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Tuesday, April 1, 2008
Pocketing triple-digit gains in "go-nowhere" stocks – it shouldn't be possible.
But we've done it in our newsletters time and again...
No, we don't buy options or do something wacky or foolish... Instead, we simply practice what I consider good money management. Today, I'll share with you a couple of my favorite money management techniques. These techniques have allowed our subscribers to pocket triple-digit gains – even in stocks that ultimately do nothing over the course of 12-18 months.
Pay attention here, as these techniques will likely make you a heck of a lot more money over the rest of your investing career than any "hot tip" you'll receive.
The best way to show you these techniques is by example... actual recommendations we've made to our subscribers. Let's get started...
PetroChina shares closed at $118.80 a year ago (April 3, 2007). Late last week, they closed at $121.73. So the shares rose 2.5% in about a year.
But True Wealth subscribers pocketed a triple-digit gain on this stock during that period.
We made a triple-digit profit in six months on half of our position... because we sold half when we doubled our money. Then PetroChina hit its trailing stop... So we sold our other half a month later. We pocketed quite a large gain on that, too. The chart tells the story...
Our PetroChina trade used two money management techniques: selling half when you double your money and using a trailing stop to preserve your gains.
Another example is shares of JDSU... We recommended this stock back in 1999. Shares ran up more than 1,000% in a little over year after we bought it. Then they fell 25%, triggering our trailing stop. Our subscribers pocketed gains of just under 900%.
In this trade, we followed another of our money management secrets... We let our winner ride. Next, we stuck strictly with our discipline... Once shares of JDSU hit our trailing stop, we got out – to the tune of nearly 900% gains. (Thank you very much!)
We never expected the stock to soar like it did. And we never expected the stock would return to where it started just 18 months before... But it did!
In the end, JDSU was a flat stock. But thanks to our money management techniques, letting our winners ride and following our trailing stop strategy, readers made a whole lot of money.
We have more examples...
We bought shares of Seabridge Gold in my letter Sjuggerud Confidential less than three years ago. We sold half when it doubled. And we let the rest of our winning position ride. Now we're up more than 800%. Also, we have our exit strategy in place, which will lead us to close out our position in the stock in about 12 months.
Good money management can make you even more money than good stock picks... as the results of these stocks show.
The secrets to good money management are: Sell half when a stock doubles. Let your winners ride. And have an exit strategy – the failsafe one is a trailing stop.
We use these strategies because we can't know the future... but we want to maximize our reward and minimize our losses no matter what it holds. Think of it like poker: We try to play our money the best for whatever hand we're dealt.
I can't promise these techniques will make you money on every trade. But you will have the most chips left at the table toward the end of the game... and that's the goal.
WHY COMMODITIES COULD MOVE SIDEWAYS IN 2008
After two months of soaring gold, oil, and grain prices, commodity bulls are getting a refresher course on how quickly things can change in the market. The benchmark CRB Index fell 9% in just a week last month.
The "CRB" is an index made up of the most commonly traded raw materials. You can think of it as the Dow Industrials of commodities. Energy represents the largest weighting by far, at 40% of the index.
Led by crude oil's huge rally, the CRB has increased 25% in just the past year... and now looks stretched to the upside. Given this condition, we wouldn't be surprised to see CRB move sideways or even down for a year.
We're believers in the long-term commodity bull market... but we also realize no market runs in a straight line to the sky. Even during their bull market of the 1970s, commodities moved sideways for several years before making a huge leg up into 1980. This bull market will be no different.