Here’s the savage truth about surviving a bear market.
There are WAY too many investors who think that THEY can time the market perfectly.
They think to themselves, “I’ll sell around the top” before the market comes crashing down.
Ah, if only trading for profits were so simple…
The reality is to survive a bear market, you need an investment strategy that wins in UP and DOWN markets.
Otherwise, you end up picking stocks like a monkey throws darts – randomly!
Right now, I’m going to show you a bear market survival guide that virtually assures your stock market portfolio will mushroom when the stock market goes haywire.
Read on to find out…
Table of Contents
- The Parachute Method: (Portfolio Building for Smart Investors)
- 3-Steps to Applying “The Parachute Method” To Build Your Portfolio Even In A Bear Market
- Step #1: Prune Your Portfolio
- Step #2: Create Your “Blast-Off Stock Market Portfolio”
- Step #3: Run The Elastic Band Test
- What You Need To Know Before Getting Started
- Now It’s Your Turn
The Parachute Method:
(Portfolio Building for Smart Investors)
In 2008, Michael Burry earned a $100 million profit when almost every other investor lost their shirt.
By executing “The Parachute Method”, Burry’s wealth blasted higher. And his investors walked away with $700 million in profits too.
Amazingly, Burry grew his portfolio 489.34% net of fees and expenses over the same time that the ordinary schmuck took home just 3%, including dividends by investing in the S&P 500.
And it gets better…
Because you can apply virtually the same step-by-step formula to boost your portfolio’s profits in bear markets that Burry used in his hedge fund when financial markets imploded…
…. without the hassle of having to start your own hedge fund!
3-Steps to Applying
“The Parachute Method”
To Build Your Portfolio
Even In A Bear Market
You only need to follow 3 steps to apply The Parachute Method.
Step 1: Prune Your Portfolio
Step 2: Create a “Blast-Off Stock Market Portfolio”
Step 3: Run The Elastic Band Test
Now here’s why the method is so powerful (and where parachutes fit in)…
Have you ever watched the stock market plummet and seen your portfolio crash into the red?
If you’re an investor or trader with any experience, you sure have!
Most traders panic when the S&P 500, NASDAQ, or Dow Jones crash lower.
After all, Red = Emergency = Sell
It’s normal to fear losses.
But with The Parachute Method, you get to bullet-proof your portfolio from the bloody red daggers of falling share prices that attack your hard-earned nest-egg.
Like a skydiver jumping from a plane, you don’t step on the plane (aka invest in the stock market) to higher highs, unless you have a parachute to protect you from lower lows.
With this technique, your portfolio suddenly becomes the ENVY of your friends because it’s ballooning while theirs are deflating.
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Step #1: Prune Your Portfolio
Pruning your portfolio is critical to surviving a bear market.
The term pruning isn’t some eye-catching label.
It’s a portfolio that doesn’t get chopped up when gloom and doom is everywhere as share prices plummet.
Before your portfolio can take off like a rocket ship, it needs to whipped into shape by lowering risk.
That means getting rid of the “dead wood” and pruning your positions so your portfolio is ready for prime time…
Here’s how it’s done…
Now let’s swiftly jump to step 2.
Step #2: Create Your “Blast-Off Stock Market Portfolio”
Step 2 takes your portfolio from “better-than-it-had-been” to “making bank” when there’s “blood on the streets” in the stock market.
The key ingredient is…
Sometimes, it’s as simple as buying gold when fear is everywhere.
While some “smart” investors hold 2% of their portfolios in gold and silver, you could boost the amount you own to as much as 10% or more.
In Michael Burry’s case, he did something much smarter.
He went down the road less travelled and bought lots of portfolio insurance.
And like all insurance policies, you get to collect when things go bad.
Portfolio insurance comes in lots of shapes and sizes. When you own stocks, the simplest way to buy insurance is via put options.
Getting up to speed on put options might seem like tough sledding at first. Heck, you might feel like your sledding uphill.
But a little elbow grease is all that’s needed to create a “Blast-off Stock Market Portfolio” – (more on that below).
If you can dust off your old portfolio and spice it up with portfolio insurance, you’ve got the potential to create a bullet-proof, bear-market-thriving, rockin-and-rollin moneymaker!
Most other portfolios bob up and down with the stock market like a dinghy on ocean waves…
But bolster your portfolio with insurance that makes money when the market crashes and you’ve got yourself a winner.
The secret to why a Blast-Off Portfolio works so well is because it whipsaws in value much less than ordinary portfolios.
That’s because when stocks you own fall, your portfolio insurance saves the day and can pay you a nice chunk of change.
It’s like a counter-balancing force that creates profits when stocks fall into the red.
Lots Of Insurance
Some portfolios mushroom more than others during bear markets.
The more insurance you get, the more protected your portfolio from a stock market pummeling.
A little insurance limits how much you can lose when stocks fall.
But a lot of insurance means you can PROFIT BIG TIME, even if stocks you own get sliced in half.
Heck, even if they fell to zero, put option insurance can pay out like a casino winner.
This is the secret to Michael Burry’s whopping 489.34% return.
He bought a TON of portfolio insurance, bided his time, and when the foxes raided the henhouse (aka all hell broke loose in the stock market), he laughed all the way to the bank!
$100 million later, he got to walk into the sunset while Lehman Brothers and a bunch of other smarty-pants financial firms crashed and burned.
Leave no stone unturned when adding portfolio insurance.
To successfully implement The Parachute Method, you’ll need to buy at least 1 put option contract for every 100 shares of stock you own.
To blast-off to profitability when markets turn south, increase the number of puts you buy. For example, for every 100 shares of Amazon you could buy two or more put options.
|Rule of Thumb: For every 100 shares you own, buy at least 1 contract of portfolio insurance|
By following the rule of thumb above, the put options you buy offset any stock losses (minus what you pay in insurance below the put strike price) and every other put option you buy can lead to a gravy train of profits.
Which is crucial, especially when you move to the final step…
Step #3: Run The Elastic Band Test
The Elastic Band Test is where the rubber meets the road.
As you build your “Blast-Off Portfolio”, you need to make sure it can survive the onslaught of a crashing stock market.
The Elastic Band Test is a way to visualize stress-testing your new portfolio.
If your portfolio blows up and loses value when things go sour, you’ll need more insurance.
Here’s how the test works… after adding insurance to your portfolio:
- Calculate how much you’d make or lose if every stock you own dropped by 50%
- The Parachute Method has been successful if you are at least breakeven
- A mushrooming account value means you’ve created a Blast-Off Portfolio
You might be shocked to find out just how much your portfolio can increase in value when the stock market crashes and stocks you own plummet 50% or more.
But you will need to pay attention to one more thing before diving in…
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What You Need To Know
Before Getting Started
When Michael Burry bought portfolio insurance for his fund, Scion Capital, his investors freaked out.
Sure, he’d had a long history of making money no matter which way the stock market moved.
But he bought portfolio insurance a year or more before the stock market crashed.
And like any insurance, there is an initial cost.
Investors didn’t like seeing their account values dip while Burry waited patiently. And you too will probably be fidgety if your insurance bets don’t pay off right away.
You might need to put on your slippers, turn on the fire, pull out an old pipe, and sit on your hands and do absolutely nothing until the financial world falls apart.
Like Burry, the payoff for sitting idle can be explosive profits.
Now It’s Your Turn
My goal is for you to see how the Parachute Method can bullet-proof protect your portfolio from a stock market crash.
Sure, it takes a little homework to get up to speed on buying portfolio insurance.
However, the good news is when the market goes belly up, you’ll have a foolproof way of keeping your nest-egg in one piece while other portfolios look like smashed eggs.
Are you on your marks, ready, and set to go?