By Kris Sayce, editor, Casey Daily Dispatch
This week, we’ve sunk our teeth into warrants.
Warrants must be the single most underappreciated type of investment on the market.
But we’re aiming to change that.
After all, what could be more exciting – and worthy of appreciation – than a 4,942% return?
But big gains are just one part of the story…
Because for a chance to make those gains you must invest the right way… the smart way.
Do it the wrong way, and you’ll never get the chance to make those big gains…
If this is your first time reading the Dispatch, welcome. If you’ve been here before, welcome back.
At the Dispatch we have two goals:
To introduce you to the most important investing themes of the day, and
To show you how to profit from them.
We do this by showcasing ideas from our in-house investing experts: Dave Forest, Nick Giambruno, and the founder of our business, Doug Casey.
Today, while we want to share the excitement of making big gains from warrants – like the 4,942% Dave helped his readers secure with mattress company Purple Innovation – we also want to share another important factor that goes into making those gains.
Don’t Invest a Dollar to Make 10 Cents… Invest 10 Cents to Make a Dollar
It’s all about how you manage risk and reward.
Now, stick with us on this one. We know what you’re thinking: “Spare me the lecture, just show me where to get the next 4,942% gain.”
We get that. The problem is, if that’s all we did for you, you can bet your bottom dollar that you’d soon lose all those gains anyway.
Bagging a big gain like that without considering risk and reward could be like winning the lottery – you’d buy a helicopter, a fast car, and a mansion… and be stone-cold broke in two years.
So managing risk is important. And at Casey Research… we’re experts at managing risk. We have to be.
Because the way we approach investing is to aim for big returns from small stakes in the market.
As the founder of our business, Doug Casey, says: “Why invest a dollar to make 10 cents, when you could invest 10 cents to make a dollar?”
That means rather than putting a lot of money into one or two supposedly “safe” stocks, you take a small part of your portfolio and invest it in a range of potentially high-reward speculative plays. (We’ve shown you the “10 x 10” Approach before, and how it works.)
By doing that, it means out of a portfolio of speculations… you only need a couple of them to pay off in a big way. If you make 10 times your money on, perhaps, two speculations, who cares what happens to the rest?
You might make 50% on three others, 10% on a couple more… and the rest could be losers.
The two 10-baggers (stocks that go up by 10 times in value) have more than made up for any potential losses.
It all comes down to managing your risk and reward.
Bagging a 4,942% Return Is No Accident
We want to be clear about this…
Picking a winner that resulted in a 4,942% gain wasn’t an accident.
Neither was Dave’s 2,805% gain…
And there was no stroke of luck picking a warrant play that’s currently up 1,607%.
This only happens because Dave understands the principles of managing risk and reward. When Dave and his team go on field visits and analyze stocks, part of their decision-making process is working out if it’s the next 10-bagger.
If it has no chance of being a 10-bagger, then it just won’t make it to Dave’s recommended list. It’s not that it’s a bad investment. It’s just that it doesn’t fit with his investment objectives.
It’s as simple as that.
But big speculations also require more diligent risk and reward management. That’s why he recommends spreading money across a number of speculations, rather than going all-in on one or two plays.
The bottom line to all of this is that it’s not just the stock analysis that you need to think about when investing. It’s just as important to pay attention to whether you’re managing your risk and reward in the right way.
With warrants, there are great risk and reward opportunities.
You get to use small stakes, and in return you have the chance to make big gains.
Editor, Casey Daily Dispatch
P.S. Dave has mostly reserved warrants trades for his premium investment advisory. Simply because most of the opportunities are in smaller, less well known companies.
But as part of their extensive research, Dave and his team have uncovered warrants plays that are suitable for those just starting out with this lucrative investment class.
He recently introduced them to a larger group of subscribers. You can catch up on all the details here.