Jumat, 14 Juni 2019

How to Swim With the Sharks

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How to Swim With the Sharks
By John Persinos

Think Bernie Madoff was a rare occurrence? Think again. The investing world is bedeviled by a growing number of criminal con men.

No one knows this better than my colleague Jimmy Butts, chief investment strategist of the premium trading service Maximum Profit. As he works in a brutally competitive environment to make an honest buck for his followers, Jimmy has witnessed all manner of shenanigans.

But Jimmy has found a way to fight back. He has devised an ingenious investment system that outwits the sharks of Wall Street and shifts the odds back in your favor.

For this week's Big Interview, I sat down with Jimmy [pictured here] to discuss his system and other issues of timely importance to investors.

As I've written in recent Mind Over Markets columns, amoral scamsters continue to fleece individual investors and rig the market.

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We face a tumultuous time in the stock market. Decisions affecting millions of investors are being made by market manipulators with huge financial and political power at their disposal. Tariffs, interest rates, mergers...they're getting implemented by a small interconnected circle of insiders in Washington and on Wall Street.

How can the little guy stand a chance? I asked Jimmy Butts.

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Q&A: "Hacking" The Market

John Persinos: How have the major players on Wall Street rigged the game against individual investors?

Jimmy Butts: Individual investors have no leverage. Plain and simple. I'm not talking about the leverage that one might use in the markets with options or futures, I'm talking about how individual investors have no power to leverage. And the major players take full advantage of this.

In his book about the 2008 financial collapse, The Big Short: Inside the Doomsday Machine, Michael Lewis talks about two young gentlemen, Ben and Charlie, who were trying to buy credit defaults swaps on subprime mortgage loans. In other words, they were shorting the looming housing collapse.

Ben and Charlie struggled to get any traction with the big Wall Street institutions. They had no clout on Wall Street, they weren't large institutional players, they were just two guys who happened to stumble into this opportunity.

They "only" had $30 million and Wall Street wouldn't give them the time of day. Ben and Charlie got the runaround, they got stepped on, and they were treated like lower class citizens. Wall Street called their firm, "Cornhole Capital." Their little firm's real name was Cornwall Capital.

The point is that if a small firm with "only" $30 million gets treated like this and doesn't get access to the same information, pricing, and data as the big players, then how do you think regular folks like you and me get treated?

And yet, it seems that regulators such as the SEC are taking a hands-off approach, just when more oversight is needed.

Yes and no. The problem with the SEC is that they are greatly undermanned. There's too much power money and too many problems for them to combat them all. They have to pick and choose, and investigations can take years. By that time whatever headline grabbing crime they are looking into is forgotten about by the general public.

The SEC is in an uphill battle fighting an organization that has more money and is more powerful than them. They have a tough job to do.

Discuss for our readers your proprietary trading system. You've described it as a "hack." What do you mean by that?

With the Maximum Profit system we follow the U.S. Navy's acronym, KISS. Keep it simple stupid.

Sure, the algorithms that power the system might not be all that simple, but the output is: buy stocks with a massive growth catalyst (identified by the system) and ride the wave higher until that catalyst putters out (also signaled by the system).

In other words, the Maximum Profit system provides clear buy and sell signals. We follow them and profit. It's pretty simple. The most difficult part is actually following the system's rules. I've found that we humans get emotional when it comes to investing and we struggle to sell stocks when we need to. Especially when we have to sell a stock for a loss… and yes, we do book losses.

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Maximum Profit isn't the "holy grail" of investing (no system is), and it's not for everyone. But for those investors who are okay booking losses on occasion to win the bigger picture (grow your account value) and are interested in shorter-term trading (our average holding period is six months) then I would encourage them to give Maximum Profit a try. The worst thing that will happen is you will learn a lot about investing, trading, stocks, and behavioral economics.

Regarding the "hack," it goes back to your first question about Wall Street rigging the market. One of the beauties of being "overlooked" by the big guys on Wall Street is that you can get away with more without raising suspicion.

Now I know that sounds fishy, and maybe even illegal, but it isn't. Nothing we do is illegal. We are simply buying and selling equities. We are just leveraging a market anomaly that is momentum.

Because no one truly understands the mechanics of why or how momentum works, other than it just does, we are able to snag solid gains in a short amount of time. Like the 70% return we are sitting on from a small renewable energy company we bought just two months ago. Or the two stocks that are up 65% each in less than six months.

But that doesn't sound legal. Is your system legit?

The short answer is yes, the system is legal and legit. We aren't doing anything fancy. There's no options or derivatives involved. Just buying regular old stocks that have been flagged for having a potential growth catalyst that should push shares higher.

A great example is chocolate-maker Hershey (NYSE: HSY). Shares of this company hadn't gone anywhere for years. Yet my system flashed a "Buy" on the stock in November (in the midst of the near 20% market pullback).

As you can see from the following chart, shortly after my system told us to buy, shares took off. To put that into perspective, an investment in the S&P 500 over the same time period would have only provided you with a 5% return.

There's nothing illegal about buying shares of Hershey at an opportune time. To be sure, my portfolio has stocks for just about everybody. My system doesn't judge. It flags small caps, international stocks, undervalued stocks and what I've dubbed "World's Greatest Businesses," which is where you'll find stocks like Hershey.

What are some other tactics that individual investors can deploy to safely make money in the markets? From my perspective, it starts with three steps: performing due diligence, sticking to the fundamentals, and remaining wary of the herd mentality.

I agree with those three principles. Everyone should do their own due diligence. There's no one-size-fits-all investment. You have to find what works for you. I see Maximum Profit as a tool to help investors wade through all the ticker symbols out there. I do provide analysis on each of the stocks that are recommended, but it's always wise to do your own research so you're comfortable with the investment and understand all the risks.

If you can work your way through a company's fundamentals, you're already ahead of most investors. I came from the traditional side of investing that is value investing. And Maximum Profit has a fundamental component to its algorithm. We call it Cash Flow Relative Strength, or CFRS for short. We want to make sure the system isn't flagging fly-be-night companies, and one of the best line items to help determine that in my opinion is cash flow.

Cash flow is the life blood of any business. Unlike sales and earnings, it's much tougher to "massage" or fake.

Other tools that I believe make you a better investor is understanding and managing risk. Whether that's through position sizing or stop losses, you have to know what your risk is before you get into a trade. Buying a stock is the easy part. Knowing when to sell, whether it's to book a profit or cut a loss, is what separates a successful investor from one that simply treads water.

The emotional side of investing is where a lot of money is made or lost. But it's also the least talked about part of investing. Investing isn't easy. It can be one of the most difficult ways to make easy money. But that's why we developed Maximum Profit, to help investors become more successful. We wanted a system that didn't just tell you what stocks to buy, but more importantly when to sell. And we've had great success doing just that.

Editor's Note: I've just discussed with Jimmy Butts his clever (but easy to use) method for legally "hacking" the market. Want more details? We've put together a presentation that allows you to get started with Jimmy's system, right away. Click here for details.


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