How to Be the Investor Who Makes Money in All Markets

We invest to make money. At the very least, we invest to protect our purchasing power against inflation. (Earning 0.5% in a savings account just doesn’t do much.)

And of course, more than anything, we don’t want to lose money.

That’s why we’ve followed Nassim Nicholas Taleb for years. His best-selling book, The Black Swan: The Impact of the Highly Improbable, explained how financial markets could contain hidden, unpredictable risks.

In his book Fooled by Randomness, he started modeling different types of traders using what’s called “Monte Carlo simulations.” He could generate different types of traders, then see how they do over tens of thousands of different simulations.

Here’s what he found…

My models showed that ultimately almost nobody really survived; bears dropped out like flies in the rally and bulls ended up being slaughtered, as paper profits vanished when the music stopped. But there was one exception; some of those who traded options (I called them option buyers) had remarkable staying power and I wanted to be one of those.

Taleb knows risk.

He also knows about an investment most people consider one of the riskiest… options. Years before his best-selling book, Taleb wrote a textbook called Dynamic Hedging: Managing Vanilla and Exotic Options. It starts with his recap of “closing about 200,000 option transactions over 12 years and studying about 70,000 risk management reports.”

That sounds complicated. So we asked ourselves this question: Can an investor without 200,000 trades and a PhD in math use options to help himself become a better investor?

Yes. At the risk of oversimplifying, the logic behind Taleb’s view is that you need to make a few bets on big, bold moves that pay off handsomely when you are right.

The point is to find big rewards when you get things right in the market.

From a footnote in The Black Swan:

The option payoff is so powerful that you do not have to be right on the odds: you can be wrong on the probability but get a monstrously large payoff.

It turns out, that’s the secret to staying in the market: getting big gains when you can.

It’s also the secret to having fun and enjoying your investments.

To this end, Taleb recommends a “barbell strategy.” You put almost all your assets in super-safe, nearly zero return investments like Treasury bills. Then you put a small amount in to high-return, riskier bets, like early-stage tech stocks or precious metal exploration. (If you were to plot your holdings on a risk spectrum, it would look like a barbell with humps on the safe and risky ends.)

Longtime readers know I love investing in super-safe investments that allow you to sleep well at night.

But everyone could use a little smart speculation in their portfolios. If you make a few small bets that can double or triple your money, and do that a few times a year, it can seriously boost your returns.

I’ve long used options in my research advisories to make safe, repeated gains. But I wanted to do more.

I recently brought a select group of readers into our downtown Baltimore headquarters to walk through how to make speculative bets without losing sleep.

Since my goal has always been widespread financial education, we set up some cameras and recorded the whole thing.

Now, I’m sharing that session with you. During my Trading Master Class, I walked readers through my strategy that allows you to trade virtually ANY stock with just a couple hundred dollars — and it’s designed make you 10 TIMES higher returns than you would achieve buying the stock the ordinary way.

I’ll be the first to tell you, it’s not for everyone. But it may be just what you’ve been looking for to earn bigger returns in all kinds of markets.

Click here to watch.

Q: I would love to see the references again to meditation materials and techniques. I missed it before, have not found it on your website and believe meditation would be beneficial to me. – C.J.

A: Meditation is my favorite way not only to fight stress, but also to reduce inflammation and fight depression. Several studies demonstrate that meditation not only helps with these problems, but also reduces feelings of loneliness and isolation.

The power of meditation comes from the “relaxation response” and how it changes our physiology. During meditation, our brain waves convert to a pattern that is as deep – and in some ways deeper – than sleep. It’s proven to help reduce stress and anxiety… all in just 10 minutes a day.

You can read more about why we love meditation – and how to get started – right here.

Let us know how it works out for you!

Q: For the past couple of years I’ve had outbreaks of a rash in my scalp and also spreading to my ears and eyelids. Is this related, what’s the cause? More importantly, what’s the cure? – D.P.

A: Rashes are frustrating for everyone. They’re often itchy, painful, and embarrassing. But the most annoying part is that many never have a diagnosed cause.

The problem with talking about rashes is that there are so many possible causes. It can be an infection by bacteria, a virus, or a fungus. It can be contact dermatitis from something like new laundry detergent, new shampoo, or anything your body isn’t used to. Then there are food allergies, poison ivy, and even stress that can trigger rashes.

What we recommend for any kind of rash is to use some common sense. If you know you didn’t come into contact with something that could trigger it, try hydrocortisone cream or moisturizing lotions. My researcher likes Aquaphor to treat eczema. You can also keep a food diary for a few weeks in case it’s some sort of allergy. If it worsens, continues, or keeps returning, reach out to your primary care doc or a dermatologist.

Q: Doc – what about Kindles? I like to read myself to sleep each night. Seems the light on my Kindle is much softer than my laptop. – T.B.

A: Any electronic screen, including cellphones, tablets, e-readers, and laptops emit blue light.

Blue light interrupts our sleep cycle by messing up our melatonin levels. Melatonin, the hormone secreted to help you fall asleep, is essential for keeping us on a healthy, restorative schedule. Disrupting this cycle leads to grogginess, impaired memory, increased risk for depression and obesity, and even loss of vision.

Fortunately, many devices today have blue light filters built in. In a Kindle, for instance, you should be able to find this under the settings menu. For more tips on device-specific blue light filters, check out this guide here.

Thanks to everyone who has sent us your topic suggestions. We’re already working on a long list, but keep sending your ideas our way… [email protected].

What We’re Reading…

Here’s to our health, wealth, and a great retirement,

Dr. David Eifrig and the Health & Wealth Bulletin Research Team
June 21, 2019