Ask Doc "What the heck is a blue chip, Doc?"
Recently, I've written a lot about the importance of investing in blue-chip stocks. But I was recently reminded that not all my readers know exactly what that means...
A blue-chip stock is considered one of the safest to buy. The blue-chip label refers to the most highly valued chip in a poker game.
While blue-chip stocks aren't necessarily the most expensive in the stock market, they do represent a "safe" haven, offering less risk than many other stocks. These companies have records of financial stability and the ability to weather any economic condition.
In other words, blue-chip stocks may not have large price swings like riskier stocks would during big market moves. They also tend to display solid earnings for years, sometimes decades, in a row.
Some examples of blue-chip stocks are software developer Microsoft (MSFT), discount retailer Walmart (WMT), and soft-drink maker Coca-Cola (KO).
So while you might not be familiar with the term "blue chip," you know the companies that earn the name.
That's probably not the case with another class of stocks, called small-cap stocks. This means companies with low market capitalizations – the total value of all their shares of stock.
But you should think about them. There are barely any eyeballs on the smaller stocks... and that means there is tremendous opportunity.
My colleague and good friend Professor Joel Litman believes that investors can make life-altering gains in the smallest of small-cap stocks – called microcaps.
Investors tend to hear microcaps and run away... They think they're too dangerous. Joel believes investors shy away from microcaps for three main reasons...
- Lack of liquidity
- Zero Wall Street coverage
- Many institutional investors simply can't buy microcaps because of their own internal rules
But when you add all of these up, all it means is that there can be inefficiencies in the microcap world. That can lead to 1,000%-plus winners...
For example, a microcap stock could have strong cash flow and a business shielded from competition... But if no one is paying attention to the company, it could trade sideways for some time. Once its superior business model eventually attracts the eyes of investors... the stock could skyrocket.
The trick is to get in before the rest of the world gets interested.
With a guide like Joel Litman, you can do exactly that.
According to Joel, a startling shake-up in U.S. stocks is underway – an event that has only happened twice in the past 15 years. And it's about to trigger a massive opportunity in a select group of stocks before the end of this year.
Click here to learn all the details.
Now, let's dig into some questions... As always, keep sending your comments, questions, and topic suggestions to [email protected]. My team and I really do read every e-mail.
Q: I have been a longtime subscriber to Retirement Millionaire and Income Intelligence. I have a small Roth IRA account that I cannot add to since I have been retired for 30 years. I am fascinated by your success rate with Retirement Trader and have watched several of your presentations for it over the years. You generally indicate you need $20,000 to $30,000 to be able to profit from this service. My Roth is only $7,500. My question is whether you recommend enough low-priced stocks in a year that I could profit from this service and grow this account? Thanks! You do great work! – G.G.
A: I appreciate you following my work, G.G. In Retirement Trader, we sell options on the very best stocks in the world. As you've probably heard in some of my presentations, this is by far the best way to generate steady income... I'm talking hundreds or even thousands of extra dollars a month.
Unfortunately, you do need a larger capital base to use this strategy. The reason is that every option you sell represents 100 shares of stock.
If you were to sell a put option on, say, Bank of America (BAC), you would need about $3,000 to make the trade in case you had to buy the stock at expiration. (That's one hundred shares of BAC, which trades for around $30 a share.) While we don't often end up owning shares after selling a put, your broker has to know you'll be able to buy all 100 shares just in case.
With just this one trade, you already used up nearly half of your Roth portfolio.
Plus, there aren't that many world-class stocks that trade for low share prices. Again, we only sell options on blue-chip stocks (a big reason why we've had such success over the years). Of my 12 current open Retirement Trader positions (including a Bank of America trade), only a few involved stocks priced below $40 per share... And all the others had higher capital requirements than your Roth account would allow.
This is why I do recommend folks have between $20,000 to $30,000 to take advantage of Retirement Trader.
I do believe the options and trading education you will get from Retirement Trader is well worth the price of admission. I have no doubt about that. The problem is that you wouldn't be able to make all our trades with about $7,500 to deploy. And we like having multiple positions at work at once so our risk is spread out through all different kinds of businesses and sectors.
To learn more about how my Retirement Trader strategy can help you earn safe, steady income, click here.
What We're Reading...
- Did you miss it? This is how I just booked a 1,185% winner.
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Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
August 18, 2023