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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

January 24, 2023

January 24, 2023

Dear [[firstname]],

Here is your Option Trade of the Week, as given to our Terry’s Tips Insider Members as part of the Saturday Report. With earnings season underway, we’re back to our typical earnings plays with a return to the bearish side.

Before getting to the trade, there’s still time to jump on our huge discount offer to join Terry’s Tips as an Insider Member that lets you trade up to four portfolios. These portfolios use our proprietary 10K Strategy, which has generated average annual gains of 60% for the past five years in actual brokerage accounts (including all commissions).  In 2022, our portfolios beat their underlying stock performance by an average of 22%

We’re still running a special new-year sale that saves you more than 50% on a monthly subscription to Terry’s Tips. For just $98, you’ll get:

  • A month of all trade alerts in our four portfolios, giving detailed instructions for entering and exiting positions.
  • Four to five (depending on the month) weekly issues of our Saturday Report, which shows all the trades and positions for our four portfolios, a discussion of the week’s trading activity and early access to our Option Trade of the Week.
  • Instructions on how to execute the 10K Strategy on your own.
  • A 14-day options tutorial on the opportunities and risks of trading options.
  • Our updated 10K Strategy white paper, a thorough discussion of the strategy basics and tactics.
  • Full-member access to all our premium special reports that can make you a wiser and more profitable options trader. 

To become a Terry’s Tips Insider Member, just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips  for half off. You can cancel after a month but, of course, still keep all the valuable reports.

We look forward to having you join us in 2023! Now on to the trade …

Tarnished Goldman

With earnings season now underway, we can focus on companies that have recently reported. Though the docket was sparse this past week, there were a few juicy names to choose from. One was Goldman Sachs (GS), which reported a miserable quarter before the week’s trading began on Tuesday.

Earnings plunged 66% from a year earlier on slower corporate dealmaking and 48% lower investment banking fees. Earnings per share came in at $3.32, far below the expected $5.56. FactSet noted it was the bank’s largest miss in years. Revenue also dropped and missed estimates.

The stock reacted by falling 6.4% on Tuesday, its second-largest one-day, post-earnings decline since April 2009. The week didn’t get any better for GS, as reports came in on Friday that the Federal Reserve is investigating whether the bank had the appropriate safeguards in its consumer business. The stock fell 2.5% on a day when stocks were higher.

The stock’s 8.6% plummet last week pulled it below its 20-day and 50-day moving averages. The 50-day is rolling over into a decline for the first time in three months, while the 20-day appears poised to head lower as well. We are going with a bearish call spread, with the short call strike sitting between the 20-day (blue line) and 50-day (red line) trendlines. However, given the 50-day’s current path, it should fall below this strike and serve as a second potential point of resistance to keep the spread out of the money.

If you agree that GS will continue to struggle, consider the following trade that relies on the stock staying below $360 (green line) through expiration in 6 weeks:

Buy to Open the GS 3 Mar 365 call (GS230303C365)

Sell to Open the GS 3 Mar 360 call (GS230303C360) for a credit of $1.25 (selling a vertical)

This credit is $0.05 less than the mid-point price of the spread at Friday’s $341.84 close. Unless GS falls quickly, you should be able to get close to that price. The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $123.70. This trade reduces your buying power by $500, making your net investment $376.30 per spread ($500 – $123.70). If GS closes below $360 on Mar. 3, both options will expire worthless and your return on the spread would be 33% ($123.70/$376.30).

Any questions?  Email Terry@terrystips.com

Testimonial of the Week

I have been a subscriber for about a year. I autotrade in 2 different accounts, all your strategies. I read everything you write on Saturdays. I love your happiness thoughts and everything else. I usually do not communicate at all but I had to tell you how well my accounts with you are doing compared to everything else. You are awesome. Keep up the good work. Thank you.

~ Maya

Any questions?  Email Terry@terrystips.com.

Thank you again for being a part of the Terry’s Tips newsletter.

Happy trading,

Terry

January 9, 2023

January 9, 2023

Dear [[firstname]],

Here is your Option Trade of the Week, generated by our trading team, for your consideration. We’re going with another ETF this week, but this time back on the bearish side.

Before getting to the trade, there’s still time to jump on our huge discount offer to join Terry’s Tips as an Insider Member that lets you trade up to four portfolios. These portfolios use our proprietary 10K Strategy, which has generated average annual gains of 60% for the past five years in actual brokerage accounts (including all commissions).  In 2022, our portfolios beat their underlying stock performance by an average of 22%

We’re still running a special new-year sale that saves you more than 50% on a monthly subscription to Terry’s Tips. For just $98, you’ll get:

  • A month of all trade alerts in our four portfolios, giving detailed instructions for entering and exiting positions.
  • Four to five (depending on the month) weekly issues of our Saturday Report, which shows all the trades and positions for our four portfolios, a discussion of the week’s trading activity and early access to our Option Trade of the Week.
  • Instructions on how to execute the 10K Strategy on your own.
  • A 14-day options tutorial on the opportunities and risks of trading options.
  • Our updated 10K Strategy white paper, a thorough discussion of the strategy basics and tactics.
  • Full-member access to all our premium special reports that can make you a wiser and more profitable options trader. 

To become a Terry’s Tips Insider Member, just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips  for half off. You can cancel after a month but, of course, still keep all the valuable reports.

We look forward to having you join us in 2023! Now on to the trade …

Attention Shoppers

With earnings reports non-existent, we’re sticking with ETFs again this week, this time on the bearish side with the retail sector. The SPDR S&P Retail ETF (XRT) is a broad-based, equal-weighted index of around 100 retail stocks. No stock is worth more than 1.5% of the portfolio and the top 10 holdings are littered with small niche names, some of which I’ve frankly never heard of (Sally Beauty, Franchise Group, Leslie’s). Amazon and Costco, on the other hand, make up a mere 2.2% combined.

XRT had a rough 2022, losing about a third of its value. That puts it on par with tech stocks, which it is not, and trailing the broader market. Should we expect a rebound in 2023? I won’t hazard a guess. But we know the Fed will continue to raise rates to tame inflation. Many expect some sort of recession. The outlook appears muddy at best and bearish at worst.

XRT has staged a mini-rally to start 2023, gaining 3.8% in the first week. But the ETF is now bumping into its 50-day moving average. However, the 50-day hasn’t provided much resistance or support for the past several months. Of greater concern is the overhead 200-day moving average, which has been declining for more than a year. This trendline marked a top in August and kept XRT in check in November, allowing just two daily closes above it.

This bearish trade is a play on XRT once again faltering at the 200-day, which sits 3.7% above the Friday closing price. Note that the short call strike of our spread (red line) sits above the 200-day (blue line), meaning this resistance will need to be broken to move the spread into the money. Options traders have a similar outlook, pricing puts higher than equidistant out-of-the-money calls.

If you agree that XRT will fail to overtake the 200-day, consider the following trade that relies on the ETF staying below $66 through expiration in 6 weeks:

Buy to Open the XRT 17 Feb 69 call (XRT230217C69)

Sell to Open the XRT 17 Feb 66 call (XRT230217C66) for a credit of $0.85 (selling a vertical)

This credit is $0.05 less than the mid-point price of the spread at Monday’s $62.46 close. Unless XRT drops quickly, you should be able to get close to that price.

The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $83.70. This trade reduces your buying power by $300, making your net investment $216.30 per spread ($300 – $83.70). If XRT closes below $66 on Feb. 17, both options will expire worthless and your return on the spread would be 39% ($83.70/$216.30).   

Testimonial of the Week

I have been a subscriber for about a year. I autotrade in 2 different accounts, all your strategies. I read everything you write on Saturdays. I love your happiness thoughts and everything else. I usually do not communicate at all but I had to tell you how well my accounts with you are doing compared to everything else. You are awesome. Keep up the good work. Thank you. ~ Maya

Thank you again for being a part of the Terry’s Tips newsletter. Any questions?  Email Terry@terrystips.com

Happy trading,

Terry

January 6, 2023

January 6, 2023

Two and a half years ago, I found myself in the ICU of the University of Vermont Hospital.  I had all the symptoms of Covid even though I had tested negative several times.  My doctor kept saying that the tests had to be false negatives.  Surely, it was Covid, he said.

I checked myself in to the ER of Porter Hospital in Middlebury at midnight on a Friday.  My blood pressure was 65 over 45, and after filling me full of fluids and keeping me awake all night, they couldn’t get that upper reading over 70.

In the morning, they rushed me north to the ICU where they anticipated doing a surgical procedure on my aorta.  They let me make a phone call to Jon Lewis who had been sharing the responsibilities of making the trades in our portfolios.  I told him that he would have to write the Saturday Report that day as well as taking over all the portfolios on Monday.  He said he didn’t think he could do it.  I told him that I surely couldn’t do it, and he was the only one out there who could do it all.

When the test results at the ICU came back, we learned that I did not have Covid after all, and the anti-biotic that they had given me at Porter had saved my life.  Seems that I had a tick-induced disease called Anaplasmosis, and a week later, I felt totally fine.

Ever since that Saturday in July, Jon Lewis has made every trade in every portfolio and written every Saturday Report.  I spoke with him and shared ideas on a regular basis, but he made all the final decisions.  Jon has done a better job than I have in carrying out the 10K Strategy.  For 2022, I traded this strategy in my personal portfolio and did far worse than the market averages. It was my worst year ever. 

Meanwhile, Jon beat those averages by more than 20%. He wisely handled the extreme volatility by keeping about half the portfolios in cash, and placing spreads at a larger range of strikes than we had ever used in the past.

I endured more health issues again this year.  I have had asthma-like breathing issues that prevented me from playing tennis singles or taking long-distance hikes.  In June, a biopsy showed a “high risk” cancer tumor in my prostate.  A long course of radiation has hopefully taken care of it.  And an adjustment to my pacemaker has improved my breathing considerably.

I am almost 84 years old and have been involved in Terry’s Tips for 21 years since I started in in 2001.  I continue to love options trading and place trades in my personal account nearly every trading day.  But this seems to be the appropriate time to turn the entire business over to Jon.

I want to thank my loyal subscribers who hung in there through the difficult years (like 2022).  I have enjoyed conversations over the years with many of you. I hope some of those relationships will continue as we move forward.

I will continue to read the Saturday Report each week, and surely have thoughts I would like to share with Jon. I may offer some additions to the quotations list at the end, but going forward, this is his baby. I am absolutely certain that if volatility falls just a bit to where it has hung out in the great majority of years, he will kill the market averages by a huge margin.

I wish Jon, and all the subscribers who make Terry’s Tips possible, all the luck in the world.  You have made this a wonderful ride for me, and I thank you from the bottom of my heart.

Happy trading,

Terry

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