Editor’s Note: Global equity markets continue to whipsaw back and forth. Fear is rampant. So today, Tom shares the technique he used during the financial crisis in 2008. As you’ll see, the returns were extraordinary…
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From Tom Dyson, founder, Palm Beach Research Group: December 2008.
Lehman Brothers had filed for bankruptcy just three months earlier.
AIG, the world’s biggest insurer at the time, received an $85 billion bailout from the federal government the same month.
And the market was down 40%.
It was the perfect opportunity to use my “express income” strategy…
I use my express income strategy to make “low-ball offers” on the stocks of great companies.
For example, today Apple is trading at around $97 a share. We might offer to buy it for $92. The market pays us—in instant cash—for making this offer.
One of two things can happen at this point. Either the market accepts our offer, in which case we get to buy Apple stock at a discount. Or the market declines our offer, in which case we don’t buy any Apple stock.
But in both cases, we get a cash deposit in our brokerage account… just for making the offer.
But there’s a second way to use my express income strategy…
You use this when you already own a stock. I call it “making a high-ball listing.” It’s a mirror image of the low-ball offer.
(Professional options traders call this a “covered call” trade.)
Here’s how it works…
Let’s say you own a stock. You offer to sell your stock at a good price… a price that’s higher than the current market price.
The person on the other side of this trade is not agreeing to buy your stock at that moment. He’s buying the option to buy your stock at your listing price in the near future.
The market pays you again—in instant cash—just for offering your stock for sale.
Now, the market may accept the deal to buy your stock… or it may not. But either way, you earn a cash deposit in your brokerage account.
This is the strategy I recommended to subscribers of my newsletter in December 2008.
Why?
- The stock market was plunging. The stock prices of the best companies in America had fallen anywhere from 20-50%.
- When the market is volatile, options prices rise. December 2008 was one of the most volatile periods in stock market history. My readers had an opportunity to earn between 14% and 22% in income from these stocks.
- My readers would also collect dividends from these companies.
I picked 10 stocks. I chose the strongest, most recession-proof dividend-paying companies I could find:
Coca-Cola
Campbell Soup
Altria
McDonald’s
Johnson & Johnson
Intel
Microsoft
Procter & Gamble
ExxonMobil
Verizon.
We added them to our portfolio.
Then we offered them for sale at prices higher than what we’d bought them for.
And we earned income:
One year later, we’d generated 16% in average income.
Eight of these stocks went on to generate big gains in our portfolio. Altria is up 338% since my recommendation. McDonald’s is up 240%. Coca-Cola is up 138%.
One stock—Campbell Soup—stopped out for a 25% loss. And the market accepted our listing to sell Microsoft at $22, which we did. (We made 22% in the stock’s gain and 13% in income.)
We’re entering a period I call “The Great Unwinding.”
It’s the largest credit contraction in world history. We’re going to see periods of plunging stock markets and high volatility—just like we saw in December 2008.
The express income technique I’ve just explained is one of the strategies you absolutely must know about if you’re going to prosper during The Great Unwinding. It’s especially useful if you need income.