Proverb 13:11 – “Riches gotten quickly will dwindle, but those who acquire them gradually become wealthy”
We want to make the portfolio as simple as possible. We actually started a few weeks back and have recommended stocks but we want to get even smaller. If you have the patience to to make consisten gains while controlling risk, here is the model we follow
- Invest in beaten down stocks with really attractive valuations. If we can pick up companies trading under book-value, all the better
- The cheaper these companies, the better. $3 or less per stock for example is favourable as the amount of capital to write covered calls is less.
- The state of the balance sheet is crucial. The number 1 focus from our perspective is to make sure the company in question will not go bankrupt. The more cash, assets, etc and the less debt the firm has, the less downside risk in the investment.
- We write covered calls on the stock every month to bring in income for as long as we can. If the stock is called away from us, well and good. We constantly look for opportunities to keep our funnel full.
- Remember our risk on these types of trades is what we pay for our shares less the premium we receive from the options. The lower we buy our optionable stocks, the less risk is there for us to lose money over the long-term.
The great thing about this strategy is that it is scalable. Position sizing for everyone will be different but we can´t stress enough the importance of getting as small as you can. Step by step, trade by trade, we will get closer to our goals.
After many years in this business, I have come to the following conclusion.
“All truths are easy to understand once they are discovered; the point is to discover them”
Our strategy is to reduce basis which improves our probabilities. Not for the masses but for the few who want to make steady consistent gains for the rest of their lives.