I am a Canadian, who has been investing since the early 1970’s. When I was younger I bought a variety of stocks and mutual funds and found that overall I was not getting the return I had hoped. There were many years when my portfolio showed negative gains. I found that the brokerage firm I was using ended up losing more often than gaining.
By 1973 my portfolio was down more than 60% and I was shocked. My broker complained that it was a secular bear market and no one was making money. But I had two young children to care for, mortgage payments, loans and more. I had to find a better solution.
I felt that I had to learn to care for my own investments. I felt that since the brokers were losing my money I couldn’t do worse and I would only have myself to blame. I cashed out of the market and put everything into a GIC for 1 year. It earned 3.5%. I read every book on investing I could find and then sought out a mentor. He explained that the secret to investing and growing my money was to earn small monthly amounts through options on large cap companies that paid a dividend, had strong balance sheets, good growth prospects and had options available.
He taught me to split my money into 3 categories; fixed income, stocks and cash. He explained that people do not keep enough cash on hand to be able to take advantage of opportunities as they presented themselves.
He showed me how chasing stocks, high fliers and penny stocks were pointless and showed how, by using options to earn income, I could get into stocks at a discount to their trading value, protect my portfolio and grow my capital consistently. He explained that while high flying stocks could produce spectacular gains, they can also crush a portfolio. He showed that through consistent annual gains while controlling any losses, my portfolio would grow annually.
Since then I have invested in stocks without worry or concern. I stay with large cap companies that I believe will withstand the test of economic meltdowns, recessions and changes in corporate and product structures.
I do not think many investors contemplate just how risky stocks are. They also fail to establish clear goals, a plan and objectives. It is through such planning that all emotion is erased from the equation making it easy to make a decision rather than be swayed by the noise of the market.
In 1993 I turned to the SPY ETF which had just come out, and worked to develop an effective SPY PUT hedging strategy to protect my portfolio during times of collapses.
I now keep 30% of my capital in cash, 30% in bonds or fixed income and 40% in stocks. The 30% in cash might seem high but surprisingly, almost every year there are opportunities that present themselves and allow me to put my cash to use and earn very good returns. I then rebalance my portfolio and return it to 30% cash.
Having cash available has saved me more times than I can remember. This includes 1975, 1977, the crash of 1987, the downturn of 1990, 1998, 1999, 2000, 2001, 2002, 2003, and the bear market of 2007 to March 2009. All it takes is one bear market and that cash that was earning practically nothing is suddenly returning better than 60% in a market rebound. Earning 60% every once in a while makes up for those periods when the cash earns very little.
You can view the purchases I made in 2009 at the collapse of the bear market here:
You can see from the above trades that keeping cash available has proven advantages.
As well, always having some cash available means that if a quality company I am invested in, goes from $50.00 to $15.00, I have the conviction to buy more at $15.00 and continue to sell covered calls and collect the dividend. As the stock recovers, I have already averaged down and the overall stock cost basis is greatly reduced. All the way up, I can be exercised out, buy back in, sell more calls and puts and be exercised again.
Through this strategy of selling options I am always in quality large cap companies and making money. Many are boring companies but if I can average 1% a month on my overall portfolio, the amount I can earn is consistent and worry is reduced. A good example would be my Royal Bank trade or my Sunlife trade. Both companies were hammered in the fall 2008 and again in March 2009. Yet because I had cash available, I was able to make large gains on both positions as their respective stocks recovered.
Since 1980 I have employed many option strategies including collars but my favorite remains selling naked puts to get into stocks and covered calls to be exercised out.
I also enjoy paper trading to learn new strategies and apply them to determine their consistency for profitable returns. Investing in stocks can be very risky and I am glad to have discovered options.
My site is NOT meant for real time trading or for readers to invest in the same stocks or try to copy the trades as I make them. Often I post the trades LATE as I am quite a bit older and have a few medical issues that can delay keeping trades up to date.
The purpose of my site is to show the possibilities of the various strategies I use. I hope that my site will get readers thinking about the importance of investing.
Hopefully through sharing my strategies, trades and opinion, other investors will consider them and try to develop their own strategies and apply them to their favorite stocks or ETFs. I highly recommend paper trading to establish consistent returns and determine strategy suitabilities that met individual comfort and risk levels.
All the best in your investing.