Every investor's dream is to match the success of the legendary Warren Buffett. But one of the big secrets to his long-term success is no secret at all...
It's simple: He doubles up on his winners! He buys more shares of a winning stock as it moves higher.
Unfortunately, many investors do the exact opposite. They double down on their losers – and then they wonder why they're not as successful as Buffett.
In late 2016, I presented a simple strategy based on his "doubling up" approach. Today, I'll explain how it can help you get the most out of your best investments...
Over the past couple of years, Buffett has been adding to his holdings in consumer-technology giant Apple (AAPL).
He first bought AAPL nearly two years ago... and has increased his position nearly fourfold while shares moved higher.
Take a look...
As you can see, this strategy has worked well for Buffett's investment so far. Yet many individual investors don't follow his lead.
Instead of adding to their winners, they add to their losing positions. They hope that buying more shares at a lower price will help them get back to breakeven faster.
This rarely works. But investors rationalize it by telling themselves a myriad of things, such as:
- The market is just slow to catch on to my great idea.
- I did all the research, and I know I can't be wrong.
- The stock is cheaper now – that makes it a better deal, right?
- It won't take much of a move up to get back to breakeven.
When we look at these reasons in writing, they seem silly. Yet investors will do almost anything to justify sticking with a losing position.
You can avoid all this frustration by doubling up on your winners. Here's how we do it with my TradeStops software...
One of our tools generates a measure of risk and volatility for each investment. I can't go into all the details here – the important thing is how we use it: We add to our position every time the price rises by twice the amount of this "volatility quotient."
You can see an example of how this works with beer and wine maker Constellation Brands (STZ). We added to our position at each of the arrows below. Each time, shares had risen by twice their volatility measure at the time of our last buy. Take a look...
This is our favorite way to follow Buffett's footsteps. Our tools make it easy. But the important thing is how well this idea works – and the difference it can make to your portfolio.
You can start doubling up on your winners right now... by buying more of the investments that have proven to be your best performers.
That is, you want to buy stocks that are demonstrating their strength with a solid uptrend. (We like our method because it also shows a stock's strength relative to how much it typically moves.)
Doubling up is even more powerful when combined with a trailing stop... If you set a trailing stop for your investments, you'll know exactly when to sell. And the best part is that if a stock starts falling right after you add more shares, you'll still end up with a net profit – even if you get stopped out without any more gains.
When you double up, you're playing with "house money." That's a great position to be in.
Importantly, we back-tested our TradeStops strategy for doubling up. We found that we made about 50% more net profit across all of our trades... And we did so without lowering our win percentage or taking on extra risk.
So don't waste money adding to your losers. Keep your losses small with a trailing stop... And add to your winners instead.
Regards,
Richard Smith
Editor's note: Don't let fear take over your investments. Richard has discovered a secret that can help you tell the difference between a temporary dip and a full-on crash... so you can get out before the worst happens. That's why on May 10 at 8 p.m. Eastern time, he's joining us for a FREE special event. He'll walk you through his simple system... And he'll even share his bold prediction about when this bull market will end. Click here to learn more.
Further Reading
To get an edge over the rest of the market, you need to behave – and think – differently from other investors. Steve explains how to develop this mindset to find opportunities with huge upside potential right here: My Biggest Investing Edge: 'Variant Perception.'
"Success has more to do with how you behave than which funds or stocks you own," Chris Mayer writes. In this essay, he shares four ideas that can help you stick to a successful, disciplined investing plan. Read more here: Four Steps to 'Bulletproof' Your Portfolio.
Cheap. Hated. And in an uptrend. I've built my True Wealth Systems (TWS) computers off these three ideas. And right now, my computers say you want to own technology stocks – with leverage...
THIS TECH-SECTOR LEADER IS BRINGING IN STEADY RETURNS
Today, we're looking at another player in the technology sector...
About 127 new devices connect to the Internet every second... And as regular readers know, finding early front-runners in big trends like this can be a lucrative investing strategy. With spending on the "Internet of Things" projected to reach $772.5 billion this year, the tech revolution is going strong...
For example, let's look at Citrix Systems (CTXS). The $14 billion software and cloud-computing company connects people, helping them share data and collaborate on projects. One of its latest advances – Citrix Analytics – uses artificial intelligence to defend against security threats and data breaches... But technobabble aside, Citrix's success speaks for itself. Its first-quarter net revenue of $697 million represents a 5% increase over last year. And its subscription revenue soared an incredible 49%, hitting $103 million.
As you can see, this is great news for shareholders... Over the past two years, the stock is up around 60% and recently hit an all-time high. As work and life continually expand into online spaces, companies like Citrix will reap the benefits...