* See bottom of this document for the definition of words/phrases you don’t know.
This is my personal document (written exclusively by me and for me to remind myself of the rules to follow during market declines). It’s a great accompaniment to my recent LIVE video entitled “Follow The Money (The EZ Method)“. These rules have preserved my capital for over 25 years.
FYI, I’ve been pushing these rules extra hard during my LIVE YouTube videos over the past 6+ months, helping 1,OOOs of people to avoid the losses caused by this market correction.
I’m sharing this document as a compliment to that video (and in case anyone is curious about what I do to outperform the stock market during downturns). I undertake no responsibility for what you do with the information. Cheers!
Step One: Determine if we’re experiencing bearish market conditions
I track my favorite ideas in my 1% Portfolio tracker, here: https://docs.google.com/spreadsheets/d/166EnH-qGnUSclZug0Vl_rxEpKNqxyGHLj-Gk-bMhPiY
In that tracker, I indicate whether I believe the market is in a Green, Yellow, Orange or Red Alert. Green is great (bullish). Orange/Red are the worst (and have only occurred 3 times in my 25+ year career).
- At the start of a Red Alert, you should sell 100% of your secondary, tertiary, and speculative stocks. You should also short enough stocks to be net short*… AND hedge on market strength* (again, see bottom of this document for the definition of words or phrases you don’t understand).
- During an Orange Alert, you sell 80-100% of your investments.
- During a Yellow Alert, you should follow the guide in Step Two.
- During a Green Alert, you should have 80-100% of your money invested.
Step Two: Adjust your portfolio
In the midst of bearish market conditions, avoiding losses is far more important than trying to make a profit. Here’s how to adjust your portfolio when the market is in Yellow Alert mode.
Primary, Secondary, Tertiary, and Speculative positions – My very favorite stocks are known as my “Starting 5” or “Primary” positions. Stocks that I really like, but not as much as my favorites are “Secondary”. The next level down after “Secondary” is called “Tertiary”.
Speculative stocks are a separate category. Speculative stocks are more like bets than true investments. When stocks are rising aggressively, “Speculative” stocks can do great, but during a market downturn they’re on a lower level than Tertiary ones (because they tend to get crushed worse than any other type of stock).
Hedge on market strength – A hedge is like an insurance policy. Hedges can protect your portfolio from losses (or even enable gains) during market declines. When the market is in a bearish mode, it pays to short stocks (or ETFs like IWM) on strength. FYI, if you don’t know what “shorting” is, Google it.
Alternatively, RWM is an effective hedge to buy after a market bounce (before the market heads lower). When the market drops, RWM goes up (by design).
When the market is in decline, I’ll obtain between 20-cents and $1.20 worth of hedges for every $1 worth of longs I’m holding.
Long – A stock that you own (or the state of owning stocks). You can say, “I’m long AMZN” is you own stock in Amazon… or “AMZN is a long in my portfolio”.
Sell on strength – Sell the stock on bounces (a.k.a. “on strength”), as shown below.
FYI, I provide charts like this in the presentations that accompany my LIVE YouTube videos. Check out my “instruction manual”, How To Get Rich With Stocks (Step 1: Follow A Real Pro) to get the full rundown on how to access all of my work (which is all free and always free).
Selected Past Research:
- My StockTwits Feed
- My YouTube Channel
- The Quick Investor’s Guide To SMSI
- MoviePass Projected To Burn $600M In 2018
- Lose 33% In 9 Months To Make 1,000% In 15?
- Buying SMSI — Today Is The Day I’ve Been Waiting For!
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Disclosures / Disclaimers: This is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this article.
I am not a financial advisor. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this article.
I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter. Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.
I wrote this article myself, and it expresses my own opinions. I am receiving no compensation for it, nor do I have a business relationship with any company whose stock is mentioned in this article. The information in this article is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
The primary purpose of this blog/forum is to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.