Steve's note: My friend and colleague Dr. Richard Smith cares more about helping individual investors than anyone I've ever met. As the founder of TradeStops and its sophisticated investing software, he's improved my work as well... And tonight, he's hosting an exciting event aimed at helping you boost your retirement fund.
Today's essay appeared last year in DailyWealth, but the message is just as important as ever. It shows exactly why what Richard does is so crucial... and how it can help you make better investing decisions.
Dr. Richard Smith can make you a lot more money from your investments.
Richard just spent a few days in town, and it reminded me of a couple things... For one thing, he's one of the smartest and nicest guys I know. He's also made a lifelong commitment to helping individual investors become better investors.
That commitment started from his own huge investing mistakes...
After graduating from Cal-Berkeley (one of the nation's top schools in math), Richard got a PhD in "mathematical systems theory."
In short, he knows numbers. But that didn't save him in the dot-com bust in 2000. Like many investors, he got "burned."
He vowed to never let that happen again. So he set out to figure out how to avoid similar losses in the future.
He wanted to prevent other people from making the same investing mistakes he did. A lot of it came down to a simple secret...
Richard started looking into what the top traders were doing... guys like the ones in the popular Market Wizards investment books, for example, who had turned small piles of money into very large ones.
It turned out "cutting your losses early" was a common theme across all those successful investors.
Individual investors typically don't do this... because they typically have no "exit strategy." They have reasons to buy a stock, but they don't have a clue when to sell. Meanwhile, a successful trade is made up of two parts – a smart entry and a smart exit.
After much study, Richard found the simplest thing individual investors can do to continually increase the value of their portfolios is to make sure they have an exit plan that includes cutting their losses early.
The simplest way to do that is to use trailing stops.
If you're not familiar with trailing stops, the concept is simple... Think about each word individually: "Stop" is to stop your loss – to not let something fall by more than a certain percent. If it does, you sell.
The "trailing" part of "trailing stop" means that your "stop" can move – if your stock hits a new high, your stop moves up higher, too – it "trails" new highs in your investment.
Let me show you what I mean with a trade we made several years ago in my True Wealth newsletter...
In April 2007, when we entered the trade, one of China's big oil producers, PetroChina, traded around $113 per share. In 2009, PetroChina traded around $115. So after about two years, the stock had basically done nothing.
But here's how we traded it in True Wealth...
The stock soared soon after we bought it. Shares made it all the way up to more than $250. And we simply followed our plan. We sold half after we were up 100%. Then, when the stock fell 25% (hitting our trailing stop), we sold the rest.
In short, by sticking to our exit plan, my readers made A LOT of money in a stock that ultimately went nowhere.
Richard created a simple website that tracks these things for you. He calls it TradeStops.
You enter your stock symbol, the date you bought your stock, and the percentage trailing stop you want to use. TradeStops automatically adjusts your trailing stops for you. It will also send you an e-mail or a text message when your stock hits its trailing stop.
Richard's website allows you to do fancier trailing stops if you prefer (including stops that change their percentages in response to risk and volatility). But as a first step, I don't think you need to get fancier than this...
To be a more successful trader and investor, you must have an exit strategy.
Richard believes the simplest thing most individual investors can do to improve is to use trailing stops. Start putting this strategy to work today.
And if you're looking for the easiest, lowest-stress way to do it, check out TradeStops. Richard's software is the simplest way I know to create and easily follow a rational exit plan... and keep you in the money.
P.S. If you're interested in hearing more from Richard, he's hosting an online event tonight at 8 p.m., Eastern time. It's called "The Great Retirement Reset." He plans to share plenty of what goes into TradeStops – and why it's so important for your retirement right now. If you'd like to tune in, you can sign up for free right here.
"When your intuition has been trained to steer you in the right direction, it means you can 'trust your gut' and lean into it... reinforcing your odds of investment success," Richard says. Learn the three things you need to boost your investor intuition here: How to Develop Expert-Level Intuition as an Investor.
"Some of the smartest investors I know have been able to take fear and greed out of the equation – simply by relying on math," Dan Ferris writes. Get the details on how Richard's system could have improved the gains on Dan's massive 631% winner right here.
Before managing your investments, you need to know how to find good companies to invest in. And this simple secret is a great place to start...
BIG-PROFIT WINNERS IN THE WORLD'S BEST BUSINESS
Today, we're highlighting one of the best sectors to invest in...
Regular readers know Stansberry Research founder Porter Stansberry has called property & casualty (P&C) insurance "the world's best business"... Insurers collect premiums up front and pay them out later as claims. In the meantime, the insurers can invest the money they hold, called "float," and keep the gains. Today, we see this business model at work...
Chubb (CB) and Travelers (TRV) are stars in the insurance industry. These firms pay out less in claims than they receive in premiums – which means their underwriting is profitable. In 2018, Travelers grew its net premiums to a record $28 billion – 6% higher than 2017... And it earned an underwriting profit of nearly $700 million. In the same period, Chubb reported net premiums of $28.3 billion and an underwriting profit of $2.6 billion.
As you can see in today's chart, both stocks have been stellar investments. Both recently hit 52-week highs. And over the past five years, CB has returned more than 55%, while TRV has returned roughly 80%, including dividends. It's more proof that insurance is the world's greatest business...