Editor’s Note: All week, Bill has been laser-focused on President Trump and the looming trade war. But for today’s Saturday Diary, we shift gears to an always-popular topic: creative methods for making money in the stock market.
Today’s guest editor is Nick Rokke, Bill’s first “crackerjack” head of research. Below, Nick outlines how average investors can invest alongside “whales” like Warren Buffett… and secure “10-baggers” in the process.
Peter Lynch is famous for coining the term “10-bagger.”
A 10-bagger is a stock that rises 10 times in value after you buy it.
Lynch even wrote a book about finding these elusive types of stocks called One Up on Wall Street.
It’s one of my favorite books on investing… If you’re a serious investor and haven’t read it, go online and buy it right now.
Peter Lynch should be near the top of anyone’s list of greatest investors ever.
He ran the Fidelity Magellan Fund for 13 years. From 1977 to 1990, his average annual return was 29%. He crushed the S&P 500, which averaged 16% annual returns over the same span.
But here’s the thing…
Lynch rarely snagged any 10-baggers.
In fact, Lynch held on to the average stock for only four months. That’s usually not long enough to collect 10 times your money on a single position.
The truth is, if you want to generate higher returns in a shorter amount of time – like the pros – you’ll need to be a much more active trader.
Wall Street’s top guys make multiple trades daily, weekly, or monthly.
Most people think that you need lots of patience to achieve 100%-plus gains. And usually, you do.
There’s no problem with a buy-and-hold strategy. After all, investing in quality, safe, and income-generating stocks for the long-haul is one of our bedrock principles.
But you can also play the market… and try to make gains in a few weeks or months that take passive investors a whole year to achieve.
To actively generate profits trading like Lynch did requires a major commitment of time and effort, though.
Today, we’ll show you two ways to trade like the Big Boys with a few mouse clicks.
Both active and passive traders try to make big returns. They’re basically different means to the same end.
However, active traders can accumulate gains much quicker than passive investors.
Some active traders trade in and out of positions every day. We can’t follow their strategies. But other active traders hold their positions for weeks or months.
Those are the traders we want to follow.
On the other hand, passive investors generally buy stocks (either individually or through index funds) and hold them for years.
Instead of catching a quick rally, passive traders buy and hold. They believe the market will rise over time and lift their investments. They don’t worry about whether the market is going up or down in the short term.
Look, you can make a lot of money either way…
A buy-and-hold approach could earn you 10% per year… We’ll take that any day. But if you want to make superior gains like Lynch, the active route is the way to go.
For example, if you put $100,000 into Lynch’s portfolio, you’d have made $3.4 million over the 13 years that he ran the fund.
If you put that same amount into an index fund that tracked the S&P 500, you’d have only made $700,000 over the same span.
Lynch’s strategy would have made you almost five times your money. And it’s not that hard to adopt it…
To make huge returns like Lynch did from active trading doesn’t mean you need to sit in front of a computer screen all day watching stock prices.
One simple way to follow the Big Boys is to read their 13F filings.
All funds that have more than $100 million under management need to file a quarterly report with the U.S. Securities and Exchange Commission (SEC).
These reports are public record. So you can look at them yourself and see what funds are buying and selling, and follow suit.
That way, you can follow the trades made by some of the world’s best investors like Peter Lynch, Warren Buffett, and David Tepper. They do all the research for you.
Nick Rokke, CFA
Analyst, The Palm Beach Daily
P.S. I recently had lunch with Palm Beach Research Group’s newest analyst, Jason Bodner, the guy we call the Billionaire Broker. He worked for one of the world’s top investment banks, where he figured out how to hunt these whale traders… and he codified a scientific trading system to track them.
In his historical trial – that was independently verified by a $1.4 billion third-party financial services company – his top 150 trades averaged an astonishing 2,418%.
In fact, during lunch, he told me that his system flagged Nvidia when it was $22.31 per share in February 2015. It’s up 1,095% since then.
Jason recently started sharing his top five picks with the potential for 1,000% returns. To get all the details, go right here.