Investment Strategy

The Smart Profits Report: Issue #484
Friday, December 28, 2007

Investment Strategy: The Exit Strategy That Nets Big Winners And Reduces Risk
By Marc Lichtenfeld
Senior Analyst, Mt. Vernon Research

Ask anyone why they invest and the most obvious response you’re likely to get back is, “Because I want to make money.” After all, that’s why you’re in the game, right?

And if you’ve ever experienced the joy of scoring a two, three, or even a ten-bagger win from a constantly unpredictable stock market, you’ll know there’s nothing quite like it. Watching your $4 stock rise to $40 is not only exhilarating, but it also validates your investment thesis and strategy.

Today, I’m going to send you into the New Year by showing you a simple investment strategy that allows you to reduce your exposure to a volatile market and lock in gains.

How To Make Money With An Investment Strategy

With an ever-increasing number of people investing in the stock market these days, it’s no surprise to see book titles and TV shows called “Mad Money” and “Fast Money.” While the premise is good, virtually no stock goes straight up. That’s why it’s crucial to employ sound risk management strategies (such as selling covered calls and using stop-losses - topics we’ve covered extensively in this column before), so you have the fortitude to ride out the pullbacks that will invariably occur along the way.

In addition to that, sometimes you just have to know when to take the money and run. After all, what’s the point of investing if you don’t have an investment exit strategy?

I’ve got a tried-and-tested method that helped Xcelerated Profits Report subscribers stuff a 99% pre-Christmas profit into their trading accounts two weeks ago. Not only that, they’re still participating in the upside of the stock.

I don’t say this to brag, but because I want to share with you the simple investment strategy that made it happen - and which has proved invaluable to me over the years…

What Would You Do If Your Stock Doubled?

At the height of the dot com boom, I was living in San Francisco - the epicenter for new technologies, new companies and new wealth. I did pretty well investing in companies like Adobe Systems (Nasdaq: ADBE) and Polycom (Nasdaq: PLCM) - firms that escaped the inferno and lived to tell the tale to this day

Back then, I set my sights set on a little San Francisco-based Internet broadcaster called Quokka. The company had an exclusive deal with the 2000 Olympic Games to broadcast various events on the web. I bought the stock for around $7 - and did so purely on the promise of the hype at the time. I didn’t actually think the company had a great business and wondered just how it was going to make money (I didn’t think too many folks would watch Olympic kayaking at dial-up speed).

I merely figured that once the Olympics came around, the media buzz around the company would be such that the stock would rocket higher and I’d get out. I wasn’t trying to be Warren Buffett here; I just wanted to ring the register and get out. My theory was proven correct - and ahead of time, too. The stock started moving well before the Olympics. When it hit $15, I suggested to my wife that we should sell it.

“But what if it keeps going and hits $30 or $40?” she asked. “That would be enough for a down-payment on a house.” I didn’t feel comfortable. “Why don’t we just sell half? That way, we’ll be playing with someone else’s money,” I responded.

Although, I was the investment “expert” in the family, I conceded and held the entire investment. One thing I’ve learned over the years is that no matter the topic, the Mrs. is usually right! Except this time, she wasn’t…

Learning From The DotCom Boom To DotCom Bust

At first, the stock began to slide. Then, when the dot com demon ravaged the sector, the stock plummeted. Eventually, it became worthless and the company closed its doors.

After that, I vowed that if one of my stocks ever doubles, I’ll either sell half and get my original investment back, or put a stop at that 100% mark, ensuring that I won’t lose money.

And let me tell you, this investment strategy works. Plain and simple. Not only does it help you grab big gains at the time, but it also helps you capture even larger gains. That’s because when you’re not worried about losing money, you’re more inclined to let your winners run. Fear is no longer a controlling emotion.

Eliminate Fear & Greed With One Successful Investment Strategy

True to my investment strategy, I suggested selling half the position of my XPR pick BioMarin (Nasdaq: BMRN), meaning we’d take our original investment off the table and play with the house’s money (I didn’t recommend a stop because biotech is very volatile and stops won’t always get you out at your desired price).

When BioMarin finally sealed full FDA approval for a new drug and saw it priced 100% higher than expected, the stock surged 22% on December 14 (from $29.76 to $36.44). Xcelerated Profits Report subscribers were already enjoying healthy gains from the position, considering we got in at $18.29 on July 23. But this move immediately resulted in a 99% gain.

The beauty of doing this investment strategy is that we can now let BioMarin shares continue to rise over the next few years, without agonizing over every down tick. That’s because with no risk to our original investment capital, it’s much easier to ride out any forthcoming storms.

And that’s the key to having a successful investment strategy: Limiting your losses and letting your winners run. Sounds simple, I know. But you’d be surprised how many people let fear and greed control their decision-making process.

But after doubling your money in a particular investment, this simple investment strategy allows you to take risk out of the equation and let your winners run to some spectacular gains. Add it to your investment arsenal in the New Year.

Hoping your longs go up and your shorts go down,

Marc Lichtenfeld

Today’s Smart Profits Action Center

Will you enjoy investment success in the New Year? You can ensure that the answer to that question is a resounding “yes” by following the profitable recommendations in the Xcelerated Profits Report. In addition to the 99% win on BioMarin in 2007, we’ve also notched up 118% on Immersion, 79% on Color Kinetics when the company was acquired by Royal Philips, plus other gains of 69%, 55% and 45%. And we’re rolling into 2008 with plenty more. Kick off the New Year in style and find out for yourself how to score similar gains for the low subscription price of just $49.50 a year! Click this link to continue for more details.

BioMarin (Nasdaq: BMRN) isn’t the only recommendation where the Xcelerated Profits Report team has advised taking half the position off the table for outstanding gains. In February, we employed the same investment strategy on fast-growing technology firm Immersion (Nasdaq: IMMR). Having sold two sets of covered calls against the original stock position, we lowered our cost to $6.32. When the firm finally won its drawn-out patent infringement lawsuit against Sony, the stock took off. With 118% gains in the bag, Investment Director Karim Rahemtulla sold half the position. To this day, we’re still riding the second half - with the house’s money - and are up 110%.

With another New Year just days away, this is time when millions of people start making resolutions to improve their health, finances, or some other kind of self-improvement. Beat them to the punch today and set yourself up for a profitable New Year by brushing up on some of the professional investment strategies that will help you become a richer, more successful investor. We’ve got a ton of them in our Smart Profits Report archives - and they’re available to you for no cost. Check them out here.

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