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Tip 3 - Never Buy A Mutual Fund

Never buy a mutual fund unless it is a no-load index fund with the lowest cost structure. (I will tell you where to find it later.)

Why Stock Options are better than Mutual Funds

The Great Myth Of Out-Performing Mutual Funds

Every year, dozens of financial magazines, newspapers, and newsletters dutifully report the top-performing mutual funds, based on 1-, 2-, 5-, or more year time periods. Presumably, the mutual funds that scored the highest in the past are the ones we can expect to continue to outperform in the future. This presumption is a myth.

To me, these scorecards are like reporting the most recent numbers which won at a roulette wheel - they indicate little or nothing about what is likely to happen on the next roll. Every year, we see entirely new mutual funds at the top of the lists. In fact, in many instances, the funds that will perform the best next year can be found at the bottom of last year's list. (Bad luck got them at the bottom last year, just as good luck got the best performers at the top. In both cases, luck, not skill, was the primary determinant of success.)

The Best-Of-The-Best Mutual Fund Managers Make Their Picks

At the beginning of 2001, Business Week magazine selected four experts to invest a hypothetical $100,000 in their 10 favorite stocks. These stock-pickers were good, apparently the best in the business. One manager had earned an average of 20.3% a year for 3 years, placing her in the top 2% of her peers. Two of the fund managers had lost a little during 2000, but their losses were only 1/5 or 1/6 of the average for their kind of mutual funds.

One manager's secret was to "buy improving companies dirt cheap" - he was quoted as saying that "Cisco at $52 was a reasonable valuation" (of course, a year later, it was under $20, but what the heck, it must have been a real bargain then). The fourth manager specialized in small-caps, and had returned 16.6% for the past three years vs. 1.8% for his small-cap peers. So Business Week had identified the cream of the crop of mutual fund managers to make their very best picks for the year.

Of Course, 100% Of The Absolutely Best Fund Managers Can Still Be Wrong

At the end of the year Business Week (December 31, 2001-page 106) sheepishly reported the results. If you had bought all four portfolios (spreading your risk over 40 stocks), you would have lost 26.7% of your investment for the year. Remember, these were the best of the best experts in their field who were making the picks.

Of course, 2001 was not a great year for stocks. Had you bought an S&P 500 Index fund, your loss for the year would have been 13%. But how would you have felt to have paid these "best of the best" experts by buying their mutual funds (and paying them their 3% or so management fee), and experiencing a loss twice as great as the market average? For sure, they were paid hundreds of thousands of dollars each for their work in 2001 (when a dart thrower could presumably have done twice as well).

The On-Going "Experts Challenge The Darts" Contest

For many years, the Wall Street Journal has run a contest between the top stock picks selected by four "experts" and stock choices made by random darts thrown at the financial pages. Six months after the picks are made, the results are tabulated. So far, the experts hold a narrow lead over the darts.

This contest is not fair, however. The darts are handicapped. Millions of investors are introduced to the single best stock pick of four recognized experts. What's more, investors read the expert's reasoning behind his or her choice. This publicity is sufficient for many investors to buy companies they may never have heard about before the contest. I, for one, have bought stocks recommended by these experts on many occasions. All this new buying serves to push the prices higher for the experts' choices. Presumably, not too many investors run out and buy the darts' stock picks.

A fair way to run this contest would be to wait two weeks after the contest was announced, and use those prices as the starting points for both the experts and the darts. Of course, then the experts might be totally humiliated. It's bad enough that they get beat a good share of the time already.

One Of The Great Mysteries Of The Investment World

If portfolio managers really can't outperform the market, why do we pay them so much? Year after year, millions of investors pay mutual fund managers billions of dollars to under perform the market. It's one of the investment world's strangest mysteries to me. Does it make sense to you?

Where To Find The Lowest Cost (Index Or Otherwise) Mutual Funds

You can find any mutual fund's annual percentage cost (and these costs vary unbelievably), at www.personalfund.com. Check it out. No one should buy a mutual fund without going there first. This website could save you thousands of dollars every year.

I don't get paid anything to send you there - it's my way of thanking you for coming to my web site and learning about ways to double your money with just a little effort.

If the investment pros can't beat the index averages, how do you think the ordinary investor can match up? Probably not too well, even with a full-time research effort. I firmly believe that if you want to invest in mutual funds, you should stop trying to guess which one will have the hot hand next year, and content yourself with the lowest-cost index fund instead. In the long run, you will be way ahead.

Make A Little Extra Effort And Multiply Your Returns

I feel even more strongly that instead of being a passive investor in index mutual funds, you should direct at least some of your money into an active investment that might yield you three or seven or ten times as much as the index fund does.

I'm talking about stock options in general, and LEAPS in particular. It doesn't take too much to learn about these little-known instruments, and the returns can be tremendous. Tip #1 - All About Options includes a short primer on stock options.

My program is designed to show you several methods to double your money. Tip #5 - The Lazy Way To Double Your Money Strategy involves only two trades at the beginning of the two-year period, but can't be used in an IRA.

My favorite strategy, Tip #6 - The 10K Strategy, involves a little work and trading every month but can generate superior returns even in a flat market. Sign Up For My Free Options Strategy Report and receive two free reports - "How to Make 70% a Year with Calendar Spreads" and "Case Study - How the Weekly Mesa Portfolio Made Over 100% in 4 Months".

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Terry's Tips Stock Options Trading Blog

August 25, 2015

Now Might Be the Perfect Time to Make This Volatility Trade

Today I would like to pass along a trade I just made. It has a chance of making 50% if the stock stays flat or moves moderately higher over the next ten days. I want to share it with you just in case you might like to try it yourself (with some money you could afford to lose – we’re talking about $670 here, per contract).

Terry

Now Might Be the Perfect Time to Make This Volatility Trade

The market is going crazy. VIX, the so-called Fear Index, skyrocketed to 40 yesterday, something it hasn’t done for over 2 years. It has fallen to about 30 today, and if history is any indicator, it is headed for the 12 – 14 level where it has hung out for . . .

August 17, 2015

How to Fine-Tune Market Risk With Weekly Options

This week I would like to share an article word-for-word which I sent to Insiders this week. It is a mega-view commentary on the basic options strategy we conduct at Terry’s Tips. The report includes two tactics that we have been using quite successfully to adjust our risk level each week using weekly options.

If you are already trading options, these tactic ideas might make a huge difference to your results. If you are not currently trading options, the ideas will probably not make much sense, but you might enjoy seeing the results we are having with the actual portfolios we are carrying out for our subscribers.

Terry

How to Fine-Tune Market Risk With Weekly Options

“Bernie Madoff attracted hundreds of millions of dollars by promising investors 12% a year (consistently, year after year). Most of our portfolios achieve triple that . . .

August 6, 2015

3 Options Strategies for a Flat Market

Before I delve into this week’s option idea I would like to tell you a little bit about the actual option portfolios that are carried out for Insiders at Terry’s Tips. We have 11 different portfolios which use a variety of underlying stocks or ETPs (Exchange Traded Products). Eight of the 11 portfolios can be traded through Auto-Trade at thinkorswim (so you can follow a portfolio and never have to make a trade on your own). The 3 portfolios that cannot be Auto-Traded are simple to do on your own (usually only one trade needs to be made for an entire year).

Ten of our 11 portfolios are ahead of their starting investment, some dramatically ahead. The only losing portfolio is based on Alibaba (BABA) – it was a bet on the Chinese market and the stock is down over 30% since we started the portfolio at the beginning of this year (our loss is much greater). The best portfolio for 2015 is up 55% so far and will make exactly 91% if the three underlyings (AAPL, SPY, and GOOG) remain where they presently are (or move higher). GOOG could fall by $150 and that spread would still make 100% for the year.

Another portfolio is up 44% for 2015 and is guaranteed to make 52% for the year even if the underlying (SVXY) falls by 50% between now and the end of the year. A portfolio based on Costco (COST) was started 25 months ago and is ahead more than 100% while the stock rose 23% - our portfolio outperformed the stock by better than 4 times. This is a typical ratio – portfolios based on Nike (NKE) and Starbucks (SBUX) have performed similarly.

We are proud of our portfolio performance and hope you will consider taking a look at how they are set up and perform in the future.

Terry

3 Options Strategies for a Flat Market

"Thinking is the hardest work there is, which is probably the reason why so few engage in it." - Henry Ford

If you think the market will be flat for the next month, there are several options strategies you might employ. In each . . .

Making 36%

Making 36% – A Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad

This book may not improve your golf game, but it might change your financial situation so that you will have more time for the greens and fairways (and sometimes the woods).

Learn why Dr. Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA.

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