Has Wall Street Really Turned Into A Giant Casino?
Our financial markets have become a Vegas/Macau/Monte Carlo casino…
~Bill Gross, Janus Capital
Is it true? Is the global financial market really nothing more than a crapshoot? And as investors, are we really just gamblers hoping to get lucky with our retirement? That’s what Bill Gross had to say this week when he shared his investment outlook with clients.
Today, I’ve got some bad news and some good news for you.
The bad news is that in many ways, Bill Gross is correct! The Fed’s experiment with zero interest rates (and other central banks’ foray into negative interest rates) has led to major distortions in the stock market. Since savers can’t generate income using normal means such as CDs and Treasury bonds, they have been forced to move investments into more speculative areas of the market.
This has pushed valuations for many different asset classes (dividend stocks, investment grade bonds, real estate and more) to unsustainable levels. Investors now face risks that are similar to gamblers at Las Vegas casinos!
The good news, however is that you don’t have to play Wall Street’s roulette game. Instead, you can turn the tables and stack the odds in your favor.
In The Wall Street Casino, You Can Be the “House”
The book “Bringing Down the House” tells the story of six MIT students who made millions by counting cards at Blackjack tables around the world. The story was made into a movie (called “21”) in 2008. But the book is still a much better story in my opinion.
This true story is one of the few documented examples of gamblers actually beating the casinos.
And the truth is, they weren’t actually gamblers!
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Instead of playing a game, these students were following a meticulous system designed to only bet when the odds were in their favor. The students didn’t expect to make money on every bet. But over time, the odds worked out in their favor.
That’s exactly the way a casino makes money off gamblers.
The casino doesn’t win “every time.” There are times when individual gamblers actually make money (and that’s what keeps them coming back). But since the casino sets the rules of the games, and the casino always skews the rules in their own favor, over time the “house” will make money off the gamblers.
Today, I want to talk about how you can take the position of the “house,” and turn the tables on Wall Street.
Getting Paid To Buy Stocks at a Discount
Just like the MIT students got paid by shifting the odds in their favor, you can shift the odds of investing in stocks. The best way I know to do this is to sell put contracts on stocks you would like to own.
When you sell a put contract, you’re entering an agreement to buy shares of stock. But instead of buying these shares at the current market price, you can agree to buy them only at a discount.
Better yet, when you sell a put contract, you get paid immediately to enter your agreement. That payment is yours to keep whether you wind up buying shares at the agreed upon price or not. So you’re already one step ahead of the “house” by collecting an instant cash payment.
Now not every single one of our put trades will wind up being profitable. Sometimes, your stock could drop below the discount price you agreed to pay. So even though you’re getting paid to enter an agreement and you’re buying at a discount, the stock still continues to trade lower.
But the beauty of this type of setup is that the probabilities are skewed in your favor. In fact, when you use this method, along with a covered call strategy, you can lock in very reliable profits. (My Income on Demand service has a track record with 96.3% winners over 191 different closed trades.)
You don’t have to play Wall Street’s casino game, buying stocks at inflated prices and hoping they continue to trade higher. Instead, use a more sophisticated strategy to beat Wall Street at its own game.
Here’s to growing your income!