The famous Ira Sohn Conference is going on in NYC as we speak, this conference features the most powerful Billionaire Hedge Fund Managers in the world and their best long and short ideas.
So here are some of the best tidbits from today:
One of my Favorite Billionaire Hedge Fund Managers- Stanley Druckenmiller, a man who probably has the greatest single long term track record of any hedge fund manager in history. Druckemillier averaged over 32% annually for more than 25 years, with only one down year.. and was also George Soros’s right hand man in the 1980’s, which has made him a multi billionaire.
Druckemiller said the following
He said the Stock Markets will keep rising.
He said there is no chance of any bear market until the Fed Signals an end to QE
He said the commodity super cycle is over and he is short commodities, commodity companies and commodity currencies.
He especially likes the Australian Dollar to go down a lot, and is heavily short the Aussie.
Kyle Bass, another great global macro hedge fund manager, really likes the stock Dexone Corp, symbol, (DEXO), he thinks it has huge upside.
Activist Investor Keith Meister, a Carl Icahn Protege, said he is buying huge chunks of Level One Communications (LVLT) and TW Telecom (TWTC).
Famous Activist Bill Ackman says that he thinks Proctor and Gamble (PG) is worth more than $125 a share. It is currently $78.50.
Famed Short Seller Jim Chanos said Seagate Technologies (STX) is a great short sale candidate!
First, we often get emails from people that think they can enlighten us. They like to tell us “a collapse in stocks is coming”, “hyper-inflation is coming”, “load up on gold or you’ll be sorry”, etc. In short, all of one-liners that the sheep have been fed by the charlatans on TV for years now, and even your trusty Wall Street Journal. Guess what? It hasn’t happened. They’ve been saying it for years. It’s not just that they’ve been wrong that’s annoying, it’s that the basis for their arguments is wrong, and reckless. And it’s undoubtedly lost people a boatload of a money.
Invariably, these emails come with a link to some article that has shaped the emailer’s view. Nine times out of ten, this “article” is not really an article, it’s nothing more than a sales promotion from a typical hack newsletter, that has taken a hodgepodge of lies, myths and factually flawed theories, put them together in a “shock the world” expose.
Some of the culprits: NewsMax, Agora, Sovereign Society, etc.
Some of these guys: Steve Sjuggerud, Martin Weiss, Peter Schiff, Bill Bonner, Addison Wiggin. Porter Stansberry.
If you see these names, run. It’s all garbage.
Peter Schiff has been telling you over the year that the US Economy and the dollar were going to tank, they never did. (I have a correction: Mr Schiff called my company two times today to explain that his clients did not lose the amount I posted, but I can not find any performance numbers available for his funds, so you can visit his website if you are interested in his performance numbers. My point was that there was a huge opportunity cost, very big and painful, to anyone who was selling stocks, betting against the dollar and the U.S. Economy… all things Mr. Schiff has said very publicly on CNBC,YouTube and in articles ALL over the internet). He’s not alone, most of them have. And virtually all of these guys have told you to dig a bunker and surround yourself with canned foods and gold. Any of these flawed recommendations should be good enough for a life ban from ever giving anyone advice again.
Because we know the sheep have been herded into this dangerous gold trade, we’ve tried to warn you to get out. The bottom is ready to fall out of this flawed trade. My partner, Bryan Rich, has told you twice now, here on this blog, to sell gold. Get out! Both times he has given you the exact level at which to sell (first ahead of 1522…and the next time ahead of 1460). Each time he has been dead right. Heck, if you had bought puts on gold each time he’s told you to sell gold, you would have doubled your money quickly. But the point is, don’t be caught holding the bag on this trade thinking you should own 1500 dollar gold because you think the dollar is going to zero. It’s not. It hasn’t. And it won’t. The Fed policies are keeping our economy alive (just as the policies are at other central banks). But that’s it. Even after three rounds of QE, there is as much risk of a deflationary spiral as there was six years ago. Enough said. Chuck your gold.
And remember this, stocks now are up more than 14% year to date, and gold is now down 13% year to date. You have lost 27% of your hard earned money listening to people that have zero background in economics or investing experience (these journalist and newsletter hacks).
Who do I listen to? First of all, I do my own research. Primary research. I don’t let journalist at the Wall Street Journal tell me what to think. And I don’t let former radio disc jockey’s/turned TV hosts tell me what to think.
The opinions I care about? … billionaires … rich people … the best investors in the world … and central bankers. In short, people that have power and influence.
That’s who I want to hear from. That’s what my research is all about. And that’s what my service is all about, The Billionaires Portfolio. Listening to, and following the best. Instead of running with the sheep, my subscribers are making money. We are beating the stock market. We have creating wealth in this environment, just like the world’s best billionaire hedge funds and investors.
So what can you do now? Cancel your subscription to Barrons, Wall Street Journal, etc. Fire your C-student, zero trading experience stock broker, and listen to what the richest people world are telling you.
We are doing a live portfolio review this Thursday for The Billionaires Portfolio. I go over every stock pick in our portfolio and answer any and all questions. So get on board now, it’s the perfect time. My goal is not just to make you wealthier, but to teach you how to think like a successful investor – not like the herd. Click here to subscribe https://www.fxtraderprofessional.com/order/billionaireport/
Buffett: At his annual Berkshire Hathaway meeting this weekend Buffett said stocks are still the only game in town and said the stock market is not in bubble territory.
Apple and Facebook: These stocks are at inflection points. Both stocks have seen some recent positive momentum, and technically are starting to look good. But I am still not hearing a lot of hedge funds or billionaire investors who are buying heavily into these stocks. So as I told you before, tread carefully here. Do not buy options on these stocks, but you could start dipping your toes back slowly into these stocks.
Gold: If you own GLD, you are going to lose money. If you own gold futures or gold bullion, you are going to lose money. It’s a matter of time. Same with silver, and the silver ETF. If you own it, you are going to lose money. It’s that easy. The gold and silver bull market is over. It’s done. Every billionaire, including Buffett has told you gold is a terrible investment. So please stop listening to conspiracy theorists and uneducated newsletter editors on how gold is a safe-haven investment. Listen to billionaires. Billionaires are buying stocks and selling gold and silver.
If you are scared to buy into the stock market, but have cash ready to invest, I can help. I run an institutional quality stock picking service called The Billionaires Portfolio. The Billionaires Portfolio is the only research service in the world that lets you invest alongside the world’s greatest billionaire investors and hedge unds. I use my extensive database and network of contacts to find out what stocks billionaires are buying. And I share that information with my subscribers.
To find out what the world’s greatest billionaire hedge funds and investors are buying, subscribe here.
Today I want to talk about a compelling pairs trade. And it includes two of the hottest names in the internet space.
LinkedIn (Symbol: LNKD) has been one of the most profitable IPO’s of the past couple of years. It’s up more than 300% from its original IPO price of $45 and is up 65% year-to-date.
Facebook (Symbol: FB) on the other hand, hasn’t fared quite as well. After opening with a bang last year, the stock was quickly cut in half. For shareholders, it’s gone from a scary ride to relatively boring one.
Now, first let’s talk about the LinkedIn side of this trade. The amazing thing about LinkedIn’s performance is its valuation. The company is obnoxiously expensive. It currently sells for a mere 1,287 times earnings – that’s a P/E ratio of 1,287. Each dollar of sales for the company is valued at $22.62 by the public market. And its price-to-cash flow is a whopping 160 (no decimal place there).
These are some of the highest multiples I have ever seen. But as you can see investors have completely ignored it.
Now, the only reason LinkedIn is gone up more than 300% since its IPO, and amassed a $20 billion market cap, is due to its massive membership base. LinkedIn has more than 220 million members. And this number has been growing steadily every quarter. With that, the market is valuing each member on LinkedIn at about a $90 per member (220 million X $90 = $19.8 Billion).
But here’s the thing. Less than 2% of LinkedIn’s members ever buy anything!
So in that respect, LinkedIn is not any different than Facebook.
But, let’s consider how the market is valuing the Facebook following …
Facebook has 1.1 billon members and currently has a $67 Billion dollar market cap. So that values each member at about $61.
So let’s recap: LinkedIn members are being valued at $90. Facebook members are being valued at $61.
I’m willing to bet this gap will narrow. In both cases, these companies are showing little aptitude toward monetizing their audience. Yet their followers are being valued at wildly differently levels.
So the best way to take advantage of this valuation gap is pairs trade. A pairs trade is market neutral trade, where you buy one stock and at the same sell short another stock in the same sector (same dollar amounts).
Since they operate in a very similar business environment, there should be little market risk associated with this trade. I win if this valuation gap narrows. I lose it if it widens. I like my chances.
For those of you that don’t know, billionairesportfolio.com is the only website in the world that sends out free real-time text alerts whenever a billionaire investor buys 5% or more of a stock.
Today I’d like to share a new text alert we just sent to our members. Billionaire hedge fund, Jana Partners, a legendary activist hedge fund, just disclosed a 9.2% stake in Oil States International, symbol (OIS).
This is a huge stake in a large cap oil and gas equipment company. My belief is that Barry Rosenstein, the Wharton MBA and head of Jana, will try and break up the company or sell it to the highest bidder. I think the market shares this view. The stock is up more than 4% today.
Jana Partners is just one of the many top performing hedge funds and billionaire investors we follow in my research service, TheBillionaires Portfolio. It’s the only investing service of its kind that allows the everyday investor to participate in the same stock picks as the world’s richest, most powerful investors.
Every week, I scan hundreds of stocks that these exclusive investors are buying, and I only select the ones that have the biggest home-run potential. I define these as stocks that can go up 100% to 200% in a few months, or 500% to 1000% in a year.
Our current portfolio is loaded up with stocks that have the ability to produce these returns. We’ve taken one double off of the table this year, we have two doubles on the books, and I think we’ll have at least one three or four-bagger in the coming months.
Consider this: We currently own a stock that sells for around $2. It has more cash on its balance sheet than the entire company’s market value. And it is owned by one of the world’s best hedge funds. This hedge fund owns 15% of this company, and has been pushing on management to cut costs and increase their profit margins.
Put simply, this fund is imposing its will on the company, to make it profitable. With that, I truly believe since the stock is so undervalued that it could go back to its 2011 high of $10.50. That would be a 400% plus return from this stock’s current share price. That’s 400% upside on a stock that is selling for less than the cash on its balance sheet.
To find out the name of this stock, the symbol, and the hedge fund who owns it, subscribe here.
Also, an update from my previous blog post on Apple …
For those of you that frequently read this blog, you’ll know I’ve been quite bearish on Apple. But I now think Apple has turned the corner. Remember though, Apple is a buy if it closes over $445 to$450 – not trades above that price, but closes above it.
I told you on Friday to sell gold. In fact, my partner, who called the biggest breakdown in the history of gold, told you that the rally back toward 1500 over the past two weeks, gave you a “second chance … a gift, to sell it now!”
Let me repeat: My partner CALLED the crash in gold – ON THIS BLOG (read it here). And he told you on Friday that this bounce was a gift to sell it for the next leg down.
I hope you did. And if you own the gold ETF (GLD), please take my advice: Get out while you can!
Given the extent of disasters and blow-ups we’ve seen in the past five years, even if I did like gold, I wouldn’t want to be holding the gold ETF, wondering if it can withstand a collapse in spot gold and all that comes with it (margin calls, forced liquidations, etc.). So, again, here’s my ultimate warning: Get out while you can.
My partner’s note here on April 26th addresses the fundamental flaws with the gold trade very succinctly. From a performance standpoint, it’s down more than 11% year-to-date and is down more than 13% in the last six months. This may not sound terrible to some, but in comparison to the stock market its devastating, and its the reason you will never be able to retire.
Here’s why …
People who are invested in stocks are up 14% over the last 6 months — up 13% this year alone. If you have followed Wall Street’s guidance, you have bought gold and are likely well underweight stocks. What they don’t tell you is, there is a bigger cost associated with holding gold, other than just the losses you are enduring. It’s called opportunity cost. In short, the money you have in gold is money you could have in stocks. With that, your not just losing 13% in the last six months on your gold investment. Your losing 13% plus the 14% S&P return that your missing. That’s 27% in six months. All just to have an inflation “hedge?” Boy, your expecting a lot of inflation.
Think about it, gold does not pay dividend and its long term annual return over the last 50 years is less than 2%. That’s less than a CD or savings account.
But, listen, I am here to save you again. We’ve told you to get out of gold if your long. And I wanted to help you make you some money. Gold and silver have given us beautiful setups to buy downside options.
However, the horse is out of the barn. The options I was looking at late yesterday afternoon, to share with you in this blog, have already doubled – up more than 100%.
If you want to make money, stick with me. Our advisory service, The Billionaires Portfolio only buys stocks that can go up 2x, 3x … even 10x or more. And we only buy stocks owned by powerful billionaire investors. Why? They impose their will on the companies they buy. They control their own destiny. They control outcomes. We go along for the ride. And I’ve just added a new feature. From time to time, I will be using options to juice the portfolio for bigger gains.
Here in my free blog, I think it’s important to educate you about the markets. I’ve told you to stay away from people that will take your money.
Frankly, I’m tired of watching used car salesman skim money from the masses (that includes brokers, the mutual fund industry and Wall Street). So consider me your broker’s worst enemy.
Also, I’ve told you plenty of ways to make money.
That’s another thing your broker won’t like. He likes to tell you how hard things are, “how dangerous the markets are right now.” That couldn’t be further from the truth.
In my latest posts:
1) I told you to sell Apple until it closes over $445. Apple is down more than 20% year-to-date, and has still has not closed above $445 — even though broader stocks have been making new record highs.
2) I told you to sell gold and silver, and gold an silver stocks. Obviously, this has been a huge home run trade. Many of the leveraged inverse ETFs (ETFs that profit when gold and silver stocks go down) are up more than 100%.
3) I told you to use my secret stock replacement strategy to buy options in some cases instead of stocks. I bought Sprint call options that made over 560% in less than a month and I laid the trade out right in front of you here, from entry to exit.
4) I told you to buy a few juicy small cap stocks (tickers: EGLE, TSL, YGE). Eagle Bulk and Shipping is up almost 100% in two months. This is a stock not an option! Who else has given you a stock that doubles in two months? Seriously!
5) I told you that you should be making 50% a year on your portfolio. If you’re not, you should fire your broker, mutual fund, financial advisor, Wall Street Journal. etc. In fact, it wasn’t me saying it, that was straight from the mouth of Warren Buffett.
6) I told you to buy The Billionaire’s Portfolio. This is my weekly research and advisory service. My members are average investors, just like you.
Listen, my fee to advise institutional investors on hedge fund portfolios is over $50k a year. The minimum investment to invest with a top performing multi-billion dollar financial titan is typically $10 million. That obviously locks the average guy out. Why? There is no reason. The SEC claims they are protecting you. What they are really protecting is Wall Street. Because if you could access real investment strategies that make people rich, you would never buy a crappy mutual fund again. You would never speculate on crappy stocks that newsrags are writing about, or that brokers are pitching.
The Billionaire’s Portfolio is your access to these rich, sophisticated investors. I’ve designed a service, where I give you all of the best stocks that are making billionaires richer every day — for $297 a quarter.
What more can I do for you?
I tell you exactly how the richest, smartest investors on the planet make money for less than what you pay for your cell phone every month.
Plus, my members consistently beat the S&P with less risk. And we don’t invest in boring stocks. We only buy stocks that can be huge winners! That’s the billionaire’s secret. They don’t get rich buying GE.
I’m leading you to water here. It’s up to you to take a drink. To get on board click here.
A couple of weeks ago I posted a note from my partner, one of the best macro traders I know, warning you that a “messy unwind” was in-store for gold. He told you that 1522 in gold was the big breakdown level. Indeed, that was the level that started the purge in the massive gold trade.
He’s telling me today, this unwind is far from over. And he says gold is giving you the “gift of a lifetime!”
He says, “It’s a second chance … a gift, to sell it now!” I couldn’t agree more.
Below is more of his analysis. You should read this carefully …
“You can see in this chart below the ugly breakdown in gold. And you can see the beautiful 61.8% retracement of the breakdown. The sheep-herders (Wall Street, Bill Gross types, financial advisors, mindless financial journalists) have all been working overtime to keep the sheep (mom-and-pop, the average guy, the mindless institutional investor drones) content and optimistic, while riding the sinking gold ship. And they’ve convinced plenty to gobble up more gold here.
With that, we get a text book technical pattern to sell, as you can see in the chart below.
Again, this is the gift. If you have been sucked into this gold trade, get out, while you can. The entire logic behind this gold/hyper-inflation hedge was flawed to begin with and has been proven dead wrong. Five years into the global economic crisis, and trillions of dollars worth of emergency policies extended (from all global central banks) and yet we still teeter on the edge of a deflationary spiral. Why? Because you can’t print your way to demand in a massive global debt crisis. Without demand, there’s no jobs. Without jobs, there’s no wage inflation. Without wage inflation, there’s no credit demand. No credit demand, no inflation. No inflation = Don’t get stuck with gold.”
Bingo.
So why are you holding the bag (of gold), with a massive premium that has been priced-in for a scenario that is proven to be flawed?
Believe me: My friends, some of the smartest hedge fund traders in the business, are laying into this trade (i.e. adding to shorts). Don’t be on the wrong side.
You don’t get rich buying gold. If you want a way to get rich, follow our Billionaire’s Portfolio service.
To become a millionaire, you want to mimic people who have already made millions or billions. And that’s exactly what we do in our advisory service, The Billionaires Portfolio.
We follow the world’s richest, best billionaire investors, and their stock picks. Did you broker or mutual fund buy Blackberry, RIMM, at $8 or better? We did.
Do you ever think your crowd following broker or mutual fund would ever have the guts to buy a stock near its 52 week low, that Wall Street had forgotten about? Of course not. But we did.
As an old hedge fund friend of mine said, a man who is in his 60′s and worth over a $100 million dollars (all self-made), there is no greater scam upon the public then the mutual fund industry or the brokerage industry. It’s the only business where you get paid even if you lose your customers money.
Our advisory service, The Billionaires Portfolio only buys stocks that can go up 2x, 3x … even 10x or more. And we only buy stocks owned by powerful billionaire investors. Why? They impose their will on the companies they buy. They control their own destiny. They control outcomes. We go along for the ride.
Okay, I did this yesterday. And I’m offering it again today. Because I know you need my service, and because I know when people join my service, they don’t leave, I’m happy to give it to you today with zero risk. If for some reason it doesn’t suit you, email me within the first month and we will refund your money in full. So go ahead and get on-board.
Yes I just said that. And you can quote me! If you want to get rich, do not buy Tesla, Facebook or even Gold. Instead buy stocks with no earnings if you want to make 50% a year.
Why would I say something so crazy, so diametrically opposed to broadly accepted theory?
Well, I like to keep things simple, and there is very simple logic behind my statement.
Here it is: The world richest man, Warren Buffett, followed that rule and did so for over 12-years when he ran his hedge fund, becoming one of the richest men in the world.
Don’t take my word for it. Read Buffett’s own words.
This excerpt from an old Businessweek article I’ve had filed away since living in my dorm room says it clearly. Here it is … Warren said, “If I was running $1 million today, or $10 million for that matter, I’d be fully invested. Anyone who says that size does not hurt investment performance, is selling.
The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million even $10 million. No, I know I could. I guarantee that.”
That is probably my favorite quote in the history of investing. Warren Buffett is saying that if you have less than $10 million to invest, then you should be earning 50% a year in the stock market.
How can Warren Buffett guarantee that he could make 50% a year, if he was investing less than $10 million dollars?
I’m going to tell you.
You may not know this, but Buffett ran a hedge fund in the 1950’s and 1960’s that was hugely successful. He beat the S&P 500 every single year for 12 straight years, and never had a losing year. He averaged around 50% a year in his hedge fund. But It was the size of the assets he was managing that ultimately suppressed his returns (which at 20% annualized are still among the best in history).
So how did Buffett hang a 50% number consistently when he was small. First, when he started investing, he used the classic deep value investing approach he was taught by Ben Graham. I am not going to go into Graham and his deep value investing strategy, there are 100’s of books on it and articles on the internet about it.
But what I will tell you is the way Buffett invested when he ran a small hedge fund, is a lot different than the way he invests today. Buffett, back in his early days, purchased deep value stocks that had asymmetrical risk-reward return scenarios. Let me say that again. He only bought stocks that had asymmetrical risk-reward.
What this means is that he purchased stocks that were so undervalued that they could easily go up 100%, 200% even 1000%. Yet the risk the downside to the stock was minimal or almost nothing.
How is that? The companies he invested in had tons of cash, zero debt, traded below book value, and a lot of times traded below their net cash level (meaning the company had more cash than its entire market cap).
This is the precisely same investing strategy I use in my advisory service, The Billionaire’s Portfolio, and for my own account. In our portfolio, right now, we own at least five stocks that are trading below book value, and have more cash on their balance sheet than the company’s entire market cap. Many of these stocks trade for as little as $2, but once sold for as high as $20.
I know the downside very clearly in these stocks. If they spend much time trading below their liquidation value or book value, or trade much below the cash they have on their balance sheet, a company or investor will step-in, acquire the company, sell all of the assets and pocket the proceeds.
In comparison, Google, Apple and Amazon have huge downside potential – big risk. We have seen how quickly Apple can shed 30% (in 7 months). Google and Amazon in 2007 and 2008 lost 40%. But here’s the big difference. Google, Apple and Amazon have very limited upside. Instead of getting 2x, 3x, even 10x of what you risk (like Buffet says) these blue chip tech stocks could pay you 25% or lose you 50%. I don’t know about you but that’s a bad trade to me.
Consider this: In The Billionaire’s Portfolio, we have a stock that sells $2.06, yet has $2.10 in cash per share and zero debt. The stock is selling for less than its net cash. Remember, net cash means cash minus all debt. So this stock is like buying a CD. It’s all cash. While this stock has NO earnings, it’s been selling assets, which unlocks value in the company. Let me be clear: I don’t care about the company. I just want the stock to go up. And selling assets can make the stock go up. In fact, in this case, with the game-plan that one of my favorite billionaire investors is executing with this company, I expect him to strong-arm this stock right back up to $10, where it was trading just a little over a year ago.
Remember not only do we follow Warren Buffett’s original hedge fund strategy, but we also follow many other Billionaire Hedge Fund Managers with track records just as good or better (50% annualized plus returns) who practice the same assymetrical risk reward type investing strategy.
So think about that risk reward, we own a stock in The Billionaires Portfolio, that has little or no downside but the upside is gives us a chance to make multiples of our money. That’s an investment that can make you rich. But I don’t just do it once. I do it over and over again.
Now, would you rather own a stock like that or Google, Amazon or Apple which you might make 30% on in a year best case, but you could lose 40% if you’re wrong, or the market sells off.
Let me tell you a story about a stock that my boss at the hedge fund I worked at purchased back in 2002. This stock which had no earnings but had $7 in cash and zero debt and sold for around $8, was a little company named Apple. As we all know Apple went on during the next 10 years to be the hottest stock of its generation. My boss by the way who purchased 1 million shares of Apple around $8, well he sold a little early, he sold back in 2007 when Apple hit $200, so he only made a profit of $192 million or 2400% (24 times his money).
So don’t take my word for it, believe my boss who made $100 plus million dollars buying a stock with no earnings, or better yet believe one of the world’s greatest investor, Warren Buffett, who told you that you should be making 50% a year if you have less than $10 million dollars — and the way to do this is to buy deeply undervalued stocks with no earnings.
Now, if you are not making at least 50% a year, and you have less than a $10 million dollar account, Warren Buffett and me, are telling you to fire your Stock Broker, Mutual Fund or any other person who is charging you money and not making you 50% a year.
By the way The Billionaires Portfolio is on pace to put up nearly 50% annualized this year. You need to own only stocks that can go up 2x, 3x … even 10x or more. Because I know you need this service, and because I know when people join this service, they don’t leave, I’m happy to give it to you today with zero risk. If for some reason it doesn’t suit you, email me within the first month and we will refund your money in full. I’ll make this offer today only, for newbies. Right now. So go ahead and get on-board.
You can sign up here… and if you are not satisfied with the service in the first 30 days just email us, call us and we will instantly give you a 100% money back, guaranteed, no questions asked.
As I told you yesterday, Apple is not a buy yet, this stock need to close above $446 to reverse its downtrend, and that’s my friendly reminder for today.
Lesson 2 on becoming a Millionaire
Leverage… That’s right you need to use some sort of leverage in your investing. Every single Billionaire Investor I have studied has used leverage to juice his returns, even the Great Warren Buffett.
Warren Buffett has historically leveraged his portfolio at 160% or 1.6X times his initial investment, I know this sounds complicated, but all this means is if Buffett invests $1 million dollars with leverage it becomes $1.6 Million dollars. I personally invest a $100,000 like $150,000 dollars, using 1.5 times leverage giving me 50% more buying power, and also juicing my returns by more than 50%. Leverage is what I call the real Billionaires Secret.
The recent news that Warren Buffett used leverage shocked a lot of people in the industry, (by the way if you want to read the articles on Buffett using leverage in his stock portfolio (just type in to google Warren Buffett and Leverage and it will pull up many articles including the Economist.com’s).
But I think a lot of people are shocked when they hear that the supposed conservative value investor, Warren Buffett uses leverage, but he does and thats why he beats the pants off mutual funds stock broker and the like.
Why is leverage so important in trading stocks because, if your just average, and you make 10% a year trading stocks in your portfolio, if you leverage your portfolio like Buffett at 1.6 times, you will then actually make 16% a year. And trust me that’s a huge difference when compounded over time.
The one problem with leverage is that most online brokerage firms charge you a very high rate, as high as 8% to trade on margin or use leverage, so at that borrowing rate its very expensive to leverage and probably not worth it. But there is one publicly traded online brokerage firm that only charges you 1.5% to borrow or leverage your stock account. This is the one I use and let me tell you its like getting free money, remember 1.5% is the interest rate they charge you to borrow for one year (its 1.5% for one year0. So if you buy and hold a stock for just 3 months you will only pay 50 basis points one half of one percent, that is virtually nothing. If you want to know the name of this online brokerage firm email me at wmeade@purealpharesearch.com.
Now another Billionaire who is a huge leverage buff is Steve Cohen of SAC Capital, Steve Cohen uses huge leverage up to 8 times or 800%. Again this means if you have a $100,000 account at 8 times leverage you now have an $800,000 account, and obviously your returns go up by 8 times, and you can now see why Mr. Cohen has been able to put up 80% gross annualized returns in his hedge fund for years. Remember even a small account, lets say $10,000 dollars, that returns 80% a year like Mr. Cohen’s hedge fund, would be worth $11 million dollars 12 years, you could basically retire on the beach in 12 years with $11 million dollars.. But here is the catch, Mr. Cohen is a big hedge fund and he can borrow tons of money for little or no cost.
So how does a small or retail investor leverage his stock account up to 8X and potentially return 80% a year well its easy, and I will tell you if you write me at wmeade@purealpharesearch.com
So in summary: Lesson 2, Leverage is the Billionaires and Millionaires Secret, you will never be a Millionaire or Billionaire if you do not use some type of leverage or margin.
