Adam O’Dell | Wednesday, May 15, 2013 >>
There are not many things more boring than a grocery store. They stock stuff. We buy stuff. It’s all about controlling costs on both sides of the register. Boring.
But recently, my Cycle 9 Alert service identified Kroger as a buy.
I know that groceries cost more these days. I see the inflation every time I shop. Have you checked out the price of beef…or chicken for that matter? The prices being charged are almost criminal. At the same time, I know from our work at Dent Research that consumers are getting squeezed. Their paychecks are flat, their taxes are going up, and prices on food, energy, medical care, and education are all on the rise.
In light of these facts, how can Kroger be a buy?
Because its sector is moving higher, and Kroger’s stock is on the move.
That’s the great thing about having a system…
I can “know” all the fundamental pieces. I can “know” the detractions. But at the end of the day, I want to KNOW that I made money. So I followed my system, because that is what it is designed to do. Ignore the long-term analysis and identify the short-term trends, giving all of us a chance to profit.
Thank goodness for systems! Using Cycle 9 Alert allows me to sleep at night; it removes the emotions from my investment decisions, which is both comforting and profitable..
You MUST Remove the Emotion
Humans are inherently emotional beings. It’s a fact of life. If you ever meet an investor who claims, “I have no emotions. I’m a machine,” you can be sure he is lying.
Every investor has emotions. Me included. We fear losing money. We envy others’ success. We get greedy. Small or quick gains whet our appetite for the promise of bigger gains to come.
The key to successful investing is not in pretending that we’re emotionless trading robots, because we’re not. It’s in acknowledging our sabotage-bent emotions… then doing everything we can to remove them from our decision-making processes.
That is why I created Cycle 9 Alert, and that is why I bought Kroger.
The benefit of rules-based investment systems is two-fold. And both advantages rely on the ability to remove emotions from the process.
For one, rules-based trading systems can be back tested. Instead of relying on a hunch, investor’s theories can be statistically tested on decades’ worth of data to determine one thing: is my idea worth anything? Can I really make money with it?
The second advantage comes into play when rubber meets the road. Disciplined investors, those who create systems and stick to them, can avoid the internal battle of emotions that destroy most investors.
By following a system… self-doubt is removed… the talking heads are muted… and yesterday’s trades – good and bad – are wiped from the slate.
All you’re left with are your rules… and your discipline to stick to them.
Sticking to Rules
If you have read about my new trading service, Cycle 9 Alert, you know I’ve already back tested the proprietary strategy I developed on 10 years of historical data, and that more than 50 beta-testers have been “test driving” the service since last November.
This is the group that received my trade alert to buy Kroger, that mediocre grocer that faced declining margins.
Using Cycle 9 Alert – not my long-term view of Kroger…or groceries…or food prices – I instructed readers on November 27, 2012 to buy call options on Kroger (NYSE: KR). We paid about $2.25 per contract.
I did this, of course, after confirming that all of my “Buy Alert” rules had been met. They had been. My research showed a high probability that Kroger’s stock price would be higher within 2 to 3 months. Not two to three years mind you, but months. I was expecting a gain between 75% and 125% in that time frame.
Just two days after buying Kroger calls for $2.25… they were going for $3.40.
That’s a 51% gain… in less than 48 hours!
That brings up one of our rules…the “Gift Horse” rule. There is no doubt that a 51% gain in two days is a gift horse!
Now, before we go any further… I must admit: when I saw we were sitting on a 51% gain in just two days… I felt a mix of excitement and greed. And I recognized them. These two things are emotions…which are the enemy!
But that’s OK. I have the “gift horse” rule. I immediately drafted a Trade Alert to beta-testers advising them…
Action to Take: Lock in 51% profits on half (50%) of your Kroger position.
I gave them all the specifics – the nuts and bolts of what their broker may need to execute the orders (for those not trading themselves through online accounts). I explained that my research still supported holding on to the other half of the position. This was just a tactical, money management strategy that I have filed under the “Gift Horse” rule.
So that’s what we did… We locked in a 51% gain in two days, and held on to the remainder of our Kroger calls for another two months for a gain of 113%.
We earned this on a ho-hum grocer, who exists in a market that is getting squeezed. Thank goodness for systems!
The entire point of the Cycle 9 Alert system is to remove emotions from the decision-making process…and earn money from what the market is doing, versus what we THINK it should be doing.
The Kroger trade above is a great example, from the purchase all the way through the first and second sell points. We took a position in a company that probably would not have turned our heads otherwise, and used our same rules-based approach to lock in immediate gains as well as hang on for further upside. .
We let our money, and rules, work for us… Instead of letting our emotions work against us.
That’s a trade every investor should take!
P.S. Here’s something a beta-tester Bill P. told me after we booked our first gain on Kroger: “Fantastic call on the Kroger recommendation! I will hold out for a double.” I know he’s glad he did. And I know you’ll be pleased with successes like these. Start here.
Ahead of the Curve with Adam O’Dell
The sequence of investment returns can impact lifestyles of long-term investors and retirees. It is equally important during shorter timeframes.