Larry Benedict didn’t have a single losing year from 1990 to 2010.
He managed over $900 million in his hedge fund.
In 2008, his hedge fund clients made more than $95 million… a year in which the S&P 500 fell 38.5%.
To help him achieve that record and every success he’s had since his famous two-decade winning streak… Larry Benedict has seven trading rules:
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Never force a trade
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If you’re experiencing personal problems, do not trade
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If a trade isn’t working, cut your losses and move on
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Know what you’re trading like the back of your hand
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Put a “p” (profit) on the page
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Earn your risk
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Remember that the best trades are contrarian trades
We’ll explain the relevance of these rules in more detail below…
But the fact is, no one trades as much as Larry… makes as much as Larry… and then (most importantly)keeps what he’s made, without having a sound risk management system.
That brings us to the subject of today’s reader-led issue of the Daily Cut and some of the criticisms we’ve received in the mailbag in recent weeks.
But before we get to that, today’s market action…
Market Data
The S&P 500 closed up 0.59% to end the day at 4,594.63… the Nasdaq gained 0.55%, to close at 14,305.03.
For individual stocks, Microsoft down 1.16% to $374.51… Apple ended higher by 0.68% at $191.24… and Tesla ended the day at $238.83, a 0.52% fall.
In commodities, West Texas Intermediate crude oil trades at $74.23, down $1.73 since this time yesterday… gold is $2,084.90 per troy ounce, a gain of $34… and bitcoin is higher by $1,092.50 at $38,824.60.
And now, back to our story…
We Respond to a Concerned Subscriber
As a reminder, the Friday issue of the Daily Cut will take a different form to the Monday-Thursday editions.
For the rest of the week, we focus on the market action and investment ideas… including from our team of Legacy Research experts.
But on Friday, it’s your chance to (as the kids say) lead the discussion. You can do so by emailing me directly at kris.sayce@legacyresearch.com.
Emails to that address go straight to my inbox, not to a customer service team.
Just remember, I can’t reply to you directly, but I do read each one. Over time, we’ll respond to your email via the Friday edition of the Daily Cut.
Just know that it may take some time to reply. We’ve received a bunch of emails, so it will take some weeks for us to address them here. In fact, we’ll likely group similar emails and answer them collectively.
Anyway, keep them coming. Don’t be shy.
Right, back to today’s email. Prior warning. Remember we said last week to “Let the Hate Mail Begin.” Well, some of your fellow subscribers responded with gusto!
Here’s an email from subscriber, Ray D.:
Thank you for the opportunity to express my opinion regarding the platform.
I have invested over $10,000 with the Legacy Group and its affiliate partners/writers.
This includes Brownstone Research, Casey Research, Jeff Clark, Teeka, etc.
I started investing in November of 2021 in a variety of recommended investments by your writers. This included stocks, warrants, crypto, pre-IPO companies, and even options. My results have been nothing but disappointing.
I understand the markets have gone through a big adjustment… however, I am down about 60%. I do hope that things will turn around. Only five of the 40 stocks I purchased are actually in the black.
What I find most annoying is that many of the articles we receive have links and videos that are actually selling tools to increase membership. Although a lot of the information is valuable, I have to say that it is a turn-off.
I feel that I am being sold at every corner. I have spent a lot of money on my various member benefits, and I feel that I shouldn’t have to spend any more money to get the advice that I have paid for.
I have recently sent a request to The Legacy Group requesting they waive my $499 maintenance fee for at least one year so that I may recoup some of my losses.
I look forward to hearing from your team.
Thank you.
We appreciate Ray’s candidness.
We’ll break down his comments into three parts:
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Performance of recommendations,
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The feeling he gets of being “sold at every corner,” and
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The waiver of the $499 maintenance fee.
Let’s go through them now…
Seven Rules for Managing Your Trades
First: the performance issue. No one should ever be down 60%. Even in the worst bear market, that shouldn’t happen.
While the past two years have been pretty rotten for a lot of stocks, the S&P 500 is only down around 5% from its all-time high.
So for someone to be down that much, something must have gone terribly wrong.
We can’t know for sure, but we’d guess it’s a risk management issue. Either on Ray’s part or because our services didn’t provide clear risk management instructions.
This is why we mentioned Larry Benedict at the top of this email. Larry has traded the market for nearly 40 years.
In that time, he’s built a sixth sense on how to trade markets… what to trade… and when.
And yet, despite his trading ability, if you ask Larry, he considers himself more of a risk manager than a trader.
Here are Larry’s seven trading rules again:
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Never force a trade
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If you’re experiencing personal problems, do not trade
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If a trade isn’t working, cut your losses and move on
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Know what you’re trading like the back of your hand
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Put a “p” (profit) on the page
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Earn your risk
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Remember that the best trades are contrarian trades
Notice that the four we’ve highlighted (one, three, five, and six) are focused on risk. One is a psychological factor (number two). And only two of them (four and seven) have anything to do with picking a trade.
Most investors – heck, most investment professionals – have that the other way around. If they had seven rules, six of them – maybe all seven – would have to do with stock selection.
One of them, if you’re lucky, would even bother with risk management.
Now, as we said before, a 60% overall loss in a market like this, shouldn’t happen. That’s even with investments in speculative ideas such as cryptos, warrants, and options.
For most folks, those types of investments shouldn’t account for any more than 20% or so of a portfolio at the most. The majority of your investments should be in stocks (especially dividend stocks), bonds, and precious metals.
That means even if you have the worst luck in the world, and every one of your warrants, cryptos, and options plays goes to zero, you’ll never lose more than 20% of your portfolio’s value.
Of course, we use that number as an example. If you’re happy with more risk, maybe you could go to 30%. If you don’t like much risk, maybe you drop to 5–10%.
But let’s get more specific with a real example from one of our experts. Bear in mind that each expert has their own take on asset allocation and risk management.
Each year, Teeka Tiwari publishes his updated asset allocation guide. In the summer of 2022, he made some big changes.
It resulted in what he refers to as a 50/20/30 mix.
That means allocating 50% to stocks, 20% to fixed income (e.g. bonds), and 30% to his “secret sauce” ideas. For Teeka that means the asymmetric type of investments we mentioned in yesterday’s Daily Cut.
Asymmetric bets for Teeka generally mean cryptos, private deals, collectibles, and options.
(Look out for Teeka’s updated asset allocation guide in the January 2024 issue of the Palm Beach Letter. If you don’t yet have access to Palm Beach Letter, go here to find out how to get it.)
But it can include other assets. Effectively, anything that gives you the chance to make big gains from small stakes. Warrants are a good example of that. It could also include small-cap and microcap stocks.
One final point on risk management…
No Place at Legacy Research if They Don’t Do This
Earlier this year, behind the scenes, Legacy Research management issued an edict to all of our investment experts.
At our core, we’re libertarian and laissez-faire. So we typically avoid “mandates” and “edicts.” But this is one area that we won’t compromise on. We reminded them it was compulsory to have a risk management policy.
There was some flexibility. After all, risk management isn’t a one-size-fits-all solution.
For instance, options trades have built-in risk management. When you buy options, whether that’s calls or puts, the most you can lose is the amount invested. The same with warrants.
The key to those investments is position sizing. Due to the big potential gains, you only need to invest a relatively small amount. If you would normally invest $5,000 in a large-cap stock, maybe you’ll only put one-tenth of that, or $500, into a warrant or a microcap stock.
With cryptos, the position sizes can be even smaller due to the potential for even bigger gains. For instance, Teeka recommends for those with only a small investment account to invest just $100-$200 in each pick.
But with large-cap stocks or mid-cap stocks, the risk management solution would likely involve stop-losses. That is, setting a price at which you’ll exit the stock if it falls to a specific level.
They set the price in advance when they make the recommendation. We won’t let our gurus take a “wait and see” approach that could cost readers money once a trade recommendation is made.
As a position gains, a stop loss may be raised over time, so that even if it does hit, you’ll still make a profit.
And now, any new expert who joins Legacy Research must also use a risk management system for their recommendations. If someone doesn’t want to do that… well, there’s no place for them at Legacy Research.
Maybe that’s harsh, but it’s a lesson learned over the past couple of years. We hope that makes sense.
As an aside, risk management will be an ongoing theme in The Daily Cut.
Now onto Ray’s second point, his feeling that he’s “being sold at every corner.”
This Is How We Share Our Best Ideas
We get that.
Sometimes it can be hard to know what is a sales promotion and what’s part of a service you’ve already subscribed to.
Without going too “inside baseball” here, we’ll explain why that happens. It’s not intentional, but it is a consequence.
You see, we consider that every sales promotion should be useful to the reader or viewer on its own merits.
Even if you never go ahead and buy a subscription, the sales promotion alone should give you something useful, informational, or actionable that you can use.
We figure that’s the best way to help you be as fully informed as possible, before deciding whether to buy.
Just being perfectly candid with you, it’s hard to see how that part of our business can change.
Because we refuse to sacrifice a shred of our independence as researchers by taking money from outside institutions or third parties the way other businesses similar to ours have felt compelled to do to stay in business.
Not us.
We don’t take a cut of assets under management (AUM) like a fund manager. We don’t charge brokerage fees for trades, like a broker. And we don’t write research in return for a fee from the companies we recommend.
The only way our business generates revenue is through subscriptions and maintenance fees.
For that reason, we need to put our best ideas in front of our readers. If you like the ideas, you’ll buy a subscription… then we honor our side of the bargain by providing you with exactly what you’ve paid to receive.
That’s the trust-building element of our business. If we break that trust by not providing you what we’ve promised, then you have every right to be mad. And you’ve every right to not pay us a single extra cent for anything.
But ultimately, our overall aim is to encourage as many of our subscribers as possible to upgrade to our premium Legacy Elite membership.
That gives members access to pretty much everything Legacy Research currently publishes including most services we’ll launch and publish in the future (there are a couple of exceptions).
By being a Legacy Elite member, it means you have everything. For that reason, you really shouldn’t receive much in the way of sales promotions.
(Although, if you use an alternative email address, or you sign up for a free e-letter, that may get you back on the marketing lists… meaning you could get promotions for services you already subscribe to.)
If truth be told, the perfect path for our business would be to have so many people as part of Legacy Elite, that the business could function without having to sell a single subscription.
So instead of pouring dollars into marketing efforts (it’s expensive, trust us), we could put those dollars into hiring more experts and analysts, to provide you with even more actionable ideas… and improve on what we already do.
Until then, we’re afraid marketing and sales promotions will remain one of those annoying necessities.
Now on to the final point, that $499 maintenance fee waiver…
“Keeping the Lights On”
If you’re not familiar with the maintenance fee, this is the fee members of our Legacy Elite bundled subscription pay each year.
Think of this fee as a “keeping the lights on” kind of payment. It helps us cover the ongoing costs of running a publishing business.
Instead of paying $2,000–$4,000 a year for a premium trading service, Legacy Elite members receive those services for no extra cost – aside from the initial cost to upgrade to the Legacy Elite membership plus the annual maintenance fee.
As you can see, the math speaks for itself. Elite members may use three, four, or five of those services. Individually, that would cost at minimum, a total of $6,000 per year… perhaps up to $10,000 or more per year.
But Legacy Elite members get exactly the same access to the same recommendations… the same trades… all for just $499 per year.
That said, we’ve promised to help Ray as much as we can. We’ll talk to our customer service team and figure out a solution for him.
And we extend that promise of help to all Legacy Research subscribers. We can’t promise we’ll always be able to get something done. But we promise to do our best on your behalf.
We hope that gives you a bit more of a glimpse into how things work behind the scenes and our relationship with you.
We know we don’t always get everything right. But whatever we do, it’s always with the best intentions and with your best interests in mind.
If you ever feel as though we’re not achieving that, let us know. Remember, you have my personal email. There’s no excuse for not getting in touch to let me know how you feel.
Oh, and by the way… some friendly mail would be nice too. Let us know what you like about Legacy Research. We would appreciate that.
Unconnected Dots
Our main task at the Daily Cut is to try to “connect the dots.” That is, we help you figure out what events are about, what makes them important, their consequences, and what it all means for you.
But sometimes, we see the individual “dots,” but can’t yet figure out how they connect to anything. Maybe they never will connect to anything.
Regardless, if those unconnected dots feel as though they could be important, we’ll mention them here. And we’ll let you draw your own conclusions.
Today’s unconnected dots…
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Here could be another reason to focus on risk management. As reported by Bloomberg:
The long-awaited U.S. economic slowdown has begun.
Signs are piling up – in recent data, in warnings from top retailers such as Walmart Inc., and in anecdotes from local businesses across the country – that after defying expectations all year and splurging over the summer, American households are starting to pull back.
A burnt-out consumer, weighed down by high interest rates and dwindling savings, is the surest sign that economic growth is gliding lower heading into 2024. The economy may face additional challenges in the new year as the labor market cools and wage growth moderates.
However, we’ll remind you that some folks have been calling for an imminent recession for the past 18 months or more. It hasn’t happened yet, and there’s no guarantee it will happen.
But regardless, it’s still important to plan for one. “Stress test” your own portfolio. Think to yourself what could happen to your investments if a recession hits. Then think about what you can do to prevent anything bad from happening to your portfolio.
hat doesn’t necessarily mean selling everything and going to cash. It could be as simple as cutting a few losers… trimming some profits… shifting some capital around from one asset class to another. And so on.
We’ll look into this whole idea in more detail in the coming weeks.
More Markets
Today’s top gaining ETFs…
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Amplify Transformational Data Sharing ETF +5.9%
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Invesco S&P SmallCap 600 Pure Value ETF +3.7%
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SPDR S&P Telecom ETF +3.6%
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First Trust Small Cap Value AlphaDEX Fund +3.6%
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Invesco S&P SmallCap Consumer Discretionary ETF +3.6%
Today’s top losing ETFs…
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Global X MSCI China Consumer Staples ETF -1.1%
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USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund -1%
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Global X MSCI China Consumer Discretionary ETF -1%
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First Trust Dorsey Wright DALI 1 ETF -0.9%
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Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF -0.6%
Mailbag
If you have any questions or comments for our experts here at Legacy Research, we’d love to hear from you.
Write to us at feedback@legacyresearch.com and just type “Daily Cut mailbag” in the subject line.
Cheers,
Kris Sayce
Editor, The Daily Cut