Chris’ note: The market is getting thrown around like a rag doll. Bitcoin is having a record down year. And tech stocks are in a bear market. Over the past month, even normally reliable commodities like crude oil and copper have fallen 20% or more.
It seems like nobody is making money in the markets in 2022. That’s especially true for buy-and-hold investors.
But not for subscribers of trading “wizard” Larry Benedict. In just the first half of 2022, they’ve had the chance to make a nearly 149% return on their money with his trading recommendations so far this year.
For more on how Larry achieved wizard status… and how he scored a triple-digit win for his readers in one of the most brutal market environments in history… read my Q&A with him below.
Chris Lowe: Your trading record is legendary. Between 1990 and 2010, you didn’t have a single losing year. It earned you a place in the 2012 book Hedge Fund Market Wizards by Jack Schwager.
Chapter 2 featured Ray Dalio, manager of the world’s largest hedge fund. Chapter 3 featured you.
And there’s good reason. As Schwager put it, you’re one of America’s most prolific moneymakers. You’ve profited $1 million on more than 500 occasions. And in 2008, as the financial world was falling apart, your hedge fund made $95 million.
At your Opportunistic Trader advisory, you’ve given your readers the chance to make an overall return of almost 149% this year. How’d you do it?
Larry: I’m extremely proud of that performance… and of my team for helping me achieve it. I’m delighted my subscribers have had the chance at triple-digit profits in a brutal year for the stock market.
I closed 71 trade recommendations. Two-thirds of those were winners. That 149% gain is based on reinvesting profits from closed positions into new positions. This strategy of using gains to do more trades is called “snowballing the account.”
Chris: You’re a humble guy. But that kind of outperformance is rare. What’s the key to your success?
Larry: One big advantage I have is I trade with no bias. I’m neither bullish nor bearish.
I can bet on stocks going down as markets crash. I can also bet on the short-term rebounds in stocks along the way. Buy-and-hold investors don’t do that. They have to sit through the losses.
I’m also obsessed with managing risk. I was net profitable as a trader for two decades. There are few traders who can make that claim. I did this by never letting my trading account go too far below zero.
I learned early on that you can make a lot of trades. So one trade doesn’t have to define you.
If a trade goes against you, fine. Move on to the next one. There’ll be other opportunities. I’ve often made 100 trades in one day.
So I learned to accept losses. And I learned to keep them small. Knowing that any one trade doesn’t have to be the trade… and accepting being wrong is key.
Chris: At The Opportunistic Trader, you talk about “earning your risk.” What does that mean?
Larry: It means you shouldn’t take on much risk until you’ve had a string of smaller wins. When you do that, you build a pile of capital you can use to snowball your account.
If you don’t have a big enough base of capital, you shouldn’t take on any high-risk trades. You should target 5%, 10%, 25% returns and grab these smaller wins when you can. Same goes for if you’re just not trading well, for whatever reason. You want to cut your risk as much as possible.
You never go broke taking a profit. Once you’ve built up profits, you’ve earned the ability to take on more risk.
Chris: That’s not the way most people approach trading. They want to knock the lights out on every trade.
Larry: I’ve known people who lost their homes or committed suicide because of their trades. They had a gambler’s – not a trader’s – mindset. When they were losing, they were always looking for one trade to make it all back.
You can start out as a small trader… gain experience… then make bigger bets. The common mistake new traders make is thinking there’s some shortcut to success. They get frustrated. They quit because they haven’t succeeded overnight.
You can develop an edge as a trader. But it takes time. I developed my edge over nearly four decades.
Chris: What can Daily Cut readers who are interested in trading do to boost their odds of success?
Larry: First, find a mentor. Someone like me who’s been at this a long time and can show you the fundamentals.
Next, don’t spread your focus too wide. Tom Brady isn’t training to become the next great Major League Baseball pitcher. He’s a seven-time Super Bowl-winning quarterback because football is what he lives and breathes.
So don’t try to trade every stock in the market. Pick a handful and get to know them inside and out.
Finally, stay disciplined. Earn your risk. Build up a cash pile with smaller, lower-risk trades. And swing for the fences only when you know you can afford a loss.
If you follow these tips, you can become a successful trader. Just remember it takes time. So stick with it. And earn your risk.
Chris: Thanks, Larry.
Larry: Great speaking with you, Chris.