Catastrophic WINNERS: The Biggest Secret

Last week, as he promised, Dr. Richard Smith came through with a massive investing breakthrough on our webinar...

He sat down with me, Porter Stansberry, and our host Jared Kelly... And he showed attendees how I could have dramatically improved my long-term investing track record by doing one simple thing. (Then he introduced an even bigger breakthrough – more on that later.)

Essentially, he said my exit strategy was good, but not good enough... that I was selling too early, based on history. And he told me what to do to fix it.

He also showed how making the right decisions about how much money to put into each investment can help you strategically increase your capital gains.

I wanted to share a bit of our conversation today.

Once you read it, I urge you to go back and listen to the whole webinar. It's free... And in addition to explaining how to improve your investing results, we also discussed our three differing views of how to be invested right now.

Here are a couple key minutes of our webinar conversation...

Richard Smith: If you're new to investing, to me this is the biggest secret – the power of what I call catastrophic WINNERS. Porter, you talked about avoiding catastrophic losses...

Porter Stansberry: You don't want those. You DO want catastrophic WINNERS.

Richard: You do want catastrophic winners.

Porter: Yeah, like Seabridge Gold (SA) and Uniphase [both of which were recommendations that soared over 1,000% before we sold them]. The one out of 100 investments you make in your life. You've got to let them go [higher].

Richard: Once you stop undermining your success, you can enjoy a few of those. [...]

Steve Sjuggerud: [When] I started out as a broker in the early '90s, I would see customers constantly take 25% profits. You're never going to make a 400% winner if you take 20% profits over and over again.

Jared Kelly: So, Richard, this is an example here. [He gestures to a chart. See below for a reproduction.] You have a 25% trailing stop on Visa (V)...

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Richard: Yeah, this is an incredible one. Visa actually IPO'd in 2008.

Porter: This [was] one of my recommendations.

Richard: Visa has been around forever, right, but it actually IPO'd in 2008. My system turned green there in 2009 [signaling a buy]. I think Porter recommended it that year.

Porter: I recommended the stock and then got stopped out.

Richard: You got stopped out with a 25% trailing stop for a 6.9% gain. But at the time coming out of the financial crisis, Visa was a lot more volatile than it is today. You needed a 46% trailing stop on that stock [at that time]. That's how much noise or uncertainty was in Visa. A 25% was inevitable to get stopped out.

Steve: You had to be willing to suffer a 46% decline [to get 600%-plus upside, shown on the chart].

Richard: Yep, yep, exactly. And [it would have] kept you in that stock all the way to today. [The volatility quotient or "VQ" on Visa has fallen dramatically from 46% in 2008.] I think the VQ on Visa today, it's below 20%.

Porter: I think Richard's going to have my entire litany of tears in this presentation.

[Laughter]

Richard: But that's incredible, isn't it?

Porter: It's incredible.

Richard: That's a catastrophic winner.

Porter: And obviously, people, this is very humbling for us. [Taking a 6.9% gain when it could have been a 600% winner.] I mean, Steve and I have spent our entire lives doing this. And we care deeply about the results that we're able to generate, both for our track record, but more importantly, for the impact it has on the lives of our subscribers. And trust me, we hate it when we get it wrong.

Steve: Yeah, and you had the [Visa] story right. You had a compelling story.

Porter: I had it right, but what I want you [the viewer] to know is there is a higher level of how to implement our ideas.

Richard: It's a higher level of portfolio and risk management.

Porter: There's a higher level of portfolio and risk management. And I want you to learn it, and Richard is the guy who can teach you.

Richard: And it's unique to every individual, because everybody has their own levels of risk tolerance. Do you want to be in a stock that has a 46% VQ?

Porter: Maybe not. But if you want to optimize your results, this is the way to do it.

Richard: So I am going to get into my new research and show you exactly what I think is going on in the markets. But, folks, I can't underestimate or overestimate how important this stuff is. This is the most important stuff. To be able to avoid the catastrophic losses, to have some catastrophic winners, to be in a stock that goes from $20 to $120, steady, in an uptrend, and not get out of it for years... That's the kind of thing that when that starts happening in your portfolio, that's when your life changes. So that's big stuff.

Jared: So, Richard, in addition to the trailing stops, there's another component, kind of a basic component, that really makes a massive difference, and that is position sizing...

Richard: Yes. And this was something totally unexpected to me. I did not expect to make a discovery about volatility-based position sizing.

Porter: I thought that you would.

Richard: You've been ahead of me on some things and you've nudged me in some directions that have turned out to be just incredible, Porter. But yeah, volatility-based position sizing. So what I figured out was not only do people make emotional decisions about when to buy and when to sell... We make emotional decisions about how much to invest. And guess what we tend to put more money into?

Porter: The riskier things.

Richard: The stocks that we're most excited about, right?

Porter: Yeah.

Richard: And guess what the VQs are on the stocks that we're most excited about?

Porter: They're really high.

Richard: They're high, right? I mean that's basically the definition of an exciting stock. There's a lot of uncertainty in it – you don't know. It's got a great story. You think you've got a better story and you know more about the story than somebody else. But [it] was amazing when I started to apply that volatility philosophy to position sizing. I'd see how people would – over and over again – put too much money into a stock that was a great-story stock, but was not the place for 10% of their portfolio.


The work Richard is doing is brilliant...

He showed us that without changing your investing ideas – just by changing how much you invest, and when you get out – you can dramatically improve your investing results.

If you missed it, I strongly urge you to listen in on the rest of the free webinar, right here.

Good investing,

Steve

P.S. Later in this discussion, Richard completely shocked Porter and me with his new discovery – what he calls "Kinetic VQ." It's a system that can help you achieve some of the biggest gains I have seen in my career. You will want to hear about this. Click here to listen in...

Further Reading

"Dr. Richard Smith made me look like a fool... And it did me a lot of good," Steve writes. Learn more about what he could have done differently to improve his exit strategy right here: The Man Who Made Me Look Bad.

"By sticking to our exit plan, my readers made A LOT of money in a stock that ultimately went nowhere," Steve explains. Take a look at how a simple investing tool can help you make successful trades right here: This Secret Turned a 'No Gain' Stock Into a Triple-Digit Winner.

Market Notes
FOLLOW THIS PAYMENTS LEADER TO GAUGE THE ECONOMY

Today’s chart highlights another big winner in the financial sector…

We like to say firms such as JPMorgan Chase (JPM), Morgan Stanley (MS), and Bank of America (BAC) act as America’s “financial backbone.” They rise and fall with our country’s ability to make money, service debts, and generally “just get along.” This idea applies globally, too. And another big financial player – the company Richard discussed earlier in today’s excerpt – happens to be the perfect example…

Visa (V) is a global leader in credit cards. This $270 billion financial powerhouse boasts more than 3 billion payment cards in circulation worldwide. With every transaction via card or mobile-payments app, Visa collects a tiny fee. In short, its success is an excellent gauge of economic activity. And it’s thriving today… Visa saw $5.1 billion in revenue last quarter, up from $4.5 billion the same quarter last year.

As you can see below, Visa shares are soaring… They’re up around 43% over the past year, and they recently hit a new all-time high. This gauge says the global economy is chugging along…

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