Dave’s note: With markets selling off almost daily, I wanted to send a quick note on our thoughts and where we go from here.
As we write, the major market indices are under heavy pressure. The S&P 500 is off nearly 16% so far this year. The Dow Jones is down 11%. And the tech-heavy Nasdaq is in a technical bear market, down 25%.
For some of you, it might feel like March 2020. For others, the 2008-2009 market selloff, or the dotcom crash of 2001. Regardless, it probably doesn’t feel good right now to be an investor.
We understand. Everyone on our team knows what it’s like to feel the highs and lows of the market. And that’s what drives us to provide you with advice we’d like our friends and families to have in this uncertain time.
Right now, we’re in a period of risk off. So risky assets – like warrants – are out of favor in most cases. That doesn’t mean there aren’t opportunities to profit from warrants, it just means the list of potential candidates worth betting on is much smaller.
It’s one of the reasons we constantly say “don’t bet more than you can afford to lose” when it comes to speculative trades. Even if they go to zero, you should sleep easily knowing a complete loss wouldn’t make a major difference to your overall wealth.
If that’s not the case, consider easing up on risky bets in favor of stocks that should be where your serious money belongs.
Now, I do want to talk about warrants today. And why, even though the market is down, the right warrants can still be a good place for extra money. Because when the market recovers, warrants will lead the way… fast.
By David Forest, editor, Strategic Investor
When we launched Strategic Trader in 2019, our goal was to bring readers fresh ideas and ways to turn dimes into dollars. We were after massive gains without putting too much capital at risk.
That’s why we focus on warrants… also known as the billionaires’ wealth-building secret.
Longtime readers of my research know the power of warrants firsthand.
And for good reason.
One of those is electric vehicle (EV) charging company Blink Charging’s warrants (BLNKW) – my colleagues and I have written about it in previous essays of the Dispatch.
When we recommended the Blink Charging warrants, we told readers the rise of EVs was inevitable. More and more people were buying them as automakers introduced newer models.
But there’s one big problem. There just isn’t enough infrastructure to service them.
Before cars and trucks went mainstream, we needed better infrastructure to make long-distance trips possible. That meant our current highway system. It also meant gas stations and convenience stores.
Today, there are over 168,000 retail stores in the U.S. that sell gas. It’s tough to drive more than 100 miles without seeing multiple gas stations. But that’s not the case for EV charging stations…
When EVs came on the scene, you couldn’t drive past the corner store without fear of not being able to find a charging point. Not long after, you could go to the next town and back without any fear.
Today, if you plan it right, you can drive across the country. It’s difficult, but not impossible.
That’s why in February 2019, we recommended the Blink Charging warrants as a way to play the buildout of EV infrastructure. After all, EV drivers need a place to “fill up” just like everyone else.
This One Went Bad, Before It Went Up
Now, while this trade was a great opportunity, things didn’t initially go as planned. This is the stock market… Prices go up and down, and you can’t always predict how it’ll play out.
In this case, things looked really bad almost from the beginning. In fact, at one point, we were showing a loss of more than 80% on the Blink Charging warrants.
But warrants have a way of exploding higher.
That’s why we always say patience is key. It lets our proprietary T-U-V system play out. (I’ll explain the T-U-V system in one moment.)
For Blink Charging, our patience paid off… and we didn’t have to be patient for too long, either.
In a matter of a few months, the Blink warrants went from being an 80% loser to a 2,805% winner.
And we know many of our readers did even better than this – because they bought into the warrants well below our official $1 entry price.
It’s also a great lesson when we look at the positions in our model portfolio today. Even though some may be down, we’re not out.
In fact, we wouldn’t be surprised to see those take off similarly to Blink. The reason I say that is because we don’t just buy any old warrant (there are plenty to choose from). We use a simple proprietary system that helps us find the best warrants trading on the market at any given time.
That’s the T-U-V system I mentioned earlier.
T-U-V stands for Time Value, Underlying Stock Potential, and Volume.
Before we consider any warrant trade, we need to make sure all three criteria are met. Here’s how it works:
T – Time value. Time is money, and we want to get a free ride on the cheap. Our “sweet spot” is warrants that expire in three to five years. That period gives them plenty of room to run. Getting in at the right time is imperative. While we can see the price fall before rebounding, naturally we prefer if the price goes up from the start.
U – Underlying stock potential. We need to see that the underlying stock is strong and has big upside ahead. We don’t buy any warrants on a stock that we wouldn’t consider buying on its own.
V – Volume. We eliminate even the best warrants if they don’t trade. Some don’t have enough outstanding, and others are locked up in a few hands. We discard those, even if they’re valuable.
With our system, we’re able to pinpoint the very best warrants to own. And again, we don’t consider any warrant unless it passes this test.
We want to buy warrants that represent viable businesses and give us a great chance of a winning speculation with minimal risk.
Remember… our mantra is, “unlimited upside, capped downside.”
The Profit Power of Warrants
The fact is warrants are better, cheaper, and faster than stocks. That’s why the world’s most successful investors love them – even demand them.
Billionaire investors like Jeff Bezos and Warren Buffett are some of the biggest investors in warrants.
In fact, I’ve recorded a special briefing about how to get into these opportunities.
So check it out here before it’s gone. It could be the best investment decision you make this year.
Keep walking the path,
Editor, Strategic Investor