Stock Forex

Using Options To Build A Portfolio

So to answer this light and superfluous charge, I dedicate this chapter to building a strong portfolio for the long term. I won’t turn on my cash flow formulas. In fact, I’ll use them to build a portfolio to be proud of—an “investment club” style portfolio, but I’ll do so my way; defining the methods and even the terms, such as “long term.”

I am no different than most prudent investors or pension and mutual fund managers. I want to look at my portfolio and see huge, brand-name stocks like AT&T, Boeing, Wrigleys, McDonalds, Nordstrom, Sears, General Electric, Pfizer, Marri­ott, et cetera. I want to own stock in companies I can eat in, shop at, dial up, and sleep in! I like quality. I repeat, I like great companies with excellent growth, trademarks, earnings, mar­ket niche, and sheer strength of size. I want millions of dollars of them and I don’t want to have to work a 9 to 5 job to get them. Boy, that’s a conundrum. It’s almost impossible to work a typical American job, with average income and accumulate millions. Yes, in 40 to 50 years maybe, but who wants to wait that long? That’s the rub—accomplishing the task of having millions, without having to work for millions. So, it is not my goal or objective which differs from the “conventional wis­dom” reeking from virtually every financial planner/stock­broker—the so-called experts—but themethod of getting there. This is where we part ways.

You see, my method is simple. I want to use a small amount of money—risk capital if you will, to generate cash flow which will exponentially generate more income. I’ve never advo­cated that a person put his portfolio at risk with aggressive plays. In fact I’ve repeatedly and strongly advised against it.

To prove this point, and so there is no misunderstanding, I’ll repeat it here. Use a small amount of money—say $2,000 to $10,000—to build a cash flow machine. Keep the balance of your money in high grade stocks, bonds, mutual funds, and even in real estate and other businesses outside the traditional stock market investments. The stock market is simply too risky for me.

Will Rogers said it best: “I’m worried about the return of my money, not just the return on it.”

Let’s deal with the $2,000 to $10,000 figures. That may seem high to participants of the “meet the 2nd Tuesday of each month, invest $50 a month and sit around for hours discussing one or two stocks, and hope for the best” clubs so prevalent today. Let’s break everyone into categories: Those with under $100,000 to invest, and those with over $100,000 to invest. Everyone reading this falls into one of these two categories. That’s simple, but the next part is not so simple. If you only have $2,000 or so to get started, then I’ll make an assumption— your family is young. If you’re older, (say older than 40) and you can barely scrape together $2,000, then you probably need a different book than this one—perhaps a motivational book, or one on vitamin pills. Whatever, young or old, if that’s it, then find the most outrageous, crazy, wild, risky plan you can find and go for the gusto. What do you have to lose? Surely you can get back (earn, et cetera) $2,000 to $5,000. In Arizona, they teach you that if you have water (bottle, canteen, et cetera) and you get stranded in the desert — drink it all—now! Apparently our bodies store and ration liquids better than our minds.

If you have $100,000, then take $95,000 and buy safe, secure, blue chip, “hold for the long term” stocks. Be extra safe. Now take $2,000 to $5,000 and go to town. Treat the stock market like a business. Be aggressive.

Read the following letter and see what I mean. The last time I talked to this man, his $20,000 was over $267,000 and that’s three to four months after attending my Wall Street Workshop.

He’s on target to make over $1,000,000 in one year, from his $20,000.

Dear Mr. Cook,

Enclosed please find a copy of my extended resume and a video copy of my film product reel. No, I’m not looking for employment, I’ve included it so that you can see that my occupation is not one conducive to “playing the stock market.” I’m a movie maker. I write, direct, and produce features for theatre and television.

Pretty far removed from the market, wouldn’t you say? So, why am I sending it? For one reason.. .I’m now six weeks or so past one of your Houston Wall Street Workshops and the results have been interesting (an understatement)!

As a filmmaker, I move from project to project. I’ve just completed a two-hour television special entitled, America, A Call To Greatness with Charlton Heston, Mickey Rooney, Deborah Winters, and Peter Graves. Next week, I’ll be directing several episodes of a new fall series for ABC. In between, I do nothing. It’s these periods of inactivity that annoy me. It’s not that I have to be constantly active, but it helps. In my industry, these periods are referred to as “being between pic­tures.” Translated, it means unemployed—“waiting.” I’ve been in the industry for some years and I always have work . . . and I always have inactivity. Having heard of your workshop, I thought perhaps it might provide me something to do during these periods. Al­though I’ve been in the market from time to time, one of your sales people convinced me that I didn’t have to know anything about the market to attend . . . and to benefit. Another customer service representative recommended that I come prepared to trade . . . to open a stock account, et cetera, so I did.

You will note from my resume that I spent ten years as a university professor and about the same on the “seminar” and “consulting” circuit. I know from expe­rience that only a few out of a seminar ever really benefit … not because the seminar isn’t good, but because most tend not to apply what they learn. I didn’t want to be one of those, so I took the tapes mailed with your “Financial Power Pack” and listened to them . . . and listened to them . . . and listened to them. Even during the class breaks, I continued to replay them, et cetera. They were helpful in that I had an idea about what would be discussed during class and became familiar with some of the terminology.

I’ve always enjoyed a “good” seminar and this one was. I must admit I was skeptical, mostly because of the perceived “hype” that went with the “selling.” How­ever, the class did deliver on what it promised (a seminar that “works,”what a novel approach).

I opened an account with $5,000. If I made money (which I had reservations about), great. If I lost money then it wouldn’t be “great” but it would occupy some of the time before I began directing again. I must admit, I didn’t expect what followed.

I began trading on the first day and knew immedi­ately that I’d opened an account with the wrong broker when he began to argue with me about my trade. What I didn’t want to do was jump into his company “hot stock of the day.” While I knew nothing about the market, I didn’t just fall off the banana boat either. Fortunately, there was a broker attending the WSWS that understood what the class was doing and was able to produce buy/sell slips demonstrating that he was actually making the trades being discussed in class. I opened an account with him and the choice has turned out to be a very good one. There was no “training” of the broker required. In fact he was (and has been) very supportive of the “Cook-Concepts.” (In fact, he’ll be attending the Wealth Academy with me in June.)

I won’t bore you with the class trading details but by Friday following Thursday’s class end, my $5,000 had grown to nearly $15,900. That got my attention! I added another $15,000 to the account and a little over a month later, my account was nearing $100,000. I added an­other sum of money and similar results have followed since then.

I wanted to learn each of the strategies taught, so I tried a number of them.

For example:

Sample Option Plays:

Bought Coke (KO) Options at $4,625 and sold after a split at $6.50

Bought Iomega (IOMG) Options at $6 and sold at $10.25

Bought Accustaff (ACST) Options at $3.25 and sold at $4,875

Sample Covered Calls:

QuaterDeck (QDEK) bought stock at $14 and sold options twice

Egghead (EGGS) stock at $12 and sold calls at $1.9375

Network Express (NETK) at $12, sold calls at $.875 and called out at $12.50

IMP Inc. (IMPX) stock at $17.50, sold calls at $.9375

Sample Rolling Stock:

Bought ScoreBoard (BSBL) at $4,125 and sold at $5,636 (dropped & bought again)

Network Express (NETK) at $3.23 and sold at $5

. . . and I could go on with some 23 other trades. I lost on five of them. Of the five, three of the losses were my fault, not the system. And listen, Mr. Cook, if you think driving a taxi doesn’t qualify a person to be in the market, try movie directing. This morning I bought 10 contracts of HBOC at $12 and now three hours later I just sold the calls at $13.50. It’s only a 12.5% return, but annualized it’s 4,562.5%. Not too shabby for a few hours work.

As I said earlier, I’d had a successful career in the consulting and seminar field so I always appreciate a good seminar (most are not). And, as much as I like the Wall Street Workshop, I would have paid the fee just for the last day’s entities’ seminar. Aside from my market success, I will save enough in taxes from that one day to pay not only for the Wall Street Workshop, but for every other seminar that you offer, the courses you sell, the books, manuals and chapters, WIN, et cetera. And, you will note from your sales records in my account that I’ve

gotten about every thing you have (paid for by the WSWS course).

Since the course, I’ve read your new “hit” in detail, studied theZero to Zillions home study course, watched and re-watched the WSWS Video Tape Sets, et cetera. Since the first course was so good, I’ve signed up for the June “Wealth Academy” and will be attending the “Next Step Wall Street Workshop/’ et cetera. It’s going to take a lot more than the 5 star entities to handle my business (I already have six), so I’ll also be at the “Executive Retreat.” The best of all this is that I haven’t paid for a dime of it. The earnings have more than covered everything.

I like your style so much that I’ve registered for the June “Real Estate Boot Camp” but this time, I’m bringing my wife. Now talk about someone without a background for real estate . . . my wife, Deborah, is an actress (she had one of the leads in The Winds of War and lead in Kotch with Walter Mathau, the lead in Class of ‘44, and the lead in The Outing, et cetera). But, she, like myself, has interests in things outside our field . . . particularly where they are profitable. To keep it in the family, my son will be attending your youth WSWS in August. It’s a great idea. I would have liked to have had this background when I was his age.

The concept of teaching the youth financial concepts when they are young is terrific. If I can help you in any way, please don’t hesitate to ask.

Mr. Cook, thanks for being in the “business.” The only problem is that now I’m enjoying the market more than the other things that I’m doing … a nice problem!

Best Regards,

Dr. Warren C.

Okay, let’s say he only makes $250,000 on the initial $5,000. Let’s say that’s you. You’re two days of training away from having the skills to do this. If it is you, and you are into safety, remember, you have your $95,000 worth of good, solid invest­ments to make you feel good at night and when you get your portfolio’s statements. Hopefully, the dividends and growth of the stocks will give you 10% plus per year. That could be $10,000 (of which only a small portion is cash). You’ve got the best of both worlds; aggressive cash flow and stability.