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Tuesday, January 24, 2017
You know me by now – I can't resist a "hated" investment...
I went "all in" on stocks in 2009, then did it again on real estate in 2011. It worked out fantastically.
When I find a truly hated investment, I can hardly hold myself back.
But sometimes, holding back is necessary. And that's the hard part...
You see, often a "hated" investment takes a lot longer than you expect to start coming around...
So ideally, you need enough patience to wait for it to start to turn. As Tom Petty sang, "the waiting is the hardest part." But if you can wait, you can set yourself up for a trade with the perfect characteristics – low downside risk, and huge upside potential.
We have one of those trades setting up today...
Normally, I would reserve a setup like this for my paid subscribers. But I thought I'd share it with everyone today...
The opportunity is in the British pound...
The British pound was trading near $1.50 (U.S. dollars) in June... Then, the people of Britain surprised the financial world when they voted to leave the European Union. By July, the British pound fell to a record degree of "hated," judging by the activity in the currency futures market.
Britain's currency has continued to fall ever since. It's been hated for seven months. The currency hit a new low of $1.20 last week.
But now, after seven months, we may finally be seeing the turn in the British pound...
Just last week, the British pound had its biggest one-day move in more than 24 years. The pound went up 3% in a day. Now, you might think you should buy after a decline, not a big move up. But history tells us that huge one-day rallies often signal the start of uptrends in the British pound.
Let me briefly show you...
Going back to 1971, 3%-plus moves in the pound led to positive gains in the pound over the following three months and six months, most of the time. The biggest loss was only -2% in six months. And the biggest gain was 28% in six months.
The British pound is hated today. And now, after a huge one-day move, it looks like we may have the start of an uptrend...
You can put a low-downside, high-upside trade in, based on this...
For your downside risk, set your stop loss at last week's low of $1.20... That's about $0.05 away. If the pound falls to less than that, then I am wrong.
Set your profit target at three times your risk... So if you're risking $0.05 on the downside, take profits when you're up $0.15. Exit the trade in six months, or when you hit your profit target, whichever comes first. (You are welcome to use leverage to your comfort level.)
This is the type of setup I look for... a hated investment, showing strong signs of an uptrend.
It's worth a speculation... But trade smart. Don't hesitate to follow your stop loss. We can't win them all, and this won't be the last hated trade I'll share with you.
Investing and trading are about having small losers and big winners – they're not about winning on every trade.
Have fun with it!
When Steve recommended gold stocks in January 2016, gold was more "hated" than it had ever been. Since then, he has waited for gold to be hated again... Now, the turn in sentiment has finally come. Read more here: FINALLY, Gold Is a Buy Again.
"The crowd is still predicting higher long-term interest rates," Steve writes. But when most investors bet one way, the opposite usually occurs. Already, long-term interest rates are falling – and they could go even lower from here. Learn why in Steve's recent essay: The Surprising Fall in Interest Rates Is Here.
THIS 'BORING' BUSINESS JUST HIT ALL-TIME HIGHS
Today's chart highlights why you should only buy businesses you understand...
Longtime readers know we're fans of simple businesses. You don't need to invest in complicated, "exciting" stocks to succeed. We prefer to know right away how a business makes money. Simple ideas like fast-food or chocolate companies can be some of the best investments. And today's stock is no different...
Reynolds American (RAI) is the second-largest tobacco company in the U.S. Known for its Newport and Camel brands, it sells roughly one-third of the cigarettes in the country. It's not an exciting business... And it likely won't win any awards for innovation.
But as you can see, Reynolds shares are up sharply since October. The stock jumped 14% in a single day on news of a merger with competitor British American Tobacco (BTI), and it's now hitting all-time highs. Selling tobacco isn't a complicated business... But it's a profitable one. And that's exactly what we want to see as investors.