There are only three ways to beat the market legally. Wall Street so does illegally, all the time! Investment banks budget millions for SEC fines for illegal behavior!
One legal way is dollar-cost averaging, that is, investing the same amount in the same security at the same time intervals. Over a decade or longer, this approach will beat the market.
Another way is to rebalance aggressively to your personally selected asset allocation.
And the third way is to break one or more of the habits of highly effective investors. (1. Save, 2. Do it yourself, 3. Buy the US economy as a whole and don’t pick stocks, 4. Buy and hold and don’t trade, 5. Rebalance to a sensible asset allocation, say 50/50 and 6. Avoid complexity).
The third way is much closer to gambling than it is to investing.
That is what our intrepid, fearless investor did and she lost $232,407.50 in about one week in a $500,000 portfolio on NVAX itself, by buying it at the very top, in August last year.
The one thing that she is doing right is that she is playing with NVAX in her fun portfolio. A fun portfolio should make up a small amount of an investor’s total stock market commitment; nobody needs one. Occasionally however, we can discover something in our fun portfolio which merits doing in our core portfolio.
According to Morningstar, at last Friday’s closing price of $220.94, NVAX was overvalued at a 16% premium. But look at its performance in the chart above!
Investors holding the S&P 500 and sitting in the rocking chairs made 16.26% last year. That is more than a third above the 100-year stock market average performance, so, a remarkable record. Investors holding NVAX and sitting in the rocking chairs made over 1,500% during the same period! We can pick a stock like NVAX reliably, only with hindsight.
By writing covered calls on 25 contracts of NVAX last Monday, strike price three dollars above market price, expiry date last Friday, before breakfast, our intrepid, fearless investor made almost twice as much as she did in her best week practising dentistry.
Had she simply held NVAX and sat in her rocking chair, she would have made significantly more.
She accepts, as we all should, that there will always have been a better way to invest.
What are her plans when the market opens today at 9:30 AM?You need to login to view the rest of the content. Please Login. Not a Member? You can now sign up for $12 for a one-year membership. Join Us