How to Score Profits In Every Trade With Minimal Risk

  • Let your observations remind you of the need for caution, structure, and taking a long-term view.
  • Look for “forever” businesses that will survive any recession: companies with iconic brands and definable, protective economic moats, especially businesses with hefty cash hoards and strong free cash flow.
  • Our algorithm works by tracking volatility, a factor that is crucial in determining a stock’s performance.
profits - How to Score Profits In Every Trade With Minimal Risk

Source: Belozersky / Shutterstock

Editor’s Note: Do you have plans on February 8 at 8 p.m. ET?  If your answer is ‘yes,’ please, do yourself a favor and cancel them. Otherwise, you risk missing out on Luke Lango’s $100K Accelerator. This LIVE investment briefing will showcase America’s next premier tech trend – an algorithmic breakthrough – that could generate up to $3 trillion for investors. Before you guess, no, it’s not AI – this is even bigger. – Keith Kaplan, Luke Lango.

Recently, on a Friday night, one of our managers (let’s call him Rex) was out with his son after baseball practice and decided to visit the drive-thru at McDonald’s (MCD).

Rex pulled his Ford around to that big, lit-up menu and ordered a Big Mac, two large fries, a Sprite and a Coke. But to his dismay, the disembodied voice from the speaker replied, “I’m sorry, sir, but we’re out of Coke.”

No Coke…

At McDonald’s…

On a weekend.

And when Rex expressed his surprise over his “Coke-less” meal, the drive-thru worker actually sighed and said, “And, unfortunately sir, this isn’t the only time this has happened lately. We’ve run out of Coke a lot.”

This isn’t a rural Mickey D’s we’re talking about. This particular location sits at the intersection of two busy highways not far from downtown Baltimore, near Tradesmith’s corporate offices. And generally, McDonald’s restaurants are known for an almost-robotic efficiency. 

So, when an iconic company like this one is consistently unable to provide its customers with a staple of its business – a Big Mac and a Coke are about as foundational as it gets – we see it as the latest sign that trouble’s brewing for the U.S. economy and, by extension, U.S. stocks.

It’s also a very real warning sign for investors like you – one that urges you to minimize risk, to avoid reckless speculation and to focus on income, investment quality and wealth building for the foreseeable future.

In short, it’s time to become a “real investor.”

And we’ll take a few minutes here today to detail exactly what real investors do.

Learn How to Score Profits Consistently

Do you want to know my favorite feeling as an investor? It’s when my stocks absolutely crush the market. 

Sure, we like to think of ourselves as the good guys. We root for others. We want the best for everyone. 

But we’re also natural-born competitors. It’s coded into our DNA to want to win – and with stocks, that means beating the market. It means owning a group of stocks that absolutely crush the market’s performance and bring in big profits. 

Well, believe it or not, we’ve engineered a way to do that. Every single trade.

There’s a frequently used investing maxim – “things are different this time.” We hear that line when investors want to justify speculative excesses or give themselves permission to buy junk while ignoring valuations, proven rules of accounting, and metrics like sales, profits and cash flow.

What our little tale about the Coke-less McDonald’s meal shows is that “things are different right now.” There are red flags everywhere.

So, let us share a list of six tips that will help you stay disciplined in a volatile environment.

How to Ensure You Mint Stock Profits

Watch the World Around You

We used the anecdote about out-of-stock Coke as an example of the market’s red flags because it’s relatable. But those causes for worry are everywhere – if you look. Take housing, another slice of the economy that matters to most of us. It’s an area that’s flashing one of the biggest warning signs I’ve ever seen. On average, Americans were paying 36% more for homes than they were the year before. Emotion was the initial trigger for the massive run-up in housing – then sight-unseen appraisals and aggressive lending helped to supercharge it.

But inflation – which leads to higher mortgage rates – is the trap waiting to be sprung on an overvalued market. Shortages, inflation, corporate-earnings misses… these are just some of the recession-heavy influences headed our way. When inflation cuts deeply into corporate earnings, firms will start reducing staff, cutting corners and closing facilities. Moves like that will fuel a recession and boost unemployment. We could see a big reversal in unemployment numbers almost overnight. So, be a careful observer – and let your observations remind you of the need for caution, structure, and taking a long-term view.

Take Out the Trash

Kill all the losers. Get rid of everything in your portfolio that is down and hasn’t bottomed – especially companies that are speculative, don’t have sustainable businesses and aren’t generating the cash flow that could help them navigate a recession.

Don’t Throw Darts

Coming out of the pandemic, we bought all the high-flying stocks. And we understood that it was an era of speculation. But now’s not the time to be bold or reckless. It absolutely is not the time to be buying a whole bunch of speculative stocks. When we say “speculative stocks,” we’re talking about companies that aren’t making money, that have no free cash flow and that are groaning under heavy debt. Speculate on such companies now, and you’ll be on the wrong end of the trade, watching a portion of your hard-won wealth be wiped away.

Buy Businesses, Not Stocks

This is an important follow-up to my “darts” comment. And it involves a bit of a mindset change. Stop thinking about buying stocks. Pretend you’re investing directly in a business. Look for “forever” businesses that will survive any recession: companies with iconic brands and definable, protective economic moats. We especially love businesses with hefty cash hoards and strong free cash flow. Companies like that can buy back stock, gush dividends and generate “inorganic” growth during an economic slowdown by using their cash to buy out rivals, purchase complementary product lines, or even just ride out sector lulls. That’s what it means to invest in businesses, not stocks.

Remember that Green Means “Go”

I’m a software guy and an entrepreneur – not a hedge fund manager or an investment banker. So, trust us when we tell you that the Tradesmith system is simple to use. It’s based on technical analysis and momentum, and it gives you a simple “red/yellow/green” (sell/be careful/buy) rating.
Our system loves energy and utilities right now. Those sectors are in the healthy Green Zone. And the sectors continue to strengthen as inflation tightens its grip on every facet of our economy. Healthcare was in the Green Zone until recently, but the underlying stocks are a bit of a mixed bag.

Since we’re talking about taking extra care here, we can add a splash of fundamental analysis too – specifically free cash flow (FCF). Stocks that are in that healthy Green Zone – and are also throwing off lots of “green” (as top FCF generators) – include Exxon Mobil (XOM), Chevron (CVX), Johnson & Johnson (JNJ) and UnitedHealth Group (UNH). Meshing the technical and fundamental gives you multiple layers of conviction, which investors should be looking for against a backdrop as uncertain as this one.

Create a Watchlist

There are great businesses out there that may not be great buys right now. Take Walt Disney (DIS), one of my favorite companies of all time. It’s in the Red Zone right now. But that doesn’t mean it’s not still a great company. If you’re a strict adherent to our system, you’ll wait until it’s back in the Green Zone to buy it. The same goes for Walmart (WMT). Put these companies on your personal watchlist and follow them until they become buys. Or if you have a lengthy time horizon and a higher risk tolerance, consider buying these “forever stocks” to hold as wealth builders. 

Other great FCF companies that aren’t necessarily buys right now include Alphabet (GOOG, GOOGL), Amazon (AMZN), AbbVie (ABBV), Meta Platforms (META), Microsoft (MSFT) and Pfizer (PFE).

The Power of Algorithms in Stock Market Profits

In a world where algorithms are a standard part of our everyday lives, it is surprising to learn that when it comes to finance, ordinary investors are usually completely on their own. We rely on our gut, listen to the financial media and, for the most part, make poor decisions. Consequently, investors have lost over $9 trillion in the past year. And this historic destruction of wealth could have been limited if more people had access to algorithmic tools, like the tools Tradesmith uses.

Our algorithm works by tracking volatility, a factor that is crucial in determining a stock’s performance. Volatility is not just about a stock going up and down a lot, but it is a complex combination of many factors, including the number of shares outstanding, the number of big institutional investors trading the stock, and how often these big investors move in and out of these positions. Each stock is unique and moves at different rates, and that is why a unique volatility score is calculated for every single stock that Tradesmith tracks.

The formula used to calculate the volatility score is complex, but it results in a tool that can help investors make informed decisions on when to sell their stocks at the perfect time. By selling stocks at the right time, you could avoid losing $100,000 or more and, in turn, make as much as $100,000-plus in profits.

Algorithms are powerful tools that can simplify our decisions and enhance our lives, but when it comes to finance, not everyone has access to these tools. Tradesmith is changing that by providing investors with algorithmic tools that can help them make informed decisions in the stock market.

The bottom line here: Putting money into real businesses can help you grow your wealth over the long term. And overlaying your investments with an algorithm can mitigate risk and accentuate reward. This does the hard work of exercising caution for you, so you can always find real opportunities

Even if you can’t find an ice-cold Coke.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.


Article printed from InvestorPlace Media, https://investorplace.com/hypergrowthinvesting/2023/02/how-to-score-profits-in-every-trade-with-minimal-risk/.

©2024 InvestorPlace Media, LLC