Never Pay Full Price For A Stock Again
The super-rich are different from the rest of us.
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First, many super-rich pay far less a percentage of their income to taxes. Secondly, many super-wealthy individuals pay less for things than regular consumers. Whether this is due to knowledge of the marketplace, inside connections, or simply designers and merchants wanting to get on their good side, these folks know the smart way to buy.
#-ad_banner-#However, it is not just taxes and buying things that the super-rich approach differently. They also don’t buy stocks the same way ordinary investors do. Believe it or not, billionaire stock market investors often buy shares at a discount or get paid for trying.
In fact, these investors only pay what they have determined to be a discounted price for the stock. If they cannot snap up the share at the discounted price, the market will pay them for trying.
The method is even used by ultra-conservative investor Warren Buffett. Although Buffett is famous for calling derivatives “time-bombs,” he is well known for using them in a safe way.
Here’s an example of such a play direct from Berkshire Hathaway’s 2007 annual report: “The second category of contracts involves various put options we have sold on four stock indices (the S&P 500 plus three foreign indices). These puts had original terms of either 15 or 20 years and were struck at the market. We have received premiums of $4.5 billion, and we recorded a liability at yearend of $4.6 billion. The puts in these contracts are exercisable only at their expiration dates, which occur between 2019 and 2027, and Berkshire will then need to make a payment only if the index in question is quoted at a level below that existing on the day that the put was written. Again, I believe these contracts, in the aggregate, will be profitable and that we will, also, receive substantial income from our investment of the premiums we hold during the 15- or 20-year period.”
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Obviously, most of us will not have a multi-decade horizon and will not receive billions in income, but the idea is the same.
Every investor can take advantage of this stock-buying secret of billionaires.
The method I am referencing is selling put contracts with the intention of buying the underlying stock at the strike price of the put.
When you sell a put, one of two things can happen:
The first possible result is that the stock never falls to your chosen discounted price. If this occurs, you get to keep the premium earned for selling the put. Many super-successful investors utilize put selling systems to make a continuous income stream from the stock market.
Outcome number two is that the share price falls to the strike price of the put. If this occurs, you will be required to purchase 100 shares for every put that you sold. Not only do you get the stock at the cost your analysis revealed is a good one, but the premium earned by selling the put also remains yours to keep. Applying the premium to the purchase means that you can own the stock at an even better price.
Bottom line: Billionaires hate paying the retail price for anything. Selling put contracts enables them to buy the stock at a discount or get paid to try. If you are prepared to own the stock at your chosen price, it is truly a winning investment tactic.
Risks To Consider: Like any stock investment, a bad earnings report or other negative news can cause shares to fall. If that happens, the price of the put you sold will increase. If the bad news is significant, buying back the put at a loss can be a smarter move than buying the stock itself. The other option is to purchase the stock anyway. Depending on how much the stock falls, you may end up buying them above current prices.
Action To Take: This is the same strategy my colleague Amber Hestla has been using for about six years now. In that time, she has recommended 251 trades and 230 of them have been winners — that’s an incredible 91.6% win rate. In fact, she has a perfect record throughout all of 2018.
If you want to learn more about her successful put selling strategy, click here.