Answers to YOUR Top 3 Investing Questions
When you write in, we listen.
Today, I’m dedicating my entire Bold Profits Daily video to answer your questions.
I’ve been getting some really great ones from Twitter and YouTube on all things investing, trading and speculating.
It tells me you all are really in tune with what we’ve been saying about this Main Street bull market and you’re ready to go!
And you bring up some excellent points about exchange-traded funds (ETFs), the Bold Profits investing strategy vs. the other guys and how much cash you need to invest.
I think this is important for all of you to hear as investors. Take a look:
Over the last couple of weeks, I have done a couple of videos, one talking about the Rules of the Game, which is my system of operating yourself in the stock market.
In other words, if you simply go and just invest, trade, or speculate without any guidelines, rules, or mode of operation, oftentimes you find you end up losing money, selling stocks instead of holding on to them or buying more when a stock goes down.
Then, as a result of that original video of Rules of the Game, I did a video last week about identifying what your role is in the stock market. Are you a trader? Are you a speculator? Are you an investor? Make sure to check out those videos.
I got several questions as a result of those videos that I am going to answer this week. One of the questions that have come in from time to time across all our videos is folks asking me if I can, or our Bold Profits team can invest their money. We want to make clear the difference between a financial advisor and what we do.
Publishing Company VS. Financial Advisors
Bold Profits is a publishing company that publishes many newsletters for which I select the stocks. It’s a publishing company. We have many newsletters and you can subscribe to them. We do have one free one, which is called Bold Profits Daily.
Then we have Profits Unlimited, which is our flagship newsletter. It goes for anywhere between $50 to $100 depending on the offer you respond to. Then we have some premium newsletters that cover the small-cap area of the stock market, the mid-cap area, we have some options newsletters, we have a micro-cap newsletter.
So we publish newsletters in which there are stock ideas. You might be thinking, “Paul, that sounds a lot like financial advice.” This is the difference: We are publishing ideas.
A financial advisor is someone who will work with you one on one to work out an appropriate financial plan for you, the appropriate amount of risk to take in the stock market, they will come up with investments that may or may not include stocks.
It might be something where the guide you to mutual funds. If you are super wealthy it might include hedge funds. It might include private investments. A financial advisor knows and understands your personal financial situation.
Obviously, as a publishing company that simply publishes investment newsletters, we have no idea what each reader’s financial situation is. We are simply publishing ideas. Then it is up to you to decide what is your risk level, how much of any stock should you own, when you should buy it, and how often to buy.
Should you completely avoid an idea because it is too risky for you or too volatile for you? These are all questions that, unless you are able to work them out yourself, you would go to a financial advisor and they would guide you to it or make the decisions for you. More often it’s the second.
The other thing a financial advisor takes into account is your age, your income level, if you are retired or not, what your allocation should be to stocks or bonds, or any kind of investment. Are speculative services appropriate for you? Are trading services appropriate where there is a might higher likelihood of loss appropriate for you?
These are all things a financial advisor can guide you to because they can look at your entire financial situation. Many of you are thinking, “Then what are these Rules of the Game?” Those are general guidelines.
It still takes no account of your personal situation or the fact that one person listening as general guidance might be 30 years old and another person might be 70 years old. For both of those folks, the way to implement it would be different. Perhaps if you are 70 you are retired, you are on a fixed income.
You might have a pot of wealth that you need to last five, 10, or 15 years. It’s a very different scenario if you are 30, 35, or even 40. You can take on more risk. You have a great deal of income still coming in. Personal situations matter a great deal.
It’s the same thing with stock selection. If a stock is very volatile, if you are retired you may want to own a lot less of it or take a pass on it. Maybe you need the money in that stock at any given time and it happens to be at a low point when you need it. Then you are going to take a lot less than what you put in.
You are going to take a loss and that may be something you may be unable to afford. It’s very different from someone who is 30, 35, or 40 who can sit through those moments and wait for the stock to arrive at a higher point.
Hopefully, you understand the difference between what we do and what a financial advisor does. We provide stock ideas and general guidance as represented by the Rules of the Game. The implementation is going to be different from person to person.
A financial advisor knows and understands your financial situation and takes that into account in terms of implementing some kind of a financial plan and investment plan. The answer is that we do not manage money. Many people ask us if they can send us money.
You can never send us money unless it’s for a subscription. That requires you to have a credit card. There’s no sending of money. We never take anyone’s money except for a subscription for one of our publications. If anyone ever tells you in my name or the name of Bold Profits to send money, it’s a fraud and scam and you should never do anything like that.
Anything coming from us will be us asking you to subscribe to one of our publications. That’s just a warning because I have been told there was someone on Instagram doing this. That’s a scam. Never send money to anyone asking for it in my name or Bold Profits’ name.
It’s nothing to do with us. We are a publishing company. We publish newsletters. To get one of our newsletters you would have to use a credit card to subscribe to it. That is the only exchange of money that should happen.
Difference Between An ETF and A Mutual Fund
One of the viewers on YouTube wanted to know what an ETF is. In many videos I reference ETFs. Let’s just break down what that stands for. It stands for exchange-traded fund. What is this ETF? An ETF is made up of many different stocks.
It can be 30 stocks, 40 stocks, it can be thousands of stocks in some cases. Why is that? An ETF replaces something very popular previously that was called a mutual fund. A mutual fund also had the same characteristics. It also had many stocks in it. Might have 30, 50, 500 or it might have two or three thousand.
The big difference is that an ETF, even though it is comprised of stocks, it is compressed into a basket and it trades every day like it is a stock. For example, one of the ETFs I have often recommended from the beginning of this YouTube channel, and even before that is the VanEck Vectors Semiconductors ETF (Nasdaq: SMH). In this ETF are pretty much all the chip companies and semiconductors that trade in the United States. There might be some that trade in Europe as well, I’d have to go check it.
Nonetheless, it’s got a lot of semiconductors in it and it’s a way to get broad exposure to this group of companies. If you look at SMH, it looks like any other stock. You can buy one share of SMH, you can buy five or 10 shares of it. By owning it, you are getting general exposure to all these companies that represent semiconductor companies.
You can buy it and sell it like any other stock. You can trade it from second to second. You could trade it from minute to minute. Any time you want to own it you go to your brokerage account, pick the number of shares at what price you want to buy it. It trades just like any other stock even though it’s comprised of many other stocks.
That’s the difference between an ETF and a mutual fund where a mutual fund that represents the same companies can only be sold once a day. You put your order in, the mutual fund company takes that order in and will give you your money at the end of the day. It might be through your brokerage account.
Many people might still own mutual funds. You can see there is a big difference in liquidity. That’s a big word again. Liquidity means with an ETF you can buy and sell at any point in time as long as the markets are open. With a mutual fund, you can buy and sell only once a day.
You get the closing price. The price you get is based on what that group of companies in the portfolio is priced at the end of the day. With an ETF, you are getting a price that is a little bit of a managed price between what people are willing to buy and sell for.
There is also a market mechanism to keep it close to the actual value of that group of companies is. I know this is a little complicated, but at the simplest, an ETF is made up of many companies but it trades like a stock. It often represents a selection of companies.
The great benefit of an ETF over a mutual fund is liquidity. Liquidity means you can buy and sell an ETF whenever you want. With a mutual fund, you put your order in and get your closing price and get your money the next day. With an ETF, you buy and sell like any other stock.
ETFs have become much more popular of late. That will hopefully give you an understanding of what an ETF is. I bring up mutual funds to give you contrast as to how the ETF came about. They were trying to make a more liquid version of the mutual fund.
Now let me go to a different aspect of the ETF. What is the benefit of owning an ETF? The benefit of owning, and this is true for a mutual fund as well, is that rather than being invested in just one company when you own a stock — let’s say you own shares of IBM, Intel, Coca-Cola, or any company.
You only own shares of one company. If that company were to go into business decline, most times over time the share price of that company is going to go down. You can see this in shares of General Electric. At one point in time, GE was a blue-chip company. In fact, in the year 1999 GE was the most valuable company in the U.S. and possibly the world.
Today you can see that because its business is in decline its stock has gone into decline. If you just owned GE and simply held it and all your money is in it, you have taken a complete bath. An ETF puts you into many companies so you have many different ways to win.
Some people will call that diversification. I call it giving yourself many ways to win. If you own a portfolio of five, 10, 15, or 30 companies, now you are giving yourself many ways to win. Any single company can be a failure, but it’s like that at least one of those other companies are going to be successful and you will get the benefit from it.
That’s the primary benefit. You are parsing your risk out among many different companies so you give yourself many ways to win. If you have a failure or two, it can be absorbed and you can still make money. It’s also why one of the Rules of the Game is to build a portfolio and follow your portfolio return.
Anyone can be wrong, including me, on any single stock. If you own a portfolio, usually just a few stocks carry that portfolio.
Timeframe for a Bold Profits Trade
Here at Bold Profits our options publications are much shorter-term in terms of their timeframe. We try to get in and out of things within about six weeks.
Sometimes it can run for months depending on what’s going on in the market. However, for our stock portfolios, everything is in our portfolio for a minimum of one to three years. Yes, there are exceptions. One person said they sold XYZ company and ABC company out of Profits Unlimited before one year.
Yes, it can happen where there are certain circumstances where I believe the stock can go down, their business has changed, their trading structure has changed and we are going to sell it. Generally speaking, our timeframes are between one to three years.
In the stock market, you can never have hard and fixed rules. You have to adapt to the facts that are out there, the market you are trading and what is happening, and your understanding of the world. At any given time, there can be violations of your timeframe.
Let me repeat it, generally, one to three years. In some cases, we will stay much longer. In answer to this person’s question, if you lack the timeframe from one to three years I would question if the stock market is an appropriate place for you.
If you are unwilling to see significant shifts in terms of the kind of speculating, investing, trading — whatever you want to call it — that we do, then we may be inappropriate for you. In my experience, all the big gains come from sitting through volatility. It’s the thing that separates people who are traders from those who are speculators and investors.
Speculators and investors know that you have to sit through volatility to end up making big money. Many people who lack the time or desire to sit through volatility because it can be uncomfortable. It can be dispiriting.
During periods where there’s a crash or something like that, it’s hard to have the conviction and the courage to sit through stocks that we believe are going to come back. For example, through March we never sold into that crash. Full disclosure, we never anticipated that crash.
We sat through it because we believed that markets would come back and make new highs. This is what we told our folks and that’s what happened. If you lack the ability either because of your age or your income or cash balance, I would tell you an unsatisfactory answer.
You should, in all likelihood, have a lot less allocated to the stock market or maybe find smoother ways to go through the stock markets. ETFs may be one way since a basket of stocks can be a much smoother ride than owning 30 or 40 individual stocks that are more volatile.
Some ETFs have 500 stocks that represent the big indices where you know what you are getting. There are even ETFs that represent 2,000 stocks. The answer is to generally own less stock, decide if the stock market is an appropriate place if you are on such limited funds. The least option is pursuing trading or day trading. The statistics on day trading are pretty grim. The vast majority of people whom day trade tend to lose their money within one year.
That’s the least attractive option. I do know some people are very successful at trading. You might be one of them. Even in my personal experience, knowing daily what a stock is going to do is something I lack the ability to do. There are some people who can perfectly call stocks day in and day out. If you are one of them, you might be successful.
However, the statistics on that are grim. In addition to that, I would say you are competing against the biggest money, the smartest money out there that has algorithms, artificial intelligence, and unlimited bankrolls. I would say you are at a massive disadvantage compared to speculating and investing.
The first step in investing is to have the courage to start. And I think the best people to help you take the leap is our Strong Hands Nation:
Follow me and the Strong Hands Nation on Twitter @MampillyGuru.
And if you have any investing questions, please Tweet me or send them to BoldProfits@banyanhill.com.
Editor, Profits Unlimited