Hedge funds have been getting a lot of negative press due to their mediocre performance but one hedge fund has quietly been blowing the doors off the industry. The Marlin Fund run by Michael Masters, who was once profiled in the book Stock Market Wizards, has quietly averaged 44% a year since 1995.
That means $1000 invested in the Marlin Fund would now be worth $1 Million dollars today!
In 2012 he more than doubled the return of the S&P 500 with a 39% return then in 2013 he returned an incredible 100%.
Let me repeat that Michael Masters of the Marlin Fund returned 100% last year.
How does Masters produce these eye popping returns? He does it by simply trading call options on blue chip stocks. Last year Masters made 100% by simply buying call options on Apple, Chevron, Citigroup and Delta Airlines stocks that everyone in the world has heard of and he did this while managing more than a billion dollars.
Even more interesting is that Michael Masters is not some quant PHD or Wall Street trader. Michael Masters is just a regular guy from Marietta, Georgia who graduated from the University of Tennessee (a school not even ranked in the top 100 Universities according to US News). In fact his only experience in investing was working as a local stock broker before he started his hedge fund at 27.
Yet Master’s fund has beaten almost every single hedge fund and investor in the world. Masters currently manages more than $2 billion dollars and has one of the longest track records of any fund I have ever seen.
I have spend the last month studying all of the filings and interviews on Michael Masters, and I have finally figured out how he trades options so successfully and trust me you will be amazed at how simple and easy it is.
By subscribing to the Billionaires Portfolio today you will not only get the same trades that these incredible billionaire use, but you will also learn the strategy behind their trading as well.
Warren Buffett held his annual Berkshire Hathaway annual meeting last Saturday and of all the advice that he gave out, one thing really stood out. Buffett suggested that investors should allocate 90% of their entire net worth to stocks — and only 10% in short term treasuries.
This is incredibly important because this absolutely flies in the face of conventional wisdom.
So Buffett said when he dies he will put all his money into a trust for his wife. And he had advised the trustee to put only 10% of it in short term treasuries and 90% into the S&P 500 index fund.
Listen, the world’s greatest and richest investor just told you, for free, how you should manage your retirement portfolio and your net worth.
Don’t pay your financial advisor, stock broker, financial planner, etc 2% of your net worth to allocate your assets, fire them! Do what Buffett says. Buffett is everything your broker, advisor and banker isn’t. Buffett is the richest and most successful investor in the world, educated at Wharton and Columbia. Yet you pay your broker/advisor 2% of your money. He isn’t a billionaire. He doesn’t have Buffett’s record of success.
So take good advice, especially when its free. And maybe you too can become rich like Buffett. Invest 90% of your money in stocks. Sell your gold, your long term bonds, your ETFs, covered calls, annuities and all of the other crap in your portfolio, and take Buffett’s advice.
Our Billionaires Portfolio is based on same philosophy that Warren Buffett follows. Our Billionaires Portfolio returned 34% last year. Those are real results. We eat our own cooking. And we have a $100,000 account you can follow — co-invest with us. While Buffett has a tremendous long term record, we actually beat him last year, and the S&P 500.
To successfully trade options you must have a catalyst and an exit plan. High probability option trades are rare but recently I found a mispriced stock with a catalyst that is set up perfect for a quick options trade.
Whenever there is significant insider buying in a stock, especially when by the CEO or Founder of a company I pay attention. Over the last week Richard Kinder, the CEO and Founder of Kinder Morgan, Inc, purchased almost $10 million shares of $KMI stock at an average cost of $32.50. The stock is currently trading at $32.21.
Secondly the stock has formed a double bottom and has strong support at $32. The stock has recently been sold off for non fundamental reasons, including the stock declared its dividend on Feb. 18th, which always causes a sell off especially in high yielding dividend stocks like $KMI, Kinder Morgan currently has a 5% dividend yield.
So the catalyst is the significant insider buying and the best way to play a bounce in this stock after its sell off, is to use my secret stock replacement strategy.
My secret stock replacement strategy, uses deep in the money call options as a proxy for buying the stock. I use this strategy when I am looking for a quick bounce in an oversold stock with a catalyst, which is exactly the situation with Kinder Morgan.
The trade I would make is to buy 10 March Kinder Morgan Call Options at $2.35, and you are only paying a $7 cents premium over the stock price (why I call it a stock replacement strategy). Also the March $30 Calls will move almost one for one with the stock, (again you are basically owning the stock with almost no premium). By purchasing 10 calls I am controlling 1000 shares of Kinder Morgan for only $2300 instead of $32,000 which is what it would cost to buy 1000 shares of Kinder Morgan.
My exit plan is to put a GTC order $1 above my fill price, as I looking to make a quick $1000 on this trade in less than 3 weeks, for a 40% Internal Rate of Return on my investment. Once it hits my GTC order $1 above my fill price I am out with a $1000 profit.
I will sell the option if Kinder Morgan, the stock, closes below $32, its that simple.
Will Meade
President of The Billionaires Portfolio
https://www.fxtraderprofessional.com/order/billionaireport/
There is a money manager out of Chicago, that has secretly become one of the biggest traders of ETFs on the planet. The firm Good Harbor Financial LLC, which had less than $10 million in assets in 2008 has grown to almost $12 Billion today by frenetically trading in and out of ETFs.
The firms strategy is to make aggressive bets on a small number of bond and stock ETFs, while using as much as 1.6 times leverage. Good Harbor trades so aggressively and so rapidly that it can move from 100% stocks to 100% bonds in a single day.
This aggressive trading strategy has worked exceptionally well, Good Harbor has returned 20% annualized over the last 5 years with less risk than the overall stock market. Good Harbor lost less than 1% in 2008 versus a 37% loss in the S&P 500 and it made 47% in 2009. Furthermore when almost every single equity based hedge fund and mutual fund lost money in 2011, Good Harbor returned 12.73%.
Good Harbor uses quantitative models that signal whether to buy stocks or bonds based on changes in investor risk premiums (the VIX), momentum, economics data and yield curve dynamics. The founder and Chief Investment Officer of Good Harbor has a strong quantitative background with a degree in electrical engineering from Michigan Technological University located in Houghton, Michigan a masters in electrical engineering from the University of Michigan and an MBA from the University of Chicago.
Good Harbor is one of the funds that I constantly watch at the billionairesportfolio.com as they have shown a consistent ability to time the market. Also due to the size of their ETF trades, their trades and signals are very easy to follow.
This month Good Harbor has been pouring more than $7 Billion dollars into bond ETFs betting on a recovery in both corporate bonds and treasuries, a move that is being closely watched even as equity markets are making all time highs.
Good Harbor is a great example of how one can tactically use ETFS to beat the market and for individual investors they are a firm to watch as they have shown a strong ability to time the stock and bond markets.
Will Meade
President of The Billionaires Portfolio
Hedge funds have been getting a lot of negative press due to their mediocre performance but one hedge fund has quietly been blowing the doors off the industry. The Marlin Fund run by Michael Masters, who was once profiled in the book Stock Market Wizards, has quietly averaged 42% a year annualized since 1995. Even more incredible in 2012 he more than doubled the S&P 500’s return with a 39% return and in 2013 he returned an incredible 100%.
Let me repeat that Michael Masters of the Marlin Fund returned 100% last year.
Master’s investing style is very similar to ours at The Billionaires Portfolio he trades stocks and options based on catalysts. He does not look at a company’s earnings or cash flow, all he cares is about is whether there is a catalyst present that will push the stock higher in the short term. Secondly Masters also looks at what sectors and markets the top investors and hedge funds are investing in follows them, something we do everyday at the billionairesportfolio.com
Master’s also is one of the biggest options traders on the street, and he is a buyer of options not a seller, he buys call options on stocks that he thinks will move up because of a catalyst and because of the leverage in options he has put up some of the best performance numbers in the industry.
But the coolest thing about Michael Masters is that he is a 100% self made man. Masters never worked on Wall Street, or went to an Ivy League School, he does not have an MBA or even a graduate degree, he is just a “regular guy” from Marietta, Georgia who graduated from the University of Tennessee and started off his career selling door to door literally as a full commission stock broker.
Yet Masters was confident in his stock picking ability and ad tired of the sales grind of the brokerage business and started his own hedge fund at the incredible ripe age of 27.
Masters pooled together money from friends and family about $200,000 and launched his hedge fund in 1995, without any experience, and the rest as they say is history.
What this should tell you is a couple of things: first performance is everything, if you can perform the money will come, no matter who you are or where you came from.
Secondly persistence and the ability to stick to your “guns” even when things are not going your way is the key to success. Masters had a very tough time between 2000-2003 as his investment style of trading stocks and options on catalysts underperformed the market and his assets shrunk from over a Billion to just $200 million.
After that Masters decided he was not going to let investors or people dictate his life, he basically stopped trying to raise money and just decided to let his performance do the talking and never deviated from his investment style of buying stocks on catalysts.
But after putting up two huge back to back years in 2012 and 2013 Masters didn’t have to try and raise money it just came pouring in, especially after putting up a 100% gross annualized return in 2013. Now Masters manages well over $2 Billion dollars and has become one of the highest paid hedge fund managers on the street.
How do you get rich? Piggyback the investments of private equity, Golden Gate Capital purchased 22% of Zales (ZLC) at $2 in 2010, Zales was just recently acquired for $21 dollar a share last week. 10 Bagger, 1000% plus return by just following the stock picks of private equity.
See chart below
William Meade
President of The Billionaires Portfolio.
“Someone is risking $1.5 million on the hope that shares of Southwestern Energy will rise nearly 15% in the next 3 months.
In a massive, unusual options bet, one institutional player is making a wager that Southwestern Energy (SWN) will have an especially energetic run between now and June.
On Thursday, one options trader bought 15,000 June 47-strike calls for about $1 each. This trade won’t make money unless Southwestern rises above $48 by the middle of June, which is some 15 percent above current levels.
If the stock closes below $47 at June expiration, the entire $1.5 million spent on the trade will be lost.”
Here is my take on this huge million dollar options trade. Southwestern Energy (SWN) is a pure play on natural gas prices (and the company happens to be the lowest cost natural gas producer) and with natural gas prices hovering at their highest level in four years one has to believe Southwestern Energy will report their best earnings in years on May 2nd. (This is because the company’s May earnings report will incorporate this winters high natural gas prices of $5 and $6)
Therefore the stock could easily hit $50 on an earnings pop especially by June, when the option expires. Even Better the options are currently selling for only $.70 cents (nearly 30% lower that what the huge option trader paid) and if Southwestern Energy goes to $50, you will make more than 320% on this option trade.
I found that if I took a basket of the biggest and best billionaire activist investors and hedge funds (many of the names we follow in our service, The Billionaires Portfolio) and bought just the stocks they owned, whereby they had initiated an activist campaign against a company, that basket returned 31% annualized over the past 12 years. The S&P 500 returned just 6.1% in the same period.
This means a $20,000 investment 12-years ago, would be worth over $500,000 dollars today. The same investment in the S&P 500 would just be worth $40,000 today..
More importantly, the stock picks of these top activists had only one losing year during the period and that was of course 2008.
In 2008, the stocks in this basket of the top activists lost 18.2% versus a loss of 37% in the S&P 500. So in our study, these activist investors beat the stock market by more than 4 times on an annualized basis or nearly 23 percentage points. But they lost significantly less than the stock market in a losing year (in fact, a terrible year).
To put this return in perspective, no other mutual fund, ETF or private money manager on the entire planet has a returned anywhere close to 31% annualized over the period. The best performing mutual fund in the world returned 14.5%, which is not even half of the annualized performance of our basket. And that same mutual fund lost more than 45% in 2008!
Bottom line: By just following my Activist Select Strategy, you would have outperformed over 20,000 mutual funds, 5,000 money managers and 1,000 ETFs. And you would probably be considered the best investor on the planet.
Yet my next study has even better news. In my next study I took the same top Activist Billionaire Investors and Hedge Funds but this time I only tracked the performance of the activist stocks that fit the following criteria: 1) They had to be a small cap, meaning a market cap under $2 Billion and or 2) had to have a low share price under $15 combined with a market cap of at least $500 million and the results were astonishing.
The average annualized 12 year return for, what I call the Activist Small Cap Strategy, was an amazing 52% annualized over the last 10 years. Again this compares to only a 6.1% annualized return in the S&P 500.
Therefore a $20,000 investment in the activist small cap strategy would now be worth more than $3,000,000 million dollars today
Let me repeat that, because I know it sounds too good to be true, but by only selecting the lowest priced and smallest cap stocks owned by the best activist investors and hedge funds $20,000 investment in 2002 would be worth more than $3,000,000 million dollars today. Of course these huge returns come with a more volatility, yet this activist small cap strategy still had only one down year (2008) over the last 12 years, another amazing statistic.
So there a couple of conclusions you should come away with from this study. First as I have told you before there is no more powerful strategy in the world from a risk reward perspective than piggybacking the stock picks of the world’s best activist investors and hedge funds. Secondly Activist investors do not need the stock market to produce these huge annual returns as proven above, even when the market went through a 10 and 12 year period of low to medium single digit returns, the stock picks of these activists still produced huge market beating returns of 31% to 52% a year!!
Will Meade
President of The Billionaires Portfolio
Providing Sophisticated Hedge Fund Strategies and Analysis For The Everyday Investor
I receive hundreds of emails a week asking me about trading advice, but one email that I received recently really made me think.
It was from a student at one of the top business schools in the world who wrote me a very passionate and eloquent email about options trading, that it took me weeks to think about how to answer him.
His basic question was how do I learn how to trade options?
He told me he had watched videos, read newsletters, books talked to brokers at Morgan Stanley but still felt confused as ever on how to trade options.
So I wanted to share with everyone what I wrote to him plus some other advice that I have learned over 15 years of trading and working for some of the top hedge funds and research firms.
1) Only trade options with money you can lose, meaning never ever bet the house on an option, use 5% to 10% at max of your trading account for options.
2) Do not follow options tips from newspapers, even the prestigious Barrons, and their nice and creative options writer Steven Sears is not a good mentor. Mr. Sears is a good writer, but he is not an options trader, I have written him at least 6 times about mathematical errors in his options columns and mistakes, he seems to think that you can make more than 100% selling an option, its mathematically impossible, yet the editors allow it… Scary huh..
3) Do not follow option tips from Floor Traders, yes traders who worked on the floor of the CBOE or the NYSE or AMEX exchanges
have traded a lot of options, but their scalpers who pay little if any commission or spread on an options trade, so you will
never be able to replicate their trading technique unless you are on the floor. Moreover 99% of floor traders make their
money off deal flow and spread, very few if any take outright positions in options. So their advice is simply not applicable
to the regular investor.
4) Do not trade options or take options advice from full service brokerage firms, for two simple reasons: Brokers are salespeople they make money regardless if you win or lose on your trade, and more importantly they charge huge commissions as much as $100 per trade. There is no worse place to trade options than at a full service brokerage firm.
5) Do not take options advice from newsletter gurus who spam with you promotions, they have no skin in the game and they have blown out more accounts than they have profitable trades. Remember really good option trades are rare, so anyone telling you they can consistently make money trading options is not being truthful.
So where do you go to learn about options or how trade options, let me share with you the letter I wrote to the young business school student the other night.
Dear,…..
It looks like you are on a great path to be a successful options trader.
I honestly think the best way to learn about options is trial by fire. Meaning either paper trade or trade any money you have so you can experience the ups and downs of the market.
Trading is very emotional, you need to see what type of trader you are?
Are you patient and can take drawdowns- then try and use longer dated options where there is a catalyst that could reprice the stock before the option expires. That is how we trade options in our service at The Billionaires Portfolio. But these types of option trades are rare so you have to be very patient.
If you are a short term trader use deep in the money options, 1 to 2 months out maximum and buy calls on popular and market leading stocks (Apple, Google, Twitter, Facebook etc.) after major selloffs and use limit orders and Good Till Cancel Orders. If you don’t know what this is google it and learn it!
Finally there is no magic bullet for trading options, so you have to be flexible and adjust your strategy and temperament to the current market conditions.
Yet options will always be popular, because of the huge profit potential that can be made off a good options trade (100% 500% 1000% and yes many of the greatest hedge fund traders and hedge fund managers started their career and funds with huge options trades that not only made them rich but put them on the map as well.
So stay tuned as I will continue to talk about options trading and strategies on this blog.
Will Meade
President of The Billionaires Portfolio
