Welcome to the weekly mailbag edition of The Daily Cut.
All week, you submitted your questions about the biggest investment opportunities on the radar here at Legacy Research.
It’s the independent publishing group behind Teeka Tiwari, Jeff Brown, Dave Forest, Nick Giambruno, Jason Bodner, John Pangere, Den Denning, Tom Dyson, Doug Casey, and Bill Bonner.
Now, the team is standing by with answers.
Don’t forget, if you have a burning question to put to our experts, let us know at feedback@legacyresearch.com.
This week, one of the profit themes on your fellow readers’ minds was stock warrants – a type of asymmetric investment that’s making some readers outsized returns.
Most folks don’t know what warrants are. But they’ve handed some of our Casey Research readers the chance to close out gains of 786%… 2,805%… even 4,942%. So stand by for more on that…
I (Chris Lowe) will also bring you the latest in a debate that’s lit up our mailbag lately. It concerns the breakup of the United States…
First, a quick shoutout to folks who joined my colleague Teeka Tiwari on Wednesday for his first livestream event of the year.
More than 20,000 people showed up to hear all about his No. 1 wealth-building idea for 2021.
It’s a way to potentially reach what he calls your “Freedom Number” – the amount you need to achieve financial freedom and live the life you want – in just one day.
So if you missed Teeka’s big reveal on Wednesday… you’ll want to catch the free replay here.
Now, on to this week’s questions. We’ll kick off with that question about stock warrants…
Reader question: What are the key factors you consider when selecting and recommending a warrant? Obviously the expiration date is important, but what other factors do you consider important?
– Jim H.
Longtime readers know we’re always on the lookout for asymmetric bets here at the Cut. These are low-risk, high-reward bets that can really move the needle on your wealth.
And as Casey Research analyst John Pangere details below, warrants are a special type of security that allows you to make asymmetric bets on stocks.
You can use them to pick up exposure to moves in stocks for pennies on the dollar. That makes them a great way to get in on the upside of the continuing bull market… while strictly limiting your downside risk.
Warrants give holders the right, but not the obligation, to buy shares of a company at a specified price or better.
If you’re familiar with trading stock options, that may sound familiar. But unlike options, a company issues warrants directly. And you don’t need any special permission in your brokerage account to trade warrants. All you need to do is click and buy, just like with any other stock. It’s that simple.
John’s been recommending warrants at our Strategic Investor and Strategic Trader advisories for two years now.
And as I mentioned up top, so far, his recommendations have seen gains of 786%… 2,805%… and 4,942% in the model portfolios.
Now, back to Jim H.’s question. Here’s John’s reply…
John’s response: Hi Jim. Thanks for the question.
Finding the right warrants isn’t an exact science. It’s tough to find the right information. That’s why you don’t see too many people bother with them.
But that’s also why you have the chance to score big once you know what to look for.
Let me give you an example…
I use a Bloomberg Terminal to help in my research. It’s one of the most sophisticated – and expensive – tools out there for investment professionals. For the most part, it allows you to find plenty of information on almost any security on the planet.
But Bloomberg often has incomplete or inaccurate information on warrants. So starting out, it takes a lot of legwork to find the right information to make an informed decision on warrants.
After that, we have to weed out the potential winners from the losers.
That’s why in our premium service Strategic Trader, Dave Forest and I developed a system to help do that. Part of this system is a proprietary formula I spent years developing. The other part is our T-U-V method. It’ll help guide you in picking the right warrants, if you choose to do your own research in addition to the research Dave and I share.
“T” stands for time. That’s the expiration date you mentioned in your question. We want to make sure there’s enough time to profit. In most cases, that means we want to avoid warrants that expire soon.
Speculating takes patience. It usually takes time to realize massive gains of 10x or more. That’s why we want to have plenty of time to let things play out.
“U” stands for the underlying stock. A warrant is only as good as the stock of the underlying company. If the company is in a dying business, there’s no reason to speculate in the warrant. We want to find companies that are in the middle of a massive trend, like 5G or sports betting.
“V” stands for volume. You want to make sure there are plenty of warrants trading on the average day. If a warrant trades too thinly, it will be hard to buy and sell. So even if you are able to buy it, selling it when it’s time might be tricky.
Putting these factors together is how we select what warrants to pass on and which ones to recommend.
Switching gears, a reader asks our tech expert, Jeff Brown, what’s coming down the pike for stocks given the unrest happening in the U.S…
Reader question: To say the country is in flux would be an understatement. People’s hair is on fire with all the uncertainty and unrest going on. My fingers are itching to sell everything right now.
I’m looking for a voice of reason while I weigh my options going forward. I would love to hear your best-case scenario, and let’s just talk honestly about the worst case, shall we?
– Kelly K.
Jeff’s response: Hi, Kelly, and thanks for writing in. I hope I can provide some clarity for you. Just keep in mind I can’t give personalized investment advice. So let me speak in general terms.
Yes, many people feel strained by current events. We’ve experienced a lot of political and social turmoil over the past year – much of it spurred on and made worse by the media – and we’ve just inaugurated a new president. In uncertain times, it can be easy to panic and hit the sell button.
But in general, I don’t think we need to resort to such drastic measures. The crash last March provides us with a good example of why. As you’ll recall, the fear-induced selling at that time led to one of the fastest crashes in history. Everyone rushed for the exit at once due to uncertainty surrounding COVID-19.
By contrast, my recommended course of action was to sit tight, hold our positions, and even remove our stop-losses. Not only that, but also I continued to recommend new positions during the crisis.
I chose that course of action for two reasons: One, I knew this was a temporary situation that would pass. Two, I knew the large institutional money and hedge funds were taking the market down. We would have been selling into their panic, only to have them turn around and buy the market right back up to where it was trading.
My instinct proved correct. Over the following months, readers who followed my advice enjoyed excellent success. In The Near Future Report model portfolio last year, our average return on closed positions was 124%. And on December 31, we had an average return of 80.1% on our open positions. These returns wouldn’t have been possible if we’d sold in the wave of fear and panic.
While it’s possible we’ll experience a second crash in the coming months – particularly if the new Biden administration decides to enforce a second COVID-19 lockdown – it’s unlikely. It would be far too devastating for the U.S. economy to endure. It could even result in protests and civil unrest.
There are already three vaccines and several therapeutic options available for treating folks with COVID-19. Locking down would be about the dumbest and most illogical path forward I can think of.
That said, my colleagues and I will continue to monitor the situation and let readers know if it changes. After all, politicians are known for making very bad decisions for all the wrong reasons.
So the worst case would be an irrational lockdown that serves no purpose whatsoever. What’s the best case?
The U.S. economy remains remarkably strong. It was so strong in February of last year from the prior three years of fantastic economic growth, it took the March crash in stride and continued with strength. The markets have obviously reflected this.
And we know the new administration will print more and more money. Trillions of dollars of stimulus and a guarantee to keep interest rates near zero. This environment is good for stock markets.
It can cause speculation. We’re already seeing some of that now. It can also ultimately result in horrid inflation down the line, but 2021 has the potential to be a great year for the markets as the world returns to its new normal and vaccines are widely administered.
I’ll continue to focus on companies supporting key trends like remote work, biotechnology, online commerce, and cloud computing. Companies in these sectors have flourished over the past year and will remain strong in 2021.
It’s natural to be concerned about the state of the world and the markets. But we are as prepared as we can be for the coming months. In the event of any market pullbacks, I’ll look for great companies trading at attractive valuations.
Speaking of unrest… the day after the storming of Capitol Hill, I brought you an insight from Legacy cofounder Doug Casey.
And it kicked off a long-running debate in the mailbag…
The controversy centers on Doug’s view that America is on the edge of an all-out culture war. He sees the breakup of the U.S. as inevitable.
In fact, he reckons we’re in for one of the most turbulent decades in history. Doug…
Really deep philosophical differences divide Americans about moral issues, and the way the world should work. We’re now looking at irreconcilable differences. The best way to solve them is for people to go their separate ways, as opposed to fight for control of the central government, and then impose their views on the losers.
I expect the U.S. is going to change form radically over the next few generations – much more even than over the last 50 years. Allow me to make another seemingly outrageous prediction: The U.S. will probably break up into different regions.
Doug’s ideas struck a chord. Here’s a selection of the latest reader responses…
The only solution for long-term peace is to divide the United States. We have one group that believes our nation was founded under God, and government should serve the people.
We have another group that wants God removed from everything, and for the people to bow down and serve the elite.
Neither side is going to retreat from its position. The differences have become irreconcilable. The sooner we divide the country up the better!
– Robert R.
We are already philosophically broken apart. Look at the areas of separation – the First and Second Amendments… abortion… religion… climate change… and the list goes on.
We already have 50 states. Let’s put the federal government back in the box, as initially intended, and let the states rule according to the Tenth Amendment. Then the people could choose the state that best suited their needs and beliefs.
– James B.
People have been divided as long as there have been people.
Americans feel despondent because one vote in 200 million is nearly meaningless. One vote in one’s state alone would hold much more sway. National elections now hold far more importance than they ever should.
One solution is a return to federalism. Neither party has to give up its priorities, just the venue it fights for them in. Return control to the states for the vast majority of issues. Allow the laboratories of democracy to work as intended, with each state competing in the marketplace of ideas and solutions.
That way, other states can adopt what is working elsewhere, instead of the one-size-imposed-on-everyone approach we use now.
– Gary A.
Doug’s ideas are always interesting… and sometimes brilliant.
I agree with him on splitting America into separate regions. In doing so, maybe the left will finally come to realize that when its members try to steal from their neighbors, those remaining in their “utopia” have nothing left to steal.
Those who worked, saved, and invested will have left for greener pastures that do not allow for “bailout” transfers of their wealth to failed socialist “utopian” regions. Why should we have to pay for their “utopia”?
– Robert R.
That’s all for this week.
Do you agree with Doug that America is headed for a messy separation?
Write us at feedback@legacyresearch.com, and don’t hold back… Unlike Big Tech social media platforms, we don’t silence debate. We love it when you disagree with us. It helps us sharpen our thinking.
And if you have a question for the Legacy experts, drop us a line at the same address. I’ll do my best to feature responses from Doug and the rest of the team in future dispatches.
Have a great weekend.
Regards,
Chris Lowe
January 29, 2021
Bray, Ireland