Risk Elastic

When you think of outsized returns (70, 80, 100, 120, 140%) what comes to mind? Huge amounts of risk to achieve those types of returns? Most would think high risk high reward, low risk low reward. Right? For most cases that is usually true. Jump out of an airplane, huge risk, also a fuck ton of fun. Go to the movies alone, low risk, low reward. However with enough swings of your bat (trades) and enough patience finding your meat ball pitch, you can have your cake and eat it too by having low risk and extremely high reward. 

Now realize these trades don't come around every day and require patience. A company doesn't just double overnight, and you are not going to know which trades are going to be grand slams, that why you need to be in the game. The lazy trader tends to ask, what’s the next big one, and our answer is when we sell it you’ll be the first to know. We can't predict the future, we can plan for it, sure. However you, I, some market wizard have no fucking clue which names will consistently be the best of the year and the guy who says that he does tends to be full of shit.

So what is risk elastic? Risk elastic is where you can find a setup that has such a major level that it is bound to pop. Think of pushing a slinky together as tight as you can, when you release it, it expands. Now it's not an earth shattering expansion, however an expansion nonetheless. Below are a few trades that were extremely low risk to high reward, these are the 50-1 risk reward trades that come around a handful of times a year that you don’t know about until after the fact. 

(Click on the chart for a bigger version) 

NKTR was a Big Picture idea, the entry was $25, the stop was $24. Doesn’t take a genius to know that's $1 risk. 60 days later it’s at $75, Ben G’s idea was that this would take a year to become a $50 stock. He was so wrong it went up 200% in 2 months instead of the planned 100% in a year. It sucks to suck, right? Would you risk 1% to make 200%?

(Click on the chart for a bigger version) 

ANAB was one of Shake’s calls in his weekly Shake Down that he sends out every Sunday. His entry was $68, he was risking $4 per share and sold it at $115 just 2 months later for a 70% gain. He was risking less than 5% to make 70% and he patiently waited 2 months to catch the meat of this move.

“Just like getting fit, virtually anyone can do it if they are willing to do what it takes.” 

Ray Dalio

(Click on the chart for a bigger version) 

CAT was another major trade that took almost a year. Buying up through the major breakout level where most would have said it was too expensive and too extended, to going on a 5 month run that went farther than the last 2 years that it had traded. We were risking 5% to make 50% in less than a year and still sold too early. However it tends to be easier to lighten the load on the way up than try and force an exit on the way down with the crowd. Hopefully you are getting the point. With all of these winners, there was a recurring theme. 

  1. Defined Entry
  2. Immediately Right
  3. Limited Risk (no more than 5%)
  4. Patience 


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