DISCLAIMER: THE FOLLOWING "Insane Profits From Insane Investors" CONTAINS STRONG OPINIONS WHICH ARE NOT A REFLECTION OF THE OPINIONS OF FOX NEWS AND SHOULD NOT BE RELIED UPON AS INVESTMENT ADVICE WHEN MAKING PERSONAL INVESTMENT DECISIONS. IT IS FOX NEWS' POLICY THAT CONTRIBUTORS DISCLOSE POSITIONS THEY HOLD IN STOCKS THEY DISCUSS, THOUGH POSITIONS MAY CHANGE. READERS OF "Insane Profits From Insane Investors" MUST TAKE RESPONSIBILITY FOR THEIR OWN INVESTMENT DECISIONS.
There is one more way I know to consistently make great money in an overall sideways market.
Long-time subscribers and readers know this one. I like to call it the Investor’s Business Daily 100 Graveyard Trade, or the "Duuuude -- my stock went dooown -- now I have to sell" trade. I am now four for five on this trade since the beginning of the year and nine for 10 since 2003.
Many ChangeWave subscribers who are professional hedge fund (search) traders and position traders have caught on to this trade and literally made millions in profits. How do I know? Because I see their action on the electronic exchanges the minute I put one of these "Insane Profit" alerts out to our subscribers.
But fear not -- our latest trade on the insanity of momentum-only trading should be available for a few days more. They always are.
Are These People Crazy?
Question: Is it insane to buy hundreds of thousands of shares of a stock that you know nothing about other than it's going up and it's on the IBD 100 list? Is it insane to sell hundreds of thousands of shares in the same stock just because it goes down more than 5 percent in one day?
I think it is. And this is no shot at Investor's Business Daily (search) -- they do very fine work, in my opinion. But ever since they started their Monday IBD 100 stocks list, a very strange thing has happened. A group of robotic, momentum-only traders seem to have come up with the following trade:
• Buy the new members on the list.
• Continue to buy as they go higher.
• Sell 100 percent of the position the day they go down 5 percent or more.
In other words, this appears to be a blind system for buying stocks with upward price momentum without regard to the industry, the business, the strategy or anything else. As in all blind systems, the one-eyed man is king.
And so in the case of almost a dozen stocks in the last year, when the blind momentum dudes jump out of one of our recommendations in one convulsive day of 10-20 times volume trading, we have a golden opportunity.
Taking Advantage of the Situation
One of our recent recommendations is riding the rapidly growing wave of Baby Boomer anti-aging healthcare. This company and its leadership had the audacity to introduce a killer new piece of equipment to the marketplace in the last quarter and use a one-time promotion on price to take advantage of another competitor going public at the time. (In other words, while the distraction of road shows, etc. would not allow them to mount a competitive response.)
The strategy worked wonders -- they kicked butt and took names.
They sold over 100 $75,000 machines at a one-time discount and captured huge market share from their competition. Furthermore, this quarter's sales are (according to the CEO on the conference call this morning)
”white hot -- we've never had a more successful new product introduction" in the history of the 20-year old company.
And all the new sales are at full price.
Because of the marketing tactic, they missed the quarter today on a one-time event. Yet they raised guidance for the year on revenues and earnings.
They alluded strongly to the fact that they will blow away their $100 million sales target for the year, and said their margins would be stronger in the next three quarters. Their stock is selling at a 16 forward P/E -- this is no 150 P/E monster.
This company is now on a secular track to grow its earnings over 33 percent for at least the next 18 to 24 months as this roll-out and others continue to grow around the world (52 percent of their sales are international).
Shockingly, there were no momentum IBD 100 investors on the conference call with the CEO this morning. But if there were, this is what I would imagine their "question" would be: "Eh, duuuude -- why did my stock go down? Now I have to sell -- bummer."
I swear I used to surf with these guys in my old California homeland.
We Win, They Lose
Thank you, IBD momentum dudes (and dudettes). Thank you for your moronic selling of great companies on things so temporary a chimpanzee could analyze their ultimate positive outcome. Thank you for blowing up Eon Labs (ELAB), Matrix Services (MTRX), Lannett (LCI), SanDisk (SNDK) and so many others over the last year so we could buy them cheap.
We can't wait to -- in my favorite irony of all -- sell the same stocks back to the same jugheads who sold them to us when they once again return to the IBD 100 and full valuations.
Sometimes life does not get any better than this.
It's almost not fair. But you know that in investing, "fair" is a weather report.
Please, IBD momentum jugheads -- I'm begging -- blow up a few more great growth companies on that list so I can insure our subscribers will have another fantastic year in 2004.