Important – Palm Beach Confidential is LIVE
You can run a traditional newsletter and never leave your desk. You mostly need a team of analysts and researchers. You must keep up with the news… and monitor the markets and the general trends…
And you can spend your time evaluating a stock as you would a regular operating business: Look at the company balance sheet, history, current news, and other important company documents, and that will get you a long way.
Not so in Palm Beach Confidential.
Traditional newsletters, with large readerships covering large-cap plays, mostly do “top-down” research. They start with a broad market trend or a general story and narrow in each month on a recommendation.
But here, we do “bottom-up” research.
Any given month, we’ll have dozens and dozens of ideas to evaluate. But those ideas don’t come from just anywhere.
We might be traveling to a different country to investigate a compelling story, and discover an off-the-beaten-path investment idea…
Or we might get a tip from a private conversation between several colleagues in our own industry. (Take Porter Stansberry… or Doug Casey… Steve Sjuggerud… Doc Eifrig… or Bill Bonner, for example. They’re all fountains of ideas and research which they, too, can’t publish to their full list of readers.)
Usually our ideas come as an off-the-record tip from an industry insider.
We are constantly tapping our network of experts for ideas—ideas we are evaluating all the time.
We often say: “You should never invest in anything you don’t understand.” But you can’t understand everything.
The markets are too deep and too rich to understand everything. And so for market “generalists” like us, the best way to maintain our competitive edge in these markets is by leveraging experts.
The people we speak with are the best in their fields and sectors. They understand the markets and know—better than we know—where the money is to be made.
And that’s great for you, as a reader.
In Palm Beach Confidential, you get exclusive access to our network. Our edge will become your edge on the markets. And you can rely on Teeka Tiwari to screen every idea and make the best call for you as an investor.
More Important Details About Palm Beach Confidential…
We’re going to uncover some great “PBL-esque” investments for you.
You will STILL get a layer of safety (strong balance sheet, good earnings yield, healthy cash position, etc.) like you do with regular PBL stocks. But because this area of the market isn’t as picked over as larger stocks, the bargains are greater.
In Palm Beach Confidential, we will find greater margins of safety… and greater upside.
There’s one catch though…
To benefit from this service, you must be a bit more patient when it comes to buying and selling the stocks we recommend.
Because some of these stocks don’t have lots of trading liquidity, you might have to wait a while to buy shares at a great price. You often have to “stalk” them, for months sometimes.
That’s what sophisticated, experienced investors do.
Please follow our instructions. For instance, if we say “Don’t pay more than $10.53 for this stock,” please set a limit order and don’t pay more than $10.53 for the stock.
And when we tell you in advance that it might take you three months to fill your position, please be prepared to wait. Some investors are frustrated when it takes them longer to fill their positions in smaller companies. That won’t be us. We’ll have more patience than the typical investor… We’ll also make a lot more money than the typical investor.
We’re not saying you’ll have to wait months to buy our stock picks. Most of them will be easy to buy. But occasionally, when we recommend the smallest stocks, you may need to fill your position bit by bit.
In this service, we’re going to be covering stocks with a market cap under $2 billion (but don’t be surprised to see picks with market caps as small as $100 million or even less).
Remember, a good-sized hedge fund or mutual fund can’t play in this space.
Because of this, Wall Street’s analyst army doesn’t pay much attention to tiny companies.
And that’s our information edge.
There are thousands of these little companies. And we’ll be able to uncover awesome bargains.
But the strategy only works if you’re patient.
There are a few other details we’d like to share with you regarding this special service.
We’ll make it a point to contact you every few weeks at the longest, by email, with any new developments on the stocks we hold, updates, or progress on our research.
Secondly, we won’t be writing long essays on stocks. This is not a case of laziness—it’s a matter of getting you the information quickly. The thing about these small stocks is the price can move fast—sometimes 20% in a day.
Naturally, we want you in at the lowest price. So as soon as we have something, we’ll contact you in the most efficient way possible.
Teeka Tiwari, Editor
Teeka Tiwari is the co-editor of The Palm Beach Letter and editor of Palm Beach Confidential. He epitomizes the American dream. Growing up in the foster care system in the United Kingdom, Teeka came to the United States at age 16 with just $150 in his pocket and the clothes on his back. By 18, he had become the youngest employee at Lehman Brothers. Two years later, he shattered convention by becoming the youngest vice president in the history of Shearson Lehman.
In 1998, he made a small fortune going short during the Asian crisis. But then, he “got greedy” (in his own words) and hung on for too long. Within a three-week time span, he lost all he had made—and everything else he owned. He was ultimately compelled to file personal bankruptcy.
Two years after losing everything, Teeka rebuilt his wealth from the markets and went on to launch a successful hedge fund. After these events, he developed a newfound appreciation for risk. He made risk management his No. 1 priority. Now a retired hedge fund manager, Teeka’s personal mission is to help teach individual investors how to grow their money safely.
Teeka has been a regular contributor to the FOX Business Network and has appeared on FOX News Channel, CNBC, ABC’s Nightline, The Daily Show with Jon Stewart, and international television networks.
How We Use “3-D Vision” to Beat the Market
Our investing philosophy is contrarian. (I think my entire career has been built on going against the Wall Street consensus, now that I think about it.)
This simply means we like to go against what the crowd thinks will happen. “Sentiment” is the word traders use to describe the overall attitude of crowds.
We believe that the best investment ideas come from knowing the market sentiment and then betting against it. In other words, some of our best trades have come from ideas that were very unpopular or unloved. (Tom Dyson, by the way, is one of those traders. He understands widespread investor sentiment better than anyone I know.)
But sentiment is just one way we analyze the markets.
I’ve been investing for around 30 years. And over that time, I’ve used two other categories to analyze the markets and find profitable trades.
Here at Palm Beach Confidential, we call it “3-D Analysis.” The three categories are…
- Sentiment: Are investors bullish or bearish?
- Technicals: Is the market in an uptrend or downtrend?
- Fundamentals: Is the market cheap or expensive?
When you understand how each of these processes work, you can make accurate predictions about where the market or individual securities are going.
You’ll have the ultimate level of flexibility to find place-winning trades.
The Palm Beach Confidential Toolbox
We’ve mastered over a dozen strategies and have put the best in the following “toolbox.” They will help you profit in any type of market.
It’s like American football. If the other team’s defense is playing a zone and hanging back, we throw short passes underneath or pound them with the run game.
If the defense is blitzing like crazy, we send our receivers long and throw bombs to beat them deep and kill them over the top.
Investing is the same way. We’ll have several “plays” in our playbook to use depending on what the market is throwing at us.
Mastering these tools will separate you from ordinary investors. They will allow you to make profitable investments regardless of market conditions. And they’re simple to use.
The main investing vehicles or “tools” we’ll use are:
- Small caps
- Growth stocks
- Shorting stocks
- Asymmetric bets
Let’s get to them…
Look, Palm Beach Confidential is ultimately an “unchained” investment service. We aren’t restricting ourselves on the type of opportunities we will deliver here.
We’re looking to buy great but unpopular assets at great discounts. And we’ll deliver them to you here as we find them.
For the most part, the majority of our recommendations will be incredible small-cap investments.
These are companies too small to recommend to our readers in the Palm Beach Letter. They usually have a market cap between $100 million and $2 billion, and only tens of thousands of shares trading daily on average. (We’ve found this market cap range to be the small-cap sweet spot over the years, but we’re not playing hard and fast by this rule. If we identify a great opportunity that’s an even smaller play, we won’t limit ourselves.)
Due to their tiny nature, most of these plays stay well under the radar of the big hedge funds and mutual funds… and therefore the rest of Wall Street at large.
That makes them perfect for us because we can scoop up great opportunities before the rest of the investing public wakes up to them.
Now, here’s the thing about small-cap stocks: The gains can come much quicker… and they can go much higher. Which is why we are so excited to now share these opportunities with you.
They can also be more fickle. So you need to adopt a good risk-management strategy, which we’ll get into a bit more later.
Growth (or “momentum”) stocks are one of our favorite securities to trade.
Growth stock investing is based on the theory that performance begets more performance.
In other words, a stock that is rapidly increasing in price will attract more buyers and keep rising in price.
The same is true on the downside. If a stock keeps breaking down to new lows, it generally leads to lower lows.
A great example of a growth stock is Northrop Grumman (NOC).
In November 2014, Teeka’s research uncovered some extraordinary volume and price action in a perfect growth-investing candidate.
He recommend readers buy at $135 on November 10, 2014. From there, the stock didn’t look back, trading as high as $194.80 per share… a 44.3% gain.
Now, there’s one important point we’d like to make about growth stock investing.
It works best in markets that are trending up or down. So, you generally don’t want to own momentum stocks (or their options) in a sideways market.
It’s also important to know that growth stocks are the most volatile class of stocks. They can lose value quickly… but they also can explode in value just as quickly.
So before you place a single Palm Beach Confidential recommendation, be prepared to install a proper risk management protocol if you haven’t yet. More coming on that…
From time to time, we’ll find stocks we think will go down in value. It could be an obsolete technology. A coming scandal. Or a dying industry.
When we want to profit from a stock going lower, we can “short” it.
A short seller borrows the shares and sells them with the expectation of buying them back at a lower price in the future.
In the right market, shorting stocks can be a powerful wealth-creation tool.
Here’s how a short sell works:
Let’s say ABC Company is trading at $20 per share. You believe it is going lower. You can borrow the stock from your broker and sell it in the open market.
Now, say the stock drops to $16. You can buy it back at that price and return the stock you borrowed for $20. The trade would net $4 per share. That’s a 20% gain.
And you would never have bought the stock.
So, what are the drawbacks to shorting stocks?
Remember, when you sell short, you must “borrow” the stock from your broker. And you have to return the stock to your broker at market value.
For instance, if the stock goes up to $25, you’ll have to return the $20 stock you borrowed plus an additional $5. So, you’d lose on a short if the stock goes up in price.
In fact, that’s one of the drawbacks of shorting stocks. The upside is capped, but the downside could be limitless if a stock continues to rise. That’s why you need strict risk management when you short any stock.
All short sales must happen in a margin account. That means you can’t short stocks in a traditional retirement account. You have to put up at least half the value of the trade.
Here’s what I mean…
Let’s say that you wanted to short 1,000 shares of ABC at $20. One thousand shares of a $20 stock is $20,000. To short $20,000 worth of stock requires you to put up $10,000.
In heavily shorted stocks, there may be no stock available to borrow. If that happens, there are other ways we can profit from a falling stock price, such as buying put options (explanation below).
An option is a contract between a buyer and seller. It gives the option buyer the right—but not the obligation—to buy or sell a security at a later date at an agreed-upon price.
In Palm Beach Confidential, we’ll be buyers of put options.
A put is a contract that gives the owner the right, but not the obligation, to sell 100 shares of stock at a set price. This set price is also called the “strike price.”
We buy puts to benefit from the fall in a stock’s price.
There are distinct benefits to using options.
They give you the ability to predefine the amount of money you are willing to risk on a trade. You can’t lose more money than what you put into a call or put option.
Options also provide you with leverage. That means you can control a large amount of shares with a small capital outlay.
With those benefits, we can make even bigger gains than we do on individual stocks.
But options are riskier than stocks. They can expire worthless if the underlying stock doesn’t reach its strike price by the predetermined date. In that case, you lose 100% of your money.
That’s why it’s extremely important to use risk management when investing in options.
We’ve created an entire guide to help you manage our put-buying recommendations. You can find it in the Special Report section of the website.
Wild Card: Asymmetric Bets
From time to time, we’ll uncover an investment opportunity that’s asymmetric in nature.
This means that the investing scenario is rigged to our advantage, even before we place an investment.
The odds of us winning—and winning big—are higher than the odds of losing. Meanwhile, thanks to small position sizes (more detail on this momentarily), we set up these trades such that any loss incurred is very small relative to the potential gains at play.
If you want to make a lot of money in the stock market, placing and winning asymmetric bets is part of the equation. Take it from legendary investor Peter Lynch…
Between 1977 and 1990, the Fidelity Magellan Fund, with Lynch as its captain, grew from $20 million to $14 billion. During that time, Magellan earned an average annual return of 29.2%, which was almost double the S&P 500’s return over the same period.
“In the last decade (i.e., 1980 to 1990), the occasional five- and 10-bagger, and the rarer 20-bagger, has helped my fund outgain the competition,” Lynch said. “In a small portfolio, even one of these remarkable performers can transform a lost cause into a profitable one. It’s amazing how this works.”
Placing smart, asymmetric bets can be a great way to boost overall portfolio returns. They’re so important, we’ve dedicated the entire next chapter to a strategy we call “Asymmetric Bundling.”
We’ll use the best strategy based on our analysis of market conditions. Depending on the market phase and other variables, we’ll choose the appropriate strategy in the above toolbox to best profit.
And from time to time, we may recommend an alternative strategy not mentioned here. We’ll provide adequate instruction as the opportunities arise.