Investing can be a daunting task. And rightfully so…
With thousands of stocks and exchange-traded funds to choose from, what should you buy? What’s best for your portfolio? And once you narrow down the stocks you want to own, how much should you buy, when should you buy, and what’s your target?
There’s more to investing than just blindly buying random stocks. That’s why a large portion of investors out there believe the game is rigged.
They’ll read about the S&P 500 being up more than 20% the last two years and realize their portfolios are underperforming. Several factors are usually at work that result in underperformance, but one that I see often has to do with selling.
I’m a big believer of “letting your winners run.” I also support using stop-loss orders to minimize potential losers from hurting the overall portfolio.
That said, it’s difficult to marry the two without compromising the performance of your portfolio. I’ve been in this business for 25 years and I’ll admit… My strategy for long-term investing is far from perfect.
All investors should follow a core strategy. But you also need to realize that the stock market is influenced by human behavior. That makes it a living thing.
And as an investor, you need to adapt when market environments change.
I want to share a little anecdote with you. Ahead of Inauguration Day, I looked at what sectors could be the biggest winners under the new administration. There are many, but one sector that rose to the top of my list was nuclear energy stocks.
Without getting too into the weeds here, I decided to issue three new nuclear-related LEAPS (long-term equity anticipation securities) trades in my NextWave Trader advisory service ahead of the inauguration.
Last Tuesday, the first trading day after the inauguration, all three stocks moved higher. And just eight days after initiating the trades, one of the LEAPS positions hit a gain of 88%. I decided to issue an alert to sell half.
On Friday, the same stock kept rallying. By midday, the LEAPS trade was up 118%. So I decided to sell another quarter of the trade.
You’re probably wondering why I’m sharing this with you…
Two reasons… First, this is a real-life example of adapting to each market move. Second, greed is good, but it can also be a curse.
The trade I recommended was supposed to be a long-term options trade. But we exited three-fourths of the position in just nine days. The market dealt us a hand – a very profitable hand – and we cashed in our winning ticket.
There’s a fine line between getting greedy and holding on for big winners. The only way to achieve a 10X return is to first have a double, then 200%, 300%, and so on.
I still believe that particular LEAPS trade I recommended could be a 5X winner in the next two years. That said, achieving a gain of over 100% in nine days doesn’t come around often.
In short, you must have a strategy if you’re investing in the market – especially during periods of volatility like we’re experiencing today. It’ll help keep you focused – and ensure you’re not getting too greedy.
That way, when the time comes, you’ll be ready to shift gears and play the hand the market has dealt you.
Here’s to the future,
Matt McCallEditor, Market Insights
P.S. I know options trading might sound intimidating. But my NextWave Trader service breaks down everything you need to know about this strategy. So if you’re curious, even just a little, then I urge you to click here to learn more about NextWave Trader.
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