Stock Forex

I also like to share in the profits of the company. I take all the dividends I can take, but for the most part I’d rather the company keep the profits and expand the business.

These dividends include regular dividends, irregular divi­dends (which I look for all the time), a cash distribution (which may not be taxable, but which reduces the price of the stock which could be sold for a loss), and MIPS, or Monthly Income Preferred Securities—large companies which pay out monthly checks.

One of my strategies is to own the stock long enough (sometimes as little as one day) to capture the dividend. Wait until it increases in value, then sell it. I do this every quarter with certain stocks.

 

Options

Buying stock options gives the investor a chance to control large amounts of stocks with a small amount of money. An option gives you the right (not the obligation) to buy or sell a stock. Because options end—they expire—they are very risky.

If you learn how to play them well, the profits can be phenomenal. I’ve written extensively on many forms of options investing elsewhere, so only a brief synopsis is here.

 

CALL OPTIONS: a right to buy stock. You buy these when you think the stock is going up. This could be on a SLAM (serious down movement), a roll, (when the stock is at the bottom of the roll range), or a stock with good news, et cetera. In short, when you think the stock has pressure to move up, buy a call, ride it up, and sell.

 

PUT OPTIONS: a right to sell stock. You build value in your put option as the stock decreases. Buy puts when the stock hits a high, or is at the top of its roll range, in short, when you think the high price can’t be sustained.

 

ROLLING OPTIONS: buying calls or selling puts when a stock is at its low range and then buying a put, or selling a call, when it peaks out and starts back down. Look at the following:

This gives you a way to make money on both sides of the movement.

 

SELL CALLS—COVERED: writing covered calls is perhaps my favorite way to generate consistent cash flow. Yes, there are other ways I make more money, but not as consistently. This method lets you generate income (in one day) by selling a call option on stock you already own or stock you’ve purchased for just this purpose.

The rules include:

1.    Buying stock on margin—this allows you to double your rate of return.

2.    Volatility—almost like a rolling stock so we can take advantage of the swings.

3.    Keeping within the $5 to $25 price range for maxi­mum returns with a small amount of cash tied up.

There are many variations, techniques, and examples found in my other books.

As the stock moves down, the price of the options moves down also. In writing covered calls, we either sell the call (uncovered—if we don’t own the stock) or buy the stock (hopefully at the low) and wait to sell the call as the stock increases. We want maximum cash flow so we sell at the “maximum” time.

We bought the stock at $4 and sold the $5 call (about 35 days away—the next month) for $1.25 when the stock was $4.87. At the time we bought the stock, the $5 call was 12.5c We take advantage of the stock movement, hence compounding the option rate of return.

 

UNCOVERED CALLS: many of you won’t be able to do this until you have more experience or more cash in your account. This is called “going naked,” in that you don’t own the stock. You use this strategy when the stock is at the high part of its range. You sell the call—generating pure cash. You wait. As the stock moves down, your obligation to deliver (sell) the stock goes down and eventually disappears as the time expires. You made money with no investment. The risk is that if the stock goes up, you’ll have to buy it at a higher price (offset by the cash you made for selling the call). Don’t sell calls on stocks you think are going up; either buy the stock low (covered) and wait to sell the call—get­ting a higher premium for the options and eventually sell­ing (getting called out) at a higher price, or sell the call when the stock is high—wait for a dip and then:

a.    buy the stock or

b.   buy back the option or

c.    just let the option expire and keep the cash!

 

SELLING PUTS: this is a great way to make money. You sell a put, generating income. You are selling the right for someone to put (sell) the stock to you at a fixed price. You use this strategy when the stock is low and heading up. The income (premium) you received is yours to keep. As the stock rises, the put option you sold goes down in value. You could either buy back the option at a lower price and keep the difference, or let it lapse on the expiration date. If the stock has risen above the strike price, no one will put it to you. If you do have to buy the stock, the cost is offset by the premium received—like buying wholesale.

 

TANDEM PLAYS: there are many combinations, but my favorite is a combination of buying/selling calls and buying/ selling puts. Here is how it works (see the chapter: “Tandem Plays” for more on this).

When the stock is low, sell a put and buy a call—both strategies gain advantage with an increase in the stock price. You make money now selling the put and you make more later selling the call option you purchased.

When the stock is high, sell a call and buy a put. You make money on each as the stock moves down. This gives you four plays on a rolling stock with options.

 

SHORT SELLING: short selling allows you to borrow stock, sell it and generate income. As the stock moves down, you purchase it, pay off the loan (borrowed stock) and pocket the difference. Its easier said than done, but in my case, I’d rather buy puts if I think the stock is going down. I use short selling when I’ve sold a na­ked call and have to per­form. I’ll bor­row stock to cover my posi­tion and hope it turns down.

 

BLUE CHIPS: there are so many definitions of blue chips that you need to make up your own definition.

These are the stocks you want to own for a long time. They could be brand name stocks, large companies that have fallen out of favor, even regional companies you can identify with.

 

Cash Flow

Use your profits from selling stocks/options for investing in real estate or other investments like businesses or put your money into good, solid, Blue Chips. The name of the game is to get your stock market profit buying your “hold” invest­ments.

You choose the percentages of your money that work best for you. This is a good solid growth.

This is a simple way of finding stocks which are severely underpriced, or at least ones which you think have a high likelihood for going much higher.

Stocks in this category could come from:

•     Really bad news.

•     Bankrupt companies on their way out of bankruptcy.

•    Turnarounds.

•     Companies just going public or just getting listed on an exchange.

•     Companies breaking out of their roll range with better earnings, new products, et cetera.

•     Traditional penny stocks with some reason (pres­sure) for the stock to go up.

I do bottom fishing stocks all the time. I bought 141,500 shares of one company at around 6cent and sold it 18 months later for $1.40 to $1.50. A nice $200,000 plus profit! I look for more opportunities like this all the time.

There are certain stocks which trade within a certain range. Some brokers call this channeling. They move up to a high (resistance) and then to a low (support). Many stocks do this, but the ones I like (so I don’t have a lot of cash tied up) are cheaper stocks—say in the $1 to $5 range. I find a stock which goes from $2 to $2.75. It doesn’t seem like a lot of profit, but 75$ on a $2 investment in one to three or four months is not bad. Look at the following examples:

The three rules of rolling stocks are:

1. You always know your exit before you go in the entrance.

2. Don’t get greedy—sell below the high for quicker and surer profits.

3. Stick with the less expensive stocks—so you can buy more.

Many high-priced stocks roll. Look at the following:

These are nice predictable rolls, but they are high priced. I play them, but with options. See the section on Rolling Op­tions. (For more information on a rolling stock, see Wall Street Money Machine and Zero To Zil­lions,   and   of course, the Live Wall Street Workshop.)

That portion of your portfolio you’ve chosen to use as your cash generation machine should be used wisely, yet aggres­sively as you see fit.

It is in your comfort level that you will trade. As you gain more experience, you’ll probably spread the edge of the enve­lope—try new things, or variations. This chapter is about several of these other ways of making money. However, in order to put this information in such a way you can easily use it, this chapter is like a “play sheet,” or a checklist. It will cover most of my formulas in an abbreviated format. I’ll try to be complete with the quantity, but brief with the explanation. Indeed, I’ll try to keep the definition or explanation to one or two paragraphs.

Each of these formulas is explained in detail in other books, primarily the Wall Street Money Machine, other home study courses, primarily Zero to Zillions, and in other reports I write as I perfect various strategies.

I wish more than anything that when I started investing I would have had a chapter like this—to see in a few pages all the potential plays, formulas and recipes.

So here we go. We’ll start with my old favorite. Remember, these strategies are about generating predictable cash flow.

If you like mutual funds, or if you are happy with 6 to 10% annual returns, or if you are happy with the boring invest­ments your stockbroker recommends, you probably should not read on. If you want some excitement, then join me as we turn the stock market into a business. I’ll take a problem/ solution approach:

 

Problem #1: Getting Started

Most small businesses require substantial up-front costs, to get up and going, and then to keep going until the business makes a profit. Usually the owner is the last to see the profit lining his pockets. Many times the owner goes into substan­tial debt just trying to get his or her business going.

 

Solution #1:

The Wade Cook method of investing in covered calls, rolling stock, stock options, dividends, spreads, buy-writes, rolling options, et cetera requires as little as $500 to get going. These methods generate a quick profit—again, actual cash, which can be pulled out and used or be left alone to com­pound.

Most new businesses require a profound dedication and true commitment, and almost all businesses require extensive knowledge or experience. This brings me to problem number two.

 

Problem #2: Time/Financial Commitment

Businesses are like babies—especially at first. They demand attention. You have to be there. Even when and IF it grows, it requires more time to train and trust managers. It is hard to take vacations. It is difficult, but not impossible, to have a family life and/or a church life.

 

Solution #2:

The stock market, again the Wade Cook way, allows you to be as involved as you want. Most investors definitely “work” part-time. You control your time.

When I am teaching at one of my seminars, I start with this question: “How many of you want to make over $100,000 per year?” Hands shoot up all over the classroom. Then I ask, “If you want to make over $100,000 per year, why are you talking to anyone about making money who is making less than that?” And then I continue, “To whom are you listen­ing? Where are you getting your advice?”

You can probably relate to this question. You have probably kicked yourself for following the financial advice of people who “ain’t makin’ no money.” Ironically, when you finish reading my chapters, you will probably ask some stockbroker (maybe even a well-known broker) whether you should buy my books and attend a Wall Street Workshop. He or she will probably give you unintelligent advice. Just let him or her read the guarantee that I provide on the back of every one of my brochures, and be assured that because of my guarantee, you have nothing to lose and everything to gain. Please note, many of my students are stockbrokers who sit dazed and amazed at their former naivete.

These students may have known bits and pieces before attend­ing one of my Wall Street Workshops, but no one, and I mean NO ONE, has ever shown them how to systematically use a formula to generate perpetual income.

Your participation in your stock market business is only a few minutes at a time. You can read and study in your spare time, (on airplanes, at lunch, in the bathroom, et cetera). A minimal amount of knowledge can be leveraged repetitiously to generate outstanding income. And you do not need a host of employees or managers to help you.

 

Problem #3: Overhead

With a traditional business you have rent, insurance, equipment, employees, taxes (FICA, employee withholding), phones, computers, even pencils and every other imaginable and unimaginable expense. The relentlessness of these ex­penses make it difficult to make a profit on a continued basis. And it seems the amount of money needed to cover expenses rises to use up any available cash you have.

 

Solution #3;

This is where your business is very different. Simply put, you have none of these. Once you learn the Wade Cook formulas, you only buy stock or options and then sell them to generate a profit. If you currently have a brokerage account, it is easy to start investing, and there are many ways to make a profit (selling Covered Calls, Selling Puts, Rolling Options, et cetera) without having any overhead. When you make a profit, you keep it all. There aren’t a dozen strainers or filters for your profits to go through, each one decreasing its size along the way, and all this before you get paid.

After two or three months of implementing these easy-to-use, but profound methods, most business entrepreneurs will be ecstatic. I know you will love the simplicity of it all.

 

Problem #4; Capitalizing Your Business

Most businesses require a lot of start up money for buildings (rent, lease, purchase) product development, equipment, oper­ating expenses, et cetera. They also require a large investment of time and energy, and most have a revenue curve which can take six months to two years to show any profit.

 

Solution #4A:

You can start in the stock market with almost nothing. Granted, if you start with less than a thousand dollars, it is more difficult because the commissions eat up a large part of your smaller profits. But you surely don’t need the amount of capital required to start up a traditional business.

 

Solution#4B:

Line of credit. I realize this part will not solve all your starting needs but “Margin Investing” is fun and it is definitely available. When you put $5,000 into your brokerage firm, your broker will let you borrow an additional $5,000 to buy stocks.

 

 

This is a loan and the broker gets to choose the collateral (stocks they take). They will also charge interest on the outstanding balance (this is peanuts compared to the profits which can be generated).

You should be careful and pick stocks on dips, or stocks which will improve (use this amount for writing covered calls). If you make 22 to 38% per month, 7 to 9% interest a year is a small price to pay. See margin variations and concerns in the Wall Street Money Machine.

The solution to the second point listed above provides an interesting twist. Not only can you start your stock market cash flow business part time (even minutes a day), you can do this even when your existing business demands a lot of you. I use my car phone a lot. It allows me to be effective on the road and even when I travel.

Other interesting points:

1. Most people go into business for many reasons besides making money. They want to expand and grow, they want to develop and produce an idea, a product, or a service, and they want to not only control their destiny long term, but their time on a daily basis. Once in business they realize their time is controlled by other people and other things. They realize too late that most of their efforts are directed in ways which produce very little of their actual profits.

They are quite delighted when they experience the simplicity of the methods of interfacing with the stock market (usually a phone call to their broker), the quick profits, and the end of the things that slow down the movement of income to the bottom line.

2.    Investors can read and do research in the oddest places; driving around, in airplanes, while wait­ing, et cetera.

3.    Investors can easily turn a getaway into a working vacation. Yes, you may need time away from your main business or job, but a few minutes here and there can really build up your stock market cash flow. 15 minutes a day could pay for your whole vacation and then some.

 

Problem #5: Specialized Knowledge

While it’s true in your own business that you need a product or service and a certain degree of expertise in them, it’s not exactly true in running your brokerage account.

 

Solution #5:

1.    Once you understand the Wade Cook system, learning and using specific formulas for cash flow generation, then you don’t have to know everything about computer chips to invest in high tech stocks, or in temporary help companies to invest in them, et cetera. You learn the simple formulas and repetitions, and find companies which fit. Your expertise is in the methods— working the formula.

2.    As you start to invest for holding purposes— building your retirement portfolio, you can then get to be an expert in finding companies which are experts (specialists) in their own fields. You’ll learn a lot about yields, what drives a stock, book value, earnings ratios, et cetera, as you move to this point.

Note: I realize that someone hearing this for the first time may not understand this, so a very brief explanation is in order. I, Wade Cook, believe that at first an investor should employ a very aggressive approach to income generation. Proxy (options) investing allows an investor, by starting with a few thousand dollars, to build up to several hundred thousand in a year or two. I have too many students to count who have done this. It’s exciting. Later you can take some profits, continue to do aggressive plays, but buy stocks which you like for the long haul. You can also take some profits and move them away from the market to buy real estate, second mortgages, CD’s, annuities, et cetera. These have their own risk factors, but you are diversified.

3. If you have your own business, you probably know what it takes to be profitable, to expand and grow. This same knowledge can help you find in other companies the characteristics for success. For ex­ample: If you’re a start up, you should know what it takes: look for Initial Public Offerings (IPOs). If you’ve run your own business this will make sense. Use it to your best advantage.

Before I move off this topic, let me share a few more ideas.

Most businesses fail. Something like 80% of all new start­ups fail their first year. Of the 20% that make it, 80% of those fail the second year. That’s a net of four or five businesses which make it. However, in franchising, 85% of franchisees make it their first year. Why? They have a track to run on, service and support, experience of the franchisor, combining the synergistic expertise of other franchisees, manuals, et cetera. The franchise fee and on-going fees are small prices to pay for good backup and support.

Wade Cook Seminars, Inc. has training, backup support, a clearinghouse of ideas, et cetera to help small investors, real estate investors, and small business people make a dramatic impact on their bottom line. If you don’t use our training, please get it somewhere. Your first and then your continued and paramount investment should be in knowledge.

 

Problem #6: Wealth Problems

Once you start making good money you become a target for higher taxes, lawsuits and other risks.

 

Solutions #6:

Problem A: You need to learn how to reduce your exposure to risk and liability.

Solution A: Set up a Nevada Corporation, Family Limited Partnership, and Business Trust.

Problem B: You need to pay fewer taxes.

Solution B: Attend Wade Cook Seminars, Inc.’s Wealth Academy. Set up a Nevada Corporation (even have a broker­age account in another state), a Charitable Remainder Trust, and a Pension Plan.

Problem C: Make sure your family and church get every­thing.

Solution C: Use a Quality Family Living Trust in conjunc­tion with other entities like a Charitable Remainder Trust (CRT).

Note: callWade Cook Seminars, Inc. and ask about the BEST (Business and Entity Skills Training which accompanies the Wall Street Workshop) and Wade Cook Seminars, Inc.’s flagship event_the WEALTH ACADEMY. 1-800-872-7411.

THE PROPER BLENDING OF THESE ENTITIES TRULY BRINGS PEACE OF MIND

 

Problem #7; Retiring Age

Retiring at Age 35 or Being Really Cash Flow Rich at 65

 

Solution #7:

Treat the stock market like a business. Buy wholesale, sell retail. Only buy so that you have something to sell. Be aggressive. The preceding methods are what my books and seminars are all about. Many people, starting with even $10,000 are ready to totally retire a year or two later. This is no joke. I say ready because they could if they wanted to but they’re having too much fun. If you know you’re going to make $5,000 today, it’s pretty easy to get out of bed.

1.   Do you invest in a Pension type account?

A.  Keogh Plan for self employed,

B.  A Corporate Pension Plan,

C.  An IRA, SEP-IRA or the like.

Use peripheral entities for conducting the business or investments.

2.    Many investments are “retirement” in nature.

A.  Annuities

B.  Real Estate

C. Section 29, 42, Tax Advantaged Investments

All are deferred until you sell.

Training will help you determine which is right and when it’s right for you!

When a person is starting a business or in the midst of running or building up a business, his or her time demands are onerous.

Treating pension money like a business—doing aggressive strategies may be next to impossible. It may be difficult even putting money aside.

 

Two thoughts:

1.    Do it anyway. Two-step the money away from your business. Discipline yourself to put money aside— the highest percentage (amount) possible even if you have to let it sit for awhile—invested in passive, “no hassle” investments.

2.    Later when you slow down the “busyness” part of your life, then get more aggressive with your retirement money. Once you see how fast it compounds tax free, you’ll wish you had started earlier. The point: get rich in an account (entity) which pays no taxes. Don’t put this off.

 

Remember you get a “double benefit” when you use a pension type arrangement.

1.    Tax deductible donations—INVESTING WITH BEFORE-TAX MONEY

2.    ALL income (dividends, interest, partnership, et cetera) and all capital gains are made tax free and compound tax FREE.

 

THAT’S RIGHT, TAX FREE—the pension plan pays no taxes. You only have to claim income in 30 to 40 years when you pull it out.

Problem #8: Include Family/Train Kids

An age old problem exists in not only trying to involve your family but also in making sure they can perpetuate the dynasty.

 

Solution #8;

You’ll have just as much problem here as in any business. Care, concern, legality, and dedication are time honored problems.

A.  A few solutions:

1.    Let your children manage (a fictitious) ac­count at first. Later let them play with real money.

2.    Put money into an IRA for your kids to manage.

3.    Let them slowly take over the family ac­counts. (Set up so they can only trade—not make withdrawals.)

4.    Let kids earn their way through college.

5.    Discuss strategies frequently, assign them research projects.

6.    Have them visit companies and ask ques­tions.

7.    Immerse them in reading—articles, stories, reports, news releases.

8.    Plan working vacations—visit factories, companies (many will give tours).

9.    Attend shareholder meetings.

10. Track the impact of:

a)    new products and services

b)   competition

c)    expansion

d)   acquisition of debt

e)    other news

11.  Take them to seminars, forums, et cetera. Call Wade Cook Seminars, Inc. about the Youth Wall Street Workshop.

12. Listen to them. Let them in to ask their questions and let their questions guide you.

B.   More thoughts for older kids:

I believe the best financial gift a mother and father can leave is instilling in their children a desire to be self-sufficient, a team player, passionate and willing to do “what it takes” to support their families. If the parents are rich and have older children, they eventually need to be brought into the family dynasty—either to dismantle it or perpetuate it. All of the thoughts given above for younger children apply to your 40 and 60 year old children—most adults are teenagers when it comes to wealth protection and wealth endowment.

 

Problem #9; Winding Down Your Business

Sometimes it is more difficult to end a business than it is to start. You may have employees, leases, contracts, and commitments. It can be painful.

 

Solution #9:

Stock Market investing has no such demands. The worst “hard to get out of” situation you could get into would be a stock or mutual fund which is currently down in value.

Some thoughts:

1.    If you follow the Wade Cook system your empha­sis will have been on cash flow. Retiring will mean doing less or putting your extensive profits into high yielding investments or Section 29 income and utility stocks, bonds, MIPS, et cetera for income and tax credits.

2.    The activity of building your fortunes will now help you choose wise investments. If you have been using careful forethought, you will have used some of your profits to have purchased high quality stocks. Quitting will not be painful but a smooth transition many months or years in the making. You will learn how to build a solid financial house with a good supporting foundation.

 

Problem #10: Drive and Passion—Fun and Excitement

Rarely have I seen a true entrepreneur go into business for the “money” alone. They want to help to contribute to others and to better their family’s position. Most humans know instinctively that the way to wealth is to enlarge the pie. The problem is many get bogged down, dismayed and even after decades feel unsatisfied.

 

Solution #10:

The stock market will not solve this last problem. The proper application of knowledge is exciting. Working and fine-tuning cash flow formulas will produce pronounced results. Involving family and friends can be gratifying. Prepar­ing for a great retirement is thrilling. Planning your financial affairs so your family, church, or charity get everything is satisfying. Ultimately, your true happiness will come down to your relationship between you and your Maker.

It is to this ultimate end that we at Wade Cook Seminars, Inc. dedicate our service to you and hope that we are but one stepping stone to help your sojourn on this earth be one of peace, happiness and fulfillment.