Dear Daily Crux reader, –––––––––––––––––––––––––––––––––––––––––– The Daily Crux: Doc, your track record in Retirement Trader is unbelievable... How the hell are you 41 for 41? That's ridiculous...
100%.
That's the percentage of wins our colleague Dr. David Eifrig has racked up in hisRetirement Trader advisory. This astonishing track record is practically unheard of in the newsletter industry... and has created quite a stir around our office.
If you aren't familiar, Dr. Eifrig was a successful trader for the world's most profitable investment bank, before retiring to become a board-eligible surgeon. He recently retired for the second time... and now shares the secrets he learned on Wall Street to help his readers make incredible profits in super-safe investments.
We sat down with "Doc" (as he's known around the office) to learn more about the strategy he's used to compile such a fantastic track record.
Read on to learn exactly how he does it, and how you can begin to do the same...
Regards,
Justin Brill
Managing Editor, The Daily Crux
www.thedailycrux.com
The Daily Crux Sunday Interview
"How the heck are you 41 for 41?
That's ridiculous..."
Dr. David Eifrig: Yes, our results have been fantastic. So far, we've closed out 41 of 45 recommendations. And all 41 have been winners... with average annualized gains of 72.8%. I expect the four remaining open positions to make money, too. These may sound like unbelievable returns, but they're actually not unusual for the strategy we use in Retirement Trader.
Crux: How are you able to make such incredible, consistent returns?
Eifrig: Well, before we get into the details of the strategy, I should explain the investment approach we take in Retirement Trader, because it's an important part of our success.
To be successful as a trader, you need to take the opposite approach of most folks. Most people approach trading as little more than gambling. They make foolish bets where the odds are greatly against them... And their results are typically no better – sometimes even worse – than playing the games in a Las Vegas casino.
But these risky bets can actually create an opportunity for savvy traders. You see, many folks never stop to think that there are two sides to every trade. When one side is taking a huge risk, it means the other side stands to be the beneficiary of that trade more often than not. To use Las Vegas as an example again, terrible odds for the gambler means wonderful odds for the casino.
In Retirement Trader, we use a safe, legal strategy to act like the casino, rather than the gambler.
Now, I want to be clear so readers don't misunderstand... I don't like it that so many people take these risky bets. In fact, I've dedicated a large part of my life to helping people. I went to medical school and became a board-eligible eye surgeon to help people live better lives... And now as an advisor to thousands in my Retirement Millionaire letter, I'm trying to educate as many folks as possible to make wise investment decisions. More than I could ever help as a doctor.
But the fact is, some people are always going to make risky decisions. Most people know they should avoid things like eating junk food, smoking, and drinking and driving... Yet millions of people do these things every day. It's the same in the investment markets... Some folks will always take foolish risks. Someone has to take the other side of these trades. The strategy we use in Retirement Trader is a perfectly legal and ethical way to do so.
Crux: Can you explain what this strategy is and how it works?
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Eifrig: Sure... On Wall Street, the strategy is known as put selling.
Now, I'm sure some folks are thinking, "Oh no, not options trading. It's too complicated or risky for me." But the strategy is actually not too difficult to understand and quite low-risk when used correctly.
Let me use another simple example to explain how the process actually works.
Most folks are familiar with homeowners insurance. When you insure your home, you are simply buying the right to sell your house to the insurance company if certain things happen, like a fire or a storm.
In return for that protection, you pay the insurance company a certain fee – known as the insurance premium – to accept those terms, whether or not you ever actually exercise the insurance policy. And most homes don't burn down... Most homes don't blow away in a storm.
Put options work the same way. But instead of buying the protection, you're acting like the insurance company.
You see, when you sell a put option, you're agreeing to buy someone else's stock at a certain price – known as the "strike" price – under certain conditions, for a limited period of time. In return, you're getting paid a certain fee – the option premium – to accept those terms.
In the example of home insurance, a person would exercise the policy only after a catastrophic event... when something like a fire or severe weather damages the value of his or her home.
Again, a put option works the same way. In this case, the holder would exercise his right to sell the stock to you only if the market value of the stock falls below the strike price you agreed to pay.
If the stock goes up or even stays where it is – as long as it doesn't fall below the strike price – you get to keep your premium. If it does drop below that price, you're obligated to buy the stock, but the premium you received ensures you get a discount to the current price. It's almost like being paid to buy a stock at a discount.
And the best part of the strategy is you don't have to be right forever. You just need to be right for a few months, because your obligation to buy expires when the option expires.
Crux: Can you walk us through an example?
Eifrig: One of my favorite examples is Johnson & Johnson (JNJ). It's a big, strong company, it's trading at a cheap valuation, it pays a healthy dividend, and it stands to benefit from one of the biggest trends in the world: the growing medical spending of aging Baby Boomers.
Earlier this year, the company announced some product recalls that caused the shares to sell off a bit. But the company had moved to correct the problems, so I thought the selling was overdone... And the company had just released a great earnings report. So shares were cheaper, but all the great points I mentioned earlier were still intact.
So we took advantage in Retirement Trader and sold puts on JNJ. Like all put-selling trades, there were two potential outcomes here. If the stock stayed at our strike price or moved higher, we would get to keep our premium and make a quick 8% gain in just three months. This works out to an annualized return of 30%-40%. On the other hand, if the stock fell below our strike price, we'd own the shares at a discount to the even cheaper price.
When you're talking about a quality company like JNJ, that is a win-win proposition.
Crux: What are the risks of selling puts?
Eifrig: The primary risk is that the stock could crash, and you would have to buy a stock for much more than it is currently trading for.
So, one key to selling puts safely is figuring out exactly what the company's stock is really worth, and trading the best companies.
Just like an insurance company needs to know the details of your home – things like how much you paid for it, how big it is, the value of any valuables you have, etc. – you need to know the details of the companies you sell puts on to be sure they're fundamentally sound.
An insurance company wouldn't want to insure an old house with a faulty electrical system. Similarly, you don't want "insure" just any stock. You want to find quality stocks that you like and would want to own anyway. Then, you "insure" them – sell puts on them – at a price they aren't likely to drop below.
Since you're only agreeing to buy the stock below the strike price, you're safe as long as it doesn't completely crash. Again, this is why you want to stick with quality companies.
When this strategy is used correctly, you won't end up buying very many stocks... You'll simply collect premiums every few months and earn 15%-30% a year or more on your capital.
But it's no problem if you do end up buying a few stocks. If you follow a few simple rules, you'll own some great dividend-paying companies at great prices that will compound your wealth for years.
Crux: Sounds good. Any closing thoughts?
Eifrig: I hope I've made a convincing case for selling put options, and shown it's ideally suited for risk-averse investors and retirees.
No other strategy offers a chance to safely profit, no matter what happens to stock prices. I truly believe it's one of the most valuable investing skills you can learn.
Contrary to popular opinion, I think it's within reach of any serious investor. It does require some education for most folks to become proficient, but there are a number of free resources available out there. The time and effort you spend learning will be well worth it.
Of course, I invite folks to take a look at my Retirement Trader advisory as well. Our goal is not only to find the safest and most profitable trades, but to educate. In fact, if most subscribers don't eventually become proficient at finding and making these trades for themselves, I'm not doing my job.
Crux: Thanks for talking with us, Doc.
Eifrig: My pleasure. Thanks for inviting me.
Crux Note: Stansberry & Associates founder Porter Stansberry recently joined with Doc Eifrig to announce a special offer for new Retirement Trader subscribers. This offer has never been made before, and expires soon. Click here to learn more.
Sunday, 30 October 2011
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