No Lose Stocks Service

No Lose Stocks has one goal:

Protect Your Happiness

It does this by protecting your money. If you lose money, you’re unhappy. Even if you gain that money back, you’re still not as happy as if you had never lost the money.

Which would you rather do?

- Make $900k on an investment that pays off, and then lose $800k on a botched investment.

- Or make $100k on an investment that pays off.

Most people would prefer the $100k. They both end up in the same place monetarily, but in the first situation, you have to suffer the loss. And losses are painful.

So, I avoid losses by using the No Lose Stocks strategy (NLS for short).

Step 1:
All my money goes into CDs earning a guaranteed return. I call this money my “Core Capital”. I never want to lose any of this money. This number only goes up…never down.

If someone asks me how much money I have, this is the number that pops into my head…whether I’m going to tell them the number or not…

Step 2:
I look at the NLS suggested trades.

These are stocks that pay dividends. Specifically ones where the dividends can pay for insurance on the stock (a put option). So if I bought the stock, and the insurance, then I shouldn’t lose money.

There’s a problem with buying the stock directly though. The stock may not pay the dividends out that I’m expecting. Maybe they had a bad year, and have to cut the dividend, or get sued and have to cancel the dividend altogether to pay legal costs. Whatever the reason, the dividend is not guaranteed.

If the dividend isn’t paid, I’m on the hook for the insurance costs…and that cuts into my Core Capital.

No deal.

But, buying the stock and the insurance really just means that I’m picking a price and deciding that I want to make a profit if the stock goes over that price. That’s exactly what a call option does.

So I take the interest from my Core Capital CDs, and I buy a call option with the same strike price as the put option would have had.

Now if the stock tanks, or stops paying the dividend, my call option would expire worthless, but my Core Capital is still the same as when I started. I do lose the interest, but I keep the number I care about, my Core Capital, constant.

So will any of the NLS suggested trades do, or are some better than others?

I did a little review of the historical data for NLS a while back and trades with an “Annualized Percent To Profit” of 15% or less were the trades most likely to result in a profit.

Personally, I will place trades with up to 25%. But if there aren’t any under 25%, then I don’t place any trades…I wait until a good one comes along.

The “Annualized Percent To Profit” is how much a stock has to go up per year before it reaches the strike price. It seems unlikely that a stock will move 25% in a year, but it does happen. They can also drop 25% in a year…ouch. Exactly why I use NLS to protect my Core Capital from that situation.

The NLS suggested trades are sorted by “Annualized Percent To Profit”, so the ones at the top are what I consider to be the better trades.

Personally, I only place trades once a month during option expiration week. My broker (ChoiceTrade) has a deal where they don’t charge a commission on options trades that week, so I can place more trades since I’m not paying commissions.

This takes me about 20 minutes a month. That’s all the time I spend on investing each month.

So now I’ve purchased some call options that NLS suggested.

Step 3:
I setup price triggers, or “alerts”, to email/text me when a stock gets to it’s strike price. (I use a Fidelity account for this, which is also where I buy the CDs.)

Then I forget about them. I go enjoy life. Play with the kid. Spend time with the wife. Read a good book. Do projects around the house. Vacation. Whatever I want with my free time. But not agonizing over investing.

This is the part you won’t be used to doing. It will feel weird like you *should* be doing something. That’ll go away eventually. You don’t care what happens in the daily news, in the blogs, or on the stock charts. Wasting time on that junk won’t help your investments. It’s all noise and distraction from what NLS’s goal is…protecting your happiness.

So now I’ve placed my bets, and I’ll be alerted if I need to do anything more.

If the stock doesn’t go up, then I’ll never hear from it again. But if it does go up…

Step 4:
If I get an alert that a stock has hit my strike price, then I sell the option immediately.

But couldn’t it go higher? Shouldn’t I hold out and squeeze it for every ounce?

You can if you like, but I don’t and I don’t recommend it. I sell immediately for two reasons.

First, if I wait, and it goes up, but then it falls again, I’m in the same boat as above suffering through the loss. That goes against the goal of NLS.

Second, when the stock hits it’s strike price, the call option is no longer as highly leveraged. Before the bet was “risk a little, make a lot”…when you hit the strike price it’s more like “risk some, gain some”.

I wouldn’t buy a “risk some, gain some” trade, so that means it’s time to sell it.

When I sell an option, I add the resulting funds to my Core Capital number.

My Core Capital has now gone up…I’m a hero!!! Victory lap!!!

So that’s really all there is to the NLS strategy. You can make it more complicated or less, but I would always try to ask youself “is this going to help protect my happiness?”

I would bet that whatever you want to add will just make you more aware of losses and so hurt your happiness.