Increase Your Wins With These Three Fool-Proof Trading Methods

Hello, Reader.

There’s no formula you can follow to ensure that every trade you place goes exactly as planned.

Losses will happen; they are the admission fees for being brave enough to enter the stock market.

But there is a way to approach trading and investing that can reduce the chances of losses occurring… and in a less costly way.

Today, let’s talk about the three fool-proof trade methods you can add to your repertoire to better improve your chances of lowering your losses… and boosting your wins.

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Allocate Your Assets Wisely

Consider the catastrophic losses suffered in the early 2000s by some employees of Enron, who were encouraged to put most – or even all! – of their 401(k)-retirement savings in Enron stock.

These folks did not use Intelligent Asset Allocation — and they paid a heavy price.

In the late 1990s, Wall Street considered Enron to be one of the world’s most innovative companies. Its executives were the superstars of Corporate America, and the Houston-based company received endless accolades.

In early 2001, all 15 Wall Street analysts who followed the stock rated Enron a “buy.” Meanwhile, the financial press also was heaping praise on the stock.
In August 2001, the Houston Chronicle lauded Enron as “a company with innovative people who have shown they can turn ideas into profitable businesses.”
In its September 2001 issue, Red Herring magazine insisted: “Forget about Microsoft. America’s most successful, revered, feared — and even hated — company is no longer a band of millionaire geeks from Redmond, Washington, but a cabal of cowboy/traders from Houston: Enron.”

Less than three months after the Red Herring’s glowing endorsement, Enron filed for bankruptcy. As its stock plummeted to zero, the “cabal of cowboy/traders” gained infamy as some of the biggest fraudsters in American history.

The employees who bet everything on Enron were completely wiped out. When the company went under, they didn’t just lose their jobs. They lost their savings, too.

It was easy to be taken in by all the hype surrounding Enron — and to be seduced by the stock’s seemingly limitless promise and potential. It was easy to believe that Wall Street and the financial media knew what they were talking about.

Enron seemed like a sure thing, especially to the folks who worked for this high-flying success story. That’s why so many employees placed all of their retirement savings in Enron stock. Their asset allocation was 100% Enron.

Not good.

If you devote a huge portion of your wealth to a single asset class — whether it’s stocks, bonds, oil, gold, real estate, or whatever — you are making yourself financially fragile and exposing yourself to serious harm.

Just Say “No”

To outperform the market, an investor must maintain the discipline of saying “no” to bad risks… and then keep on doing that until good risks come along.

Marginal opportunities are what I call “bad risks,” or “asymmetrical risks.” That’s when the potential upside is much smaller than the potential downside.

Here’s an extreme example to illustrate the concept…

Riding in a barrel over Niagara Falls for a $20 prize. If everything works out perfectly, you win $20. If not, you perish.

Here’s another example…

Running red lights to get to Disneyland 10 minutes early. If everything works out just right, you make it to the “Happiest Place on Earth” and have to wait 45 minutes instead of an hour for Space Mountain. Or you might get into a horrible accident.

These examples of asymmetrical risk are so obvious that they seem ridiculous, but many asymmetrical risks are less obvious.

Disciplined investors understand the dangers of these risks; that’s why they begin their analysis by asking “What can go wrong?” rather than “What can go right?”

Disciplined investors understand that investing is optional and that they must be selective.

It’s OK to say “no” to bad risks. Unfortunately, many investors grow impatient. We justify buying richly valued stocks by comparing them to stocks that are even more richly valued. But it is still dangerous to buy stocks that are “less risky.”

It’s no different than camping 40 feet away from a pride of lions because a few other folks are camping only 20 feet away. You might wake up every morning 40 feet away from the lions, just like the morning before. But getting eaten is also possible, if not probable.

Avoiding bad risks is the essential first step toward outperforming the market.

Tiptoe – Don’t Dive – Into the Market

This time last year, caution was the name of the game.

I went so far as to say that hedges were one of the best ways to survive the tumultuous market of the past few years.

Clearly, that paid off.

Earlier in 2022, I recommended buying the ProShares Short 20+ Treasury ETF (TBF) to my Investment Report readers, saying…

… [TBF] bets against long-term Treasury bonds, rather than high-yield bonds. The guts of its portfolio are interest-rate swaps that increase in price as long-term interest rates rise. As such, this ETF offers a direct and “clean” hedge against inflation.

This ETF has been a big loser for most of its 12-year existence. But that’s because interest rates trended lower during that period. If interest rates begin heading higher, this ETF would finally reward its shareholders.

We closed out our shares of TBF after 8.5 months for a 31.70% gain.

But now, the time for hedging and/or betting against the market is drawing to a close. I believe it is time to tiptoe – cautiously and wisely – back into the market, but only if your sights are focused on solid, established companies with outstanding growth prospects.

And the artificial intelligence space is bursting with some of the best right now.

Of course, you can’t just close your eyes and hurl your hard-earned investment dollars at any stock that is touting its newest AI tools or technologies like a peacock brandishing its feathers.

More than ever, the methods we covered today need to be in your arsenal – because as fast as certain, speculative AI companies boom… they could just as quickly bust.

But in a critical AI briefing I’ve put together for you, I’ll share with you everything you need to know about how you could potentially position yourself for monumental gains…

Including the name and ticker symbol of one of my top picks in this AI space.

Go here for more.

Regards,

Eric Fry