Kris’ note: If you’ve been reading the Dispatch recently, you’ll know that our favorite investing class – warrants – can deliver huge returns… while only risking a fraction of your money.
And with the post-COVID recovery slowing down… everyday goods and services getting more expensive… and increasing fears of a crash, it’s more important than ever to be invested in an asset class that is low-risk, high-reward.
So today, we’re sharing an interview between Daily Cut editor Chris Lowe and our very own warrants experts, Dave Forest and John Pangere.
They tackle how to easily use warrants in your portfolio and overall wealth-building plan, plus how to get in on an explosive opportunity alongside Jeff Bezos.
If you want to know even more… check out the replay of Dave Forest’s seminar on warrants here. Don’t delay… it’s being taken offline tomorrow night.
By Chris Lowe, Dave Forest, and John Pangere
Chris Lowe: Hey, folks. It’s Chris Lowe, editor over at The Daily Cut. I’m here with Dave Forest and John Pangere. They head up our Strategic Trader service.
Today, we’re talking about a strategy they’ve been working on… it involves an investing tool called “warrants.”
Dave Forest: That’s right. And our model portfolio has shown exceptional gains from investing in them.
Chris: John, I know you’ve been working very closely on this. Can you give us a taste of some of the gains you’ve been able to rack up in the model portfolio of Strategic Trader using this strategy?
John Pangere: Sure. Some of the warrants we’ve recommended include Purple Innovation (PRPL).
That’s the Purple Mattress company. I’m sure you’ve seen its ads everywhere.
Within a year and a half of buying those warrants, we cashed out with 4,942% gains.
Meanwhile, the stock only did about 421%. That’s actually an exceptional gain in itself – but not as good as the warrants’ gain.
Dave: The warrants’ gain was enough to turn every $1,000 investment into more than $50,000.
John: Right. And it’s not the only one that’s had some fantastic gains so far. Vivint Smart Home (VVNT) warrants had triple-digit returns – 393%.
We’ve done Custom Truck One Source (CTOS), a rental company for heavy equipment used on rail and telecommunications projects. We’ve sold half of those warrants for 7x gains. And they’re currently up more than 1,450%.
We’ve seen this over and over again. There are others we’ve already taken profits on. But we’re just ramping up.
Chris: I was blown away by that Purple Innovation gain. Dave, I know this is familiar territory for you. But for folks who are just tuning in to this, what is a warrant? What makes it different from a regular stock?
Dave: Most investors just pass them by because they don’t know what they are.
They’re easy to buy in your brokerage account. They’re akin to options, except much less complex to buy.
A warrant gives you the right, but not the obligation, to purchase a share of a company at a given price, for a given period of time.
The warrants, for example, will allow you to buy a share of that company at, say, $11.50, for a period of five years.
If the stock rises to $20, $30, or $40, your right to buy a share at $11.50 puts a lot of value on the warrant.
The important point is, it gives you exponential value. That’s because these warrants are often available to purchase for a dollar or less.
Some of the warrants we’ve done exceptionally well on have traded as low as $0.20 or even $0.10. In some cases, they trade as low as a penny.
You can imagine what happens if a stock takes off to $30 or $40 and you have a warrant you bought for a penny.
For every penny it goes up above $11.50, you’re getting a double on that. That’s where you get these extraordinary gains.
They’re very common among the insiders of the investment world. High-level investors often use warrants in financings.
But there’s a universe of warrants that’s also available to any investor.
You can buy them the same way you buy stocks – with the click of a mouse, through any online brokerage account. It’s really amazing.
Chris: Does that mean that if the stock doesn’t go above a certain price, those warrants aren’t worth anything?
Dave: Correct. There’s a chance the warrant doesn’t rise above the “exercise” price. In that case, it would expire worthless.
However… the strategy John and I developed avoids that risk. We just buy and sell the warrants like you would any stock. We would sell out of any loser far before it expires worthless.
Also, we don’t mess around with exercising warrants. That’s extra work, confusing, and not as lucrative as our strategy.
In a lot of cases, you have five years until the warrants expire. So there’s a long time to realize the value.
And since we recommend putting only a small amount of money in each recommendation, that caps your downside big-time.
Besides, the strategy John and I have developed allows you to invest in a universe of warrants. With the 4,942% gain John mentioned, where you’re turning $1,000 invested into $50,000, you don’t need to put a lot of money into it to move the dial.
The best way to play warrants is to put a small amount – even a couple hundred dollars – into a basket of warrant recommendations.
Right now in the Strategic Trader model portfolio, we have five warrant picks up 50% or more. Two of those are up over triple digits… and one is up over 1,450% right now.
The gains on the ones that are up pay for the ones that are down many, many times over.
The portfolio is designed to give you exposure to a basket of warrants. When you make these extraordinary gains, you don’t need to put a lot of money at risk.
Chris: Right. So it’s a highly speculative instrument that allows you to capture all the upside on a stock. It sounds great.
And you guys have made nearly 5,000% returns investing in these things.
Why don’t more people know about these? It seems crazy that this speculative kind of security exists and most people have never heard about it.
John: I think a lot of it is because there aren’t that many of them.
There are 4,500 or so U.S.-listed companies. There might be 300 or 400 warrants out there that we’re able to actually target. And not all of them are good enough to speculate with.
So they’re not really advertised, just because there’s a much larger universe of stocks.
For the most part, institutional investors don’t really want other people knowing about them, either.
Even though warrants trade on a public market, they like to keep it hush-hush. But Dave and I have been dealing with warrants for many years now.
When I was working in late-stage venture capital, warrants were attached to a lot of those deals.
But for the most part, your average investor is never going to know about warrants – because they’re not really publicly talked about.
Chris: Right. What are some of the characteristics you might look for in a warrant?
Dave: We can use these warrants to invest in almost any business under the sun.
But lately, we’ve been looking at getting exposure to very basic businesses – the kinds that will benefit from the COVID-19 reopening. Businesses like restaurants and travel companies.
We can invest in those using warrants. We can also invest in things that look like they’re going to do extremely well under the Biden administration… like clean energy. There are many warrant investments available in that space.
So whatever it is, there’s a warrant for it.
Chris: How would this fit into an overall strategy? You were saying you had warrants in your personal trading account. But how should they be used by a general investor? How do they fit in as part of a portfolio or an overall wealth-building plan?
John: When we’re talking about warrants, they’re such speculative instruments that they should take up only a small portion of your assets.
For me, I might allocate 1% of my total investable assets to warrants. Even then, I’m only putting enough into each warrant that I know it’s not a big deal if I lose it.
It’s a strategy that makes sure you won’t lose too much of what you have. But when it works out, it’s going to make a difference in your overall wealth.
Chris: It sounds a lot like asymmetric investing, Dave. I know Doug Casey would have a lot to say about that.
I know your background is in junior resource mining stocks. There are similarities there, in terms of that asymmetric opportunity.
Dave: Definitely. Most of my career has been looking for opportunities to put a small amount of money in and make an outsized return.
And I think it’s especially important that people look at those kinds of opportunities today. By any definition, stocks are very expensive. So everybody’s a little bit worried about a big crash in the stock market, right?
Do you want to have a huge amount of money invested in stocks when there’s a risk of that kind of crash? Or would you rather have a small amount of money invested in something that can deliver you the same type of return?
It’s a strategy. It’s looking at where we are in the market and adjusting. Trying to control your risk is a big part of this. Like you say, it’s asymmetric.
Chris: John, do you have anything on the radar for new recommendations? What areas are you looking into next for warrants?
John: I keep a pretty good list of warrants that are out there. Again, it just runs across all different types of sectors.
Like I said, we’ve done cannabis… Electric vehicles… We’ve had success with that in the past with Blink Charging warrants. It was a 29x return in under two years on those.
In fact, we’ve just recommended a new warrant in that space, backed by Jeff Bezos and the full power of Amazon.
Dave: I actually held my first ever special event – the “Zero to Retirement Summit” – last Wednesday to get the word out on that Bezos deal… because it can change my readers’ lives.
In fact… we’ve never seen a deal with the potential to make my readers as much money as this… ever.
During the event, I gave viewers details on how billionaires like Bezos use warrants all the time to increase their wealth.
Plus, all the details on how to ride Jeff Bezos’ coattails.
Those of you who get in before mid-November may be able to catch a 49x winner… just like our Purple Innovation example.
If you’re even a little bit curious, I urge you to check out my seminar on everything you need to know about warrants.
It’s free… and you owe it to yourself to get the chance for that kind of windfall.
Chris: It sounds amazing. I’m excited about that idea. I’m one of those people who worries about a stock market crash. As you say, putting a huge amount of money now into equities could be risky.
You’ve put together a free presentation on warrants. Readers can get more information here.
Thanks for explaining what’s been going on and showing some of the returns you guys have been making. Really appreciate it.
Dave: Thanks for having us, Chris. Good stuff.
John: Thanks, Chris.