs one tenth of a regular option. So if a regular option costs $950 dollars, a mini option only costs $95 dollars.
So that brings me to Amazon …
Amazon has a super cheap mini option that is also a penny option. It is the Amazon (AMZN) July $290 Mini Option Call. And boy is it cheap. For just 90 cents, I can control 10 shares of Amazon stock until mid July.
Now, Amazon has just broken out of huge sideways channel or flag formation, which projects a price target for Amazon of $320. So if Amazon hits $320 by mid July, those dirt cheap penny-mini options would give you more than a 200% gain.
Even though I have a much much bigger trading account today than I did in grad school, I still almost exclusively trade penny options (options under a $1). You get incredible leverage and you only need to put a little amount of capital down to make a lot of money. That’s what I call a great return on investment.
President of The Billionaires Portfolio
Hedge funds and institutions drive the markets. And they are pulling money out of Emerging Markets at a rapid pace. This is one area of the market you do not want to own.
Just look at this chart below, a perfect head and shoulders top has been completed, projecting a 10% or more decline in Emerging Markets and the Emerging Markets ETF (EEM).
President of The Billionaires Portfolio
Let me share with you an incredible secret. The world’s greatest investor is not Warren Buffett.
Yes, Buffett is one of the richest men in the world. But there is a man who will overtake Buffett as the richest investor. His name is David Tepper.
David Tepper has the best track record of any investor in the world. Over the last 20 years he has averaged a 40% annual return.
Let me repeat that again, because it’s a staggering number. That’s right, David Tepper has averaged 40% a year over the last 20 years.
Let me put this in perspective for you. If you would have invested $10,000 with David Tepper in 1993 you would now have an incredible $8.3 million. Now, that highlights the two keys to building wealth as an investor. You need big returns. But also, consistent returns. And you need to compound those returns overtime.
That is why David Tepper is the world’s greatest investor. He has done it for a long time. And continues to do it. In what has been considered a tough market.
That is why David Tepper is worth over $7 Billion dollars at only 55 years old.
Now, here is where it should be particularly interesting to you.
David Tepper is just like you!
David Tepper is the true American Dream. He is the stereotypical average American male. He is a little overweight. He is balding. He is average height. And believe it or not, he is not some hot shot Ivy League grad or rocket scientist with a PHD from MIT.
David Tepper is just a graduate of a state school, the University of Pittsburgh. I say this not to disparage his education. I say this because it doesn’t really matter if you went to Harvard or Yale or Pittsburgh. I have a pretty fancy degree. But I can tell you this: It learned nothing about becoming a good investor. I’m a good investor because I have common sense. And because I know how the system works. The masses will always lose money or, at best, underperform. And that creates an opportunity for me and those like me.
I say all of this to emphasize that you can be, and should, be returning 40% a year like David Tepper.
I have told you numerous times on this blog that if you are not fully invested in stocks and if you not returning 30% to 50% a year then you are failing at investing. If you were in school you would get an F.
But look it’s not your fault. You have been suckered and sold by Wall Street. You’re invested in mutual funds that will never ever make you anything more than 6% to 7% returns on average.
You probably have your money with a stock broker, who is ripping you off by charging you large commissions, spreads, sales fees, plus another 2% to 3% management fees while giving you 5% annual returns – while putting your money at risk of being halved.
So I don’t blame you. But I will blame you if you do not change your investing strategy. If David Tepper, the stereotypical average American male can return 40% a year simply buying stocks, then so should you.
But you need a gameplan to do this. And I can help you. My blog and my premium research service The Billionaires Portfolio is built on the same philosophy that David Tepper uses. I like buying cheap undervalued stocks with catalysts and holding them to make triple digit returns. My goal is just like Mr.Tepper’s: To make all of us multi-millionaires by compounding our money at 30% to 50% returns annually.
So fire your broker. Sell your mutual funds. And learn from the world’s greatest investors how to compound your money at 30% to 50% a year.
President of The Billionaires Portfolio