By E.B. Tucker, editor, Strategic Trader
I don’t like the stock market right now.
That doesn’t mean all stocks, of course. There are standouts, like gold stocks and the world-class, “recession-proof” companies that I recommend to my readers.
But overall, this is not a time to be pouring money into the broad stock market.
Worse yet, many older Americans have their life savings riding on the stocks that lifted the market for the last decade. Amazon, Facebook, Apple, and other household names make up a large part of index funds owned by the American investing masses.
These stocks are fully valued. That means the days of huge growth are over. Sure, they’ll stick around. They’ll even grow. But that does not mean their share price will necessarily go higher.
With what I see on the horizon, I’ll share with you my version of the perfect investment portfolio.
As we approach the fall, a historically common time for market crashes, this is what I’d be most comfortable with: 90% cash, 10% warrants.
How Warrants Work
Warrants give the holder the right to buy a newly issued share of stock directly from a company at a fixed price at any time before they expire.
In simpler terms, it’s a better way to make more money than just buying a stock outright… and it’s also a much cheaper way to get in.
Warrants are as easy to trade as common stock. But they offer far better returns because they essentially offer leverage to a rising stock price.
I get into more details on warrants here… but this is an easy way to see how they work…
If a stock trades for $10 today, you might pay $0.50 for a warrant, giving you the right to buy a share for $15 at any time in the next five years.
Owning that warrant means if the stock doubles to $20, the value of your warrant goes up 1,000%. (Exercise the warrant for a $15 share, sell the stock for $20, and keep the $4.50 difference as profit on the $0.50 paid for the warrant.)
Holding a portfolio of warrants means you keep exposure to continued stock market gains. And warrants trade for a fraction of the share price. 1,000 shares might cost $10,000, while 1,000 warrants might cost $500.
Since warrants give you the right to buy stock at a fixed price, you’ve got skin in the game. You can hold the rest of your portfolio in cash. This way, if the market takes a big dive, you’re standing by with cash ready to sweep up the best companies.
Surviving the Coming Storm
In September 2008, I sold a portion of my largest stock holding at the time, Lincoln National (LNC). I knew something was wrong at the time. But I didn’t know LNC stock would fall 90% over the next 60 days. If I did, I would have sold all of it, not just a portion.
However, the sale I made at $55 per share gave me what later felt like a lot of cash to go shopping during the worst market rout of my lifetime. At $9 per share, I bought back more LNC shares than I sold two months earlier. I also bought gold for $700 an ounce, silver for $9 an ounce, and several other holdings.
Cash is king during a market rout.
You’re standing by ready to pick up the deal of a lifetime.
Having a portfolio of cash and warrants is even better.
If storm clouds dissipate and stocks keep running higher, warrants keep you in the game. If stocks tumble, the cash turns you into a king.
These are unique times. The Federal Reserve seems dead set on supporting the stock market at all costs. Economists urge the Fed to buy stocks if necessary. That amounts to a permanent government subsidy for retirees selling stocks to the Fed. We can’t imagine it working. But it might.
If what’s brewing now ends in a crash, Fed support, or something in-between, a cash-and-warrant portfolio seems like the best way to survive.
Editor, Strategic Trader
Chris’ note: In E.B.’s Strategic Trader letter, he’s already pinpointed some of the most explosive warrants available today. One is already up an astonishing 227% in four months. Another is up 82% in less than two months. Two more have both soared 90%-plus since E.B. recommended them earlier this year.
Simply put, his strategy works. And he just recommended his latest warrant play yesterday. This one could be the biggest winner of them all… and now’s the time to get in.
You can learn how to access all of these names, by watching this urgent video presentation.