There’s an incredibly profitable, but little-known trading and investment strategy that you will come to love as much as I do because of all the “instant cash” it can generate for you.

In the lucrative world of options trading, this strategy is called “selling a naked put option.”

Sounds sexy, and to some it is, but really it’s an incredibly simple way to buy stock you want to purchase at a specific price – while having someone pay you to do it. It’s easy to do but there are a few things you need to know first…

Here’s how you can use this powerful options strategy to get paid for buying stocks.

Understanding Put Option Contracts

If someone has a bearish outlook for a particular stock, they can either sell the stock short or purchase a put option contract. My colleague, Karim Rahemtulla, discussed put options at length in “Short Selling Strategies” last week, but there are some terms to be aware of.

• When you purchase a put option contract, you gain the right to sell that particular stock at a particular price within a specified period of time. To do this, you must pay a fixed amount of money upfront, which is called the “option premium” to the option seller.
• The option seller gets to keep this upfront cash regardless of any future outcome of the transaction.
• The amount at which you can sell the stock is determined ahead of time by the “strike price” – the only price you’ll sell the stock at.
• The time period that the option is active for is also determined ahead of time – and it’s referred to as the “expiration date.”

So as a put option buyer, if the stock you choose ends up falling in price below the strike price you have chosen within the time frame, you will have a winning trade.

It sounds simple enough for most investors to make money hand over fist, but it’s not.

• In about 80% to 90% of option buyer’s transactions, the option will expire worthless and the option buyer ends up forfeiting the option premium he paid upfront to the option seller.
• Most option buyers (both calls and puts) do not end up picking the correct strike price and expiration period to give them a profitable trade.

So who really comes out ahead? The option seller of course – he gets to walk away free and clear with the money. So let’s put ourselves on that side of the trade.

The Secret to Selling Options

Sounds like being an option seller is no-brainer? Well, it is – if you do it correctly.

For getting paid upfront, the option seller also has an obligation to fill if certain conditions arise. His obligation is to buy the stock from the option buyer (remember, the option buyer wants the stock to fall in price) if the stock falls to a certain price within the expiration time period.

Here’s where it gets good.

As a put option seller, you also can determine ahead of time where you would feel comfortable buying a stock if it dropped in price, and then collect the cash from the option buyer.

This is how to be a smart put-option seller - only sell put option contracts at strike prices at which you would like to own the stock if called upon to do so.

That’s it.

The secret to selling naked put options is to pick a stock that you would potentially like to own at a cheaper price than where it currently trades, sell the corresponding strike price, collect the money from the option buyer, and then sit back and wait until option expiration to occur.

These are the profitable types of trades we do all the time.

In fact, since launching The Instant Money Trader service in November 2008, we’ve had a 100% win streak, meaning all the options have expired worthless, allowing us to bank all the money paid to us upfront from the option buyers.

And it couldn’t have been easier.

Source: Selling Naked Put Options: How to Get Paid to Buy Stocks

The analysis played out like clockwork: The catalysts started delivering their bonanza and the stock rallied some 36% in four months.  So, is it time to take profits or do we let it run?

Let’s reassess both the long-term and the short-term catalysts.

In the long-term side I see no reason to bail out:

Amazon continues not only to maintain a commanding lead in online retailing, but it keeps building on that lead.  The basis of such expansion resides in price, convenience and innovation.  Price has become a much more important variable to consumers in the recession and will continue to be important in the years ahead, as the battered consumer struggles to rebuild wealth lost in the housing and stock market blow-ups.

Given Amazon’s size, which gives the company inordinate economies of scale, and its sophisticated systems and distribution network, which allow it to capture such efficiencies, Amazon is virtually impossible for competitors to challenge on that front. Simply attempting to reinvent Amazon’s model and compete against it is a sure way to go bankrupt fast.  This sustainable competitive advantage is here to stay.  What’s more, it allows Amazon to keep expanding market share.

On the convenience front, Amazon again is unsurpassed.  Being able to very quickly find a variety of products online, complete a purchase in just one click (without paying sales taxes in most states), and then have your purchases delivered to your house by an increasingly efficient logistics system in the United States fulfills the initial premise on which the company was founded.

In addition, the growth in fiber-optic Internet connectivity makes shopping online much faster than it used to be.  And U.S. President Barack Obama’s plan to deliver high-speed Internet access to rural communities will only benefit Amazon further.

On the innovation front, Amazon consistently surprises. Our Feb. 4 article correctly speculated that the revelation of a new, revolutionary Kindle 2 was on the horizon.  Kindle sales shot through the roof.

I myself bought one, as I had speculated in the article and I was extremely pleased with the result.  I was able to buy the complete works of Charles Dickens for my 11-year old daughter for less than $5, if I recall correctly.  She has been devouring them ever since.  I also bought “The Art of War,” “The Federalist Papers,” a Bible and many other titles for a small fraction of what I would have paid for them in paperback.

In addition, when my daughter made a “mistake” (her words, not mine) and bought some titles using the Kindle 2 online that I did not authorize, Amazon quickly rebated the money with no questions asked. Also, at one point I made a mistake using it and could not see many of the titles that I had bought.  So I called them up late at night using their 800 number and they very quickly and courteously explained how to navigate back to them.  So, Amazon deserves big kudos for its technical support and customer service.  This is another sustainable competitive advantage that will continue delivering customer loyalty and its consequences will be sales and margin growth.

In addition to the success of the Kindle 2, Amazon topped itself.  It soon after launched the Kindle 3.  Now, I must confess that I had the typical buyer’s remorse, since the launch of the Kindle 3, which has a larger screen with better resolution. The fact that it also has and an even more incredible capacity made me wish I held back and bought the new, improved unit.

Also, Amazon is working together with six universities – including Princeton, where I live –to offer all the books that students require for their studies through the Kindle.  So instead of lugging a huge backpack around campus (short on backpack makers soon?), students are going to be carrying a 19-ounce, 10-inch ultra-slim device with up to 3,500 books, as well as music that can be downloaded in seconds from a free wireless connection and backed up instantaneously in Amazon’s servers at no additional cost.

Soon, I can see road warriors visiting clients carrying all of their product manuals in PDF form, and lawyers and other professionals being able to carry an entire library of reference books, as well as their own work in this compact device.

So I expect Kindle 2 and Kindle 3 to be hot items on the Christmas shopping season this year and to keep growing strongly, transforming the way in which people buy their books, magazines, study and carry reference material easily and cheaply on the road.

Finally, I have talked at length about “cloud computing.”   This new trend relies on people buying very cheap notebook computers with very fast Internet access and keeping their data and performing their computing on someone else’s servers.  The advantage here is that you own a much cheaper, simpler computer with very little software, and the data and software you do use is safeguarded and constantly updated by the professionals with ultra-sophisticated and efficient operations – like Amazon – for a reasonable monthly fee.

The trick for this to work, once more is to have high-speed Internet connectivity available nationwide, whether at home or in the office.  As these connectivity functions grow, cloud computing will thrive, taking Amazon to new, unforeseen heights.  But this is a longer-term proposition, much like online shopping took some time to really take off.

Hence, there are short-term catalysts for the upcoming Christmas season. And the long-term proposition for Amazon is unaltered, because all of its sustainable competitive advantages remain in place.

Recommendation:
If you are a long time holder, feel free to let your position in Amazon.com Inc. (Nasdaq: AMZN) run and look for much higher prices in a few years.  If you are a short-term player, given the recent stock price rally, you might want to take some profits, based strictly on valuation.   Even though, I expect to see a positive earnings surprise this coming July 15, nobody ever got poorer by taking some profits.  You might want to wait until later in the year, closer to October and November, to add to your position in anticipation of a blowout Christmas surprise from this online retailer (**).

(**) - Special Note of Disclosure: Horacio Marquez holds no interest in Amazon.com Inc.

Source: Buy, Sell or Hold: Amazon.com Inc. (Nasdaq: AMZN) Remains Unquestionably Bullish

As I explained in an interview for Oxford Club members, we’ve witnessed seven similar stock market rallies of 25% or more in eight weeks for the Dow…

And guess what? Every time, the rallies have continued. For at least six months. And in six out of seven cases, they have lasted for another year.

My point is not to be the lone voice of dissension – or an unabashed, ignorant bull. I merely want to shed some truth on the subject. Because it’s perfectly possible the rally could continue…

Then again, it might not. Which brings up the real reason for writing today.

Whether you believe we’re in a new bull market, a bear market rally destined to collapse, or as one pundit put it oh so clearly, “A cyclical bull market in a secular bear market” (come again?) – I’ve got the perfect stock for you. Coinstar is positioned to rally no matter what the markets do next.

Coinstar Inc. – Profiting From Pocket Change and Cheap Thrills

While we can argue all day long about the next move for the markets, we can agree on two things.

• First, unemployment is destined to rise. It’s a lagging indicator, so even if the economy perks up in the second half of this year, as many expect, the layoffs will continue well into next year.
• Second, the severity of the current recession dramatically impacted consumer spending, presently and for the foreseeable future. That tends to happen when you lose your job, fear it’s imminent or see others around you coping with no income.

Both conditions play right into Coinstar Inc.’s (Nasdaq: CSTR) hands.

You see, the average U.S. household has about $90 of spare change just sitting around. The severity of the current economic slowdown will prompt many of them to convert it into cash to fund life’s mini-indulgences.

Coinstar eliminates the tedious and time-consuming task of rolling coins. The company operates more than 18,000 coin-counting machines in supermarkets and other retail stores. All you have to do is dump the change into a sorting basket. The machine counts it and then spits out a voucher, which can be redeemed for cash at the nearest register.

International expansion and the addition of 3,200 new machines in Wal-Mart stores this year will only make the company’s services more accessible.

Coinstar Positioned to Profit From Ultra-Thrifty Consumers

But Coinstar’s positioned to profit from the new class of ultra-thrifty consumers in yet another way. Thanks to timely acquisitions of DVD Express and Redbox, they also operate the largest network of self-service DVD rental kiosks.

Instead of shelling out $5 at Blockbuster, consumers can pay $1 a night at any of the company’s 12,900 kiosks located in supermarkets, drugstores and McDonald’s throughout the country. Each machine holds 150 titles (with multiple copies) at a time, almost all of which were released in the last six months.

And the recent results prove consumers are buying into the concept:

• Redbox’s sales soared 180% in 2008 to $400 million. And the momentum is continuing this year. In the most recent quarter, Redbox sales jumped another 156%.
• A bankruptcy filing by Blockbuster, which appears imminent, should only drive more consumers to the company’s kiosks.
• And they will be readily available, as management plans to almost double the number of kiosks to 20,000 in 2009.

To sum it all up, whether this stock market rally continues or falters, this recession will impact consumer spending for a long while. And more people will be forced, or choose, to look for cheap thrills and a way to “monetize” their pocket change. Coinstar is the only way to capitalize on both… and rally, regardless where the markets head next.

Source: Coinstar Inc. (Nasdaq: CSTR): The Perfect Stock for Bulls & Bears

This is exactly the kind of premeditated opportunism that the folks at Hot Stock Confidential are famous for. They just took their 23rd double-digit gain in the last 19 weeks. How do they do it? Click here to find out.

Apple sold for a pittance prior to the 2001 launch of the iPod, which sent its stock skyrocketing. Research In Motion traded for a measly $1.50/share before the BlackBerry tapped the market for cell phones with email capability. Then it marched 8,160% higher.

One small company just perfected an incredibly durable, flexible “wonder-material” that weighs just ounces but is a strong as many types of steel. It could revolutionize its industry. And it trades for just $7. We have strong reason to believe the price to double in the next 6 months.

Before you ask, we haven’t been smoking something strange here at the Notes office. We’ve been reading Justice Litle’s fascinating essay on trader psychology in today’s Taipan Daily. And we figure contains an important lesson for underground investors.

Justice says a famous experiment by a group of Harvard psychologists reveals big “holes” in human perception, especially when we are concentrating hard on a task. The psychologists asked a group of test subjects to pass a basketball back and forth between players dressed in black and those dressed in white. All they were asked to do was count the number of passes between the two teams.

The psychologists running he experiment then sent out a woman with an umbrella onto the court for about five seconds. Next, the sent out someone dressed in a gorilla suit. The ‘gorilla’ also stayed visible for about five seconds.

Guess what? Thirty-five percent of the test subjects missed the woman with the umbrella. And 56% missed the ‘gorilla.’ As Justice says, “The act of sheer concentration required to tally the movements of the ball, and to keep track of the black and white uniforms, was enough to completely block out the perception of a man in ape suit, standing there, plain as day, for a full five seconds.”

This helps explain why a lot of otherwise smart investors missed market-based ‘gorillas’ such as the tech bubble and housing bubble.

Justice calls it market “tunnel vision.” And if you think about, you’ve probably suffered a bout of this strange disease at some point in your investing career. Equally important, these ‘gorillas’ can help you make money…

The crowd is epically bad at anything having to do with deep analysis or insight. This is because the majority of participants in the market crowd are “flying on automatic pilot to the land of groupthink,” to use an old Doug Casey phrase, and another big chunk are passive and not really possessed with the drive to figure out what’s going on. That leaves only a small handful of market participants to do the real thinking and observing.

And thus, when a gorilla walks into the room, most of the time the crowd won’t notice it. They’ll just keep pushing on in the general direction they were already going, or otherwise ignore the big opportunity – or the big risk – that the gorilla represents. This concept is very powerful because the crowd is not always wrong… but by definition, the crowd is wrong at major market turning points.

That’s because Microsoft (Nasdaq: MSFT) still makes operating systems that are easy to use. And most people in this world have had or been on a Windows-based PC in the past.

That makes Microsoft a very strong company.

MSFT’s share price has taken a beating lately. But right now this stock looks set to pop.

I’m not calling an end to Microsoft’s rout. I’m saying there’s a high probability that its share price moves higher over the next week or two.

That’s because the RSI and Slow Stochastic both show a very clear pattern. Every time the RSI and Slow Stochastic show this stock at oversold levels (happened only three times in the past year)shares go on to rally.

And as you can see, the RSI and Slow Stochastic are oversold right now.

If this follows the previous pattern, buyers should begin to flood the market in the next day or two and take share prices higher.

How high could the go?

Considering MSFT has a hard time passing its 50-day moving average, you can expect that average to act as resistance.

That would give you a decent 16% gain in no time at all.

With the global commodities meltdown, and the news earlier this month of the government’s $152 stimulus package, the word on the street is that Brazil is facing tough times like everyone else these days.

That certainly may be true about most opportunities in Brazil, but one company continues to prosper – making it perhaps one of the great values on both the NYSE and the Brazilian Bovespa exchanges.

The company is Companhia Brasil Ads (NYSE:CBD), and it’s one of the largest grocery chains in the country. CBD manages to capture the synergy of Brazil’s enormous population and agricultural sectors to show a steady stream of positive earnings. Right now, the stock is trading near the bottom of it 52-week range of R$21.26 – 50.50.

CBD is riding a trend of ballooning grocery sales. Brazilian supermarket sales increased in December by 6.1% over December 2007, according to the Brazilian Supermarkets Association.

In 2008, CBD’s French parent, Casino, announced in 2008 expansion plans for the chain. It intends to invest around US$523 million opening 105 new outlets. The breakdown would be 80 convenience stores, 14 cash-and-carry stores, seven supermarkets, three discount stores and one hypermarket.

Market analyst Research and Markets was of the opinion that the supermarket sector could become saturated with major competitors from the U.S. and Europe, the convenience segment was “left open to target high-income shoppers.”

Regardless, CBD seems to be doing things right in terms of market expansion and protecting its home turf.

Sales in 2008 rose 9.0% compared with the year before with the strongest growth seen in the first half of the year.

In its Q3 report issued on Nov. 4, 2008, the company posted gross sales of R$ 5,055.6 million and a net of R$ 4,407.0, with respective year-over-year gains of 22.4% and 26.0%. Same-store gross sales rose by 10.3% and net sales by 13.6% over the same period the year before. And the company posted a Q3 net income of R$ 82.5 million, up a blistering 137.8% over Q3 2007.

Overall, CBD could be one of the best bargains for investors looking for a position in Brazil.

This from Money Morning:

International Business Machines Corp. (NYSE:IBM) has “surprised” the market with flawless execution and strong profits.

A few months ago, I congratulated my nephew for getting an internship with IBM, while he studies business in Argentina.

“It is a superb global company, with a bullet-proof business model and a balance sheet that gives them a huge sustainable competitive advantage,” I said, advising him to use the opportunity to find his way to a permanent job with the company for after he graduates.

With its recent financial results, IBM made me look very prescient, and made my advice to my nephew look very shrewd, indeed. Despite the total meltdowns of the U.S. and global economies last October, IBM executed flawlessly and handily beat analysts’ earnings estimates, expanding both its margins and its profit outlook for 2009. And these two bottom-line-related improvements were made despite a slight drop in sales, which stemmed chiefly from the currency effects of an appreciating U.S. dollar.

The bottom line: IBM reported a 2008 fourth-quarter profit that was up 12% from the fourth quarter of 2007. The company earned $4.4 billion, or $3.38 a share, a result that was up 21% from the $2.80 a share from the year before. Analysts had expected IBM to earn only $3.03.  Total revenue was $27 billion, a slight decline from the $28.9 billion reported the year before.

Last Tuesday, IBM – also known as “Big Blue” – said it expects fiscal 2009 earnings of at least $9.20 per share. That’s nearly 5% better than the consensus estimate of $8.77, according to analysts surveyed by Reuters Estimates

This is just one more that Wall Street “surprisingly” got wrong.  In what has been a constant during this financial crisis, companies in industries ranging from steel to high tech have handily exceeded earnings estimates.

A notable exception, of course, has been the financials, where the companies saddled with subprime mortgages have been forced to mark down their portfolios to ridiculously low “market” prices (there is no market) on packaged securities that are trading at a fraction of their theoretical value. This, in turn, is affecting the equity of banks, and therefore their ability to lend.

In such an environment, many analysts adopted an “end of the world” scenario, where companies halt every possible activity in order to preserve cash.  So fund managers that went into premier high tech companies keep getting rewarded now, as these companies report, while their year-end performance metrics were distorted by Wall Street’s bearish bias.

Clearly, Wall Street’s extremely bearish perception is wrong, given the resiliency of the company’s business model.  The virtue of IBM’s model is that it has effectively transformed itself from the cyclical hardware company that gave it its name into a software-and-service-oriented firm that gives it a recurring revenue stream. In addition into this well-thought-out business model that concentrates on high-margin, value-added businesses.

Success with this strategy is due to IBM’s integrated approach to providing a total solution to its clients around the globe, which encompasses not only the determination of the customer needs, but also the provision of every aspect of the required technology solutions – including recurring maintenance, updating and even financing..

That last issue – financing – is crucial these days. And IBM’s long history in the world’s markets has given the company a longtime of recognition abroad, which really helps mitigate competitive threats from unproven newcomers.

IBM leaders have shrewdly increased the company’s investments in the fastest growth areas of the world, increasing its unparalleled geographic diversification as it keeps emphasizing its higher-value businesses – especially software, highly profitable middleware and services.

Geographically, most of the growth continued to come from the so-called “BRIC” countries (Brazil, Russia, India and China), which grew at a 13% clip, and within the emerging markets, which as a whole grew at a 6% clip. Underscoring the soundness of IBM’s global business was the fact that growth was essentially flat for the hard-hit U.S. market. This geographic shift and segment emphasis resulted in higher profit margins, which have more than doubled, causing earnings per share to more than triple in the last six years.

IBM’s global services – which include global technology and global business services – accounted for 53% of fourth quarter sales, while software delivered 24% and systems-and-technology 20%.  Very importantly, new deal signings amounted to a robust $17.2 billion, which gives IBM a solid outlook for 2009.  This evidenced a 20% growth from strategic outsourcing.

What we have here is a solid-and-growing revenue stream, matched with 9% growth, even in software, and a solid outlook.

An area of vulnerability could be financial services, which accounted for 30% of the company’s business.  Fortunately, the U.S. market – which has suffered the most from the global-financial downturn – only accounts for about a quarter of this business. Another challenge is the more-cyclical segment of systems and technology – mainly servers and storage – mainly servers and storage, which accounts for about 20% of sales, experienced a 16% decline in revenue and a 6% decline in margins.

But margin growth of 4.8% and 5.6% in IBM’s much-larger global-technology-services and global-business-services business segments more than compensated for this, resulting in overall margin expansion of 3% from last year.

Most importantly, IBM has a bullet-proof balance sheet and a fantastic cash flow of $7.9 billion. In times when others are suffering, IBM keeps producing a steady and increasing cash flow, and this financial strength allows the company to provide financing to its customers and keep sales rolling in. This is key; it enables IBM to either cherry-pick business from damaged competitors or buy them outright at cheap valuations.

Hence, IBM’s business model has been precisely been retooled over many years to face moments like this and thrive. If there’s a business lesson here it’s that the strong and resilient not only survive, but run away with the market. IBM’s stable and recurring revenue, geographic diversification, focus on higher-value-added business, and financial strength grants it invaluable defenses against both economic and competitive threats.

Recommendation:  With the earnings surprise and the market’s sudden reversal, the shares of International Business Machines Corp. (NYSE:IBM) have rallied aggressively.  But the story is still intact.  What’s more, the many stimulus plans being implemented around the world will no doubt increase demand in many of IBM’s product-and-service areas. Even the huge consolidation in banking and other industries will boost demand for information-technology products and services.

Hence, the upside is still under-appreciated at the current valuation.  At a forward Price/Earnings (P/E) ratio of less than 10.0, and a Price/Earnings to Earnings Growth Rate (P/E to Growth Rate) ‘PEG ratio’ of about 1.0, the shares of this growing company with strongly reliable earnings deserves much higher multiples.  I would not be surprised to see IBM’s stock price going up by 50% over the next couple of years. Buy half a position right now and complete the remaining half by buying on days of market weakness before IBM’s next earnings report. Plan on putting the shares away for two years.

Source: Buy, Sell or Hold: IBM Has Found a Formula for Growth – Even During a Recession

Look in any direction and there are bargains. Stocks, commodities, even corporate bonds, after their recent run up, have started to drop off to the point where there are nice discounts again.

Options, usually the Vegas of investments, have had huge potential in the last few months. I have sold covered calls in the last two months that have given me returns as high as four to five percent per month.

Once again, though, the average Joe is being driven to inaction and all the wrong moves by information sources that seem to want to extend this period of economic bottom bouncing. Whether it is intentional or not, the outcome is always the same. Scare as many people as possible into never leaving the TV for fear they might miss the next bit of bad economic news, and sell them as many pickup trucks as you can in 60 seconds.

The press and media will give you no help in participating in this market opportunity. Bad news sells and they are selling their butts off.

Except for a few programs, Squawk Box being the best of the bunch, everything is negative and written for eighth graders on the “day late dollar short” theory of investing. Which means it’s useless for making money decisions.

Having pounded the table for the almost 20 years about this exact subject, I am doubtful this effort will make any more difference than the last 50 or 60, but I feel duty bound to try again.

The Golden Rules for Down Markets

Buy stocks when they are down. I didn’t say this information was earth shattering.

Stocks are way down right now, way down. Buying?

Look at the 30 stocks in the DOW and the S&P 100 stocks and pick the ones that are in businesses that have products we need, not want, no matter what the economy does. Also, look for ones at the lowest point of their 52-week range.

Now look at the 200-day moving average for each. Pick the ones where the price is way below the 200-day curve. Finally, look at their balance sheets and earnings estimates and pick the ten you think look the best.

At this point, it may begin to sink in that we are in the midst of a huge buying opportunity. You are beginning to see the light. Now, get up and turn off the TV, or at least turn down the volume. That will be the best thing you can do for your portfolio.

If the nameless talking heads are predicting really low bottoms, we have definitely bottomed.  If they are talking about it on TV, it has already happened.

Yes, we will test new bottoms. This is a reason to celebrate, not run and hide. We will probably bounce all over for the rest of 2008. This is called a buying opportunity for a reason, prices are low. Every new low should be like seeing the price of steak cut by another huge amount. Why do you think you have a freezer?

Our freezer is dollar cost averaging and small position sizes. Buy into the dips and don’t bet the house on anything. I said it was a buying opportunity, not a give away.

Keep your buys small and don’t chase upward price moves. The recent move in Treasuries is a perfect example of following the hot trend right to the poor house.

The market dumped and the institutions had to go for safety, treasuries. The news reported a huge move up in them and dutifully the sheep lined up and bought them at record highs.

This is the basis of the school of “buy high sell low portfolio management.”

Buy something other than just stocks. If the past year hasn’t taught you that the stock market is a very risky venture, then you have no business managing your own money.

You must own some stock no matter what your age. You also have to balance your portfolio with low risk investments to protect yourself form the sell off beast.

The formula is too easy, maybe that’s why everyone ignores it. I should charge you a couple thousand dollars for this and make you sit through several hours of CD’s to get to the point. Here it is free.

100 minus your age equals the percentage you should have in stock. (100 – 55 = 45) 45% in stock, 55% in bonds or other reduced risk investments. Not good at math, your age is the percentage you should have in bonds.

This balance will give you the opportunity to avoid a very poor retirement.

The bond idea has been ignored since the craziness of the mid-eighties drove us to money insanity. No top in sight, why not go for “the stock market lottery.” Only bowling teams from small towns in Maine ever hit the lottery. Get over it. Right now, I am making more money in corporate bonds than anything else.

Since October in The Bond Trader, I have taken capital gains as high as 90 percent. The potential in bonds right now is better than I have ever seen. The current interest yields are also great, six to eight percent is not unusual.

Bonds are not widely understood which is why many people avoid them. Their understanding stops at Savings Bonds and the thirty-year treasury. They aren’t difficult.

If you are over 50 you don’t have a choice, you have to have bonds in your portfolio. You don’t have the time to wait out another stock market collapse like this one, and there will be more.

While these two simple rules don’t begin to cover every possibility, they are enough to help you move from the frozen fear position to one where you can begin to act rather then react as we dig ourselves out of this most recent bubble burst.

Source: Making a Fortune