1,433%… 2,805%… and even 4,942%…
Those are some of the top gains colleague Dave Forest has racked up at our Strategic Trader advisory.
They’re not from options… or crypto… or pre-IPO stocks.
They’re from a type of speculation billionaire investors use to force massive wins out of the market.
Warren Buffett, for example, used it to bag a gain of $2 billion on Goldman Sachs (GS) after the 2008 crash.
Michael Burry (the guy Christian Bale played in the movie The Big Short) and Carl Icahn also use it as a speculation.
It’s called a warrant. And when you understand how warrants work (more on that below), it’s easy to see why…
In short, warrants are close to being the perfect asymmetric investment. That is to say they’re an investment where your potential reward far outweighs your downside risk.
And when they pay off, they can really move the needle on your wealth.
We can see this from Dave’s track record.
As regular readers will know, Dave started out as a geologist and natural resource speculator.
Dave hunting for copper and gold in Nevada
And at our International Speculator advisory, he targets junior mineral exploration companies with the potential to double or triple in one to two years.
As his subscribers will know, he’s more than delivered…
One rare earth element miner is up 580% since Dave added it to the model portfolio in October 2019.
Prospect generator American Pacific Mining (USGD) is up 740% since he recommended it in May 2020.
And since the start of 2018, Dave has given his readers the chance to close out gains of 104%, 187%, 241%, 247%, and 326% on junior mining stocks.
Those are outstanding wins. But Dave has scored even higher returns at Strategic Trader.
It’s our premium trading service dedicated to finding 1,000%-plus winners with the least risk using warrants.
And he’s delivered on that promise, too.
That 1,433% gain I mentioned up top is an open recommendation on warrants issued by Custom Truck One Source (CTOS). (Note that it’s not a current buy recommendation.) It’s a truck sales, renting, and financing company.
Dave added it to the model portfolio in July 2020.
The 2,805% gain was on a recommended trade he closed out on warrants issued by Blink Charging (BLNK). It’s building out a network of electric vehicle charging stations.
And the 4,942% gain was on Purple Innovation (PRPL), an online mattress retailer.
I’m not saying all this just to brag on Dave’s behalf.
I’m showing you these gains to convince you of the power of asymmetric investing. Here’s Dave’s mentor, Doug Casey, with more on that…
You probably learned about symmetry in grade school. It’s when the parts of something have equal form and size. For example, cut a square in half and the two parts are symmetrical.
Symmetry is attractive in some forms. The more symmetrical someone’s face is, the more physically attractive they are considered to be. Symmetry is often attractive in architecture.
But when it comes to investing and speculating in the financial markets, the expert financial operator eschews symmetry. Symmetry is for suckers.
The expert financial operator hunts for extreme asymmetry.
Dave will be revealing how his hunt for extreme asymmetry led him to warrants at his upcoming Zero to Retirement summit.
So if you’re interested in making some of the gains Dave has been handing his readers, make sure to sign up for that here. It’s free to attend. And it’ll be a master class in this under-the-radar speculative market.
After you’ve signed up, read on below as Dave answers questions the team and I (Chris Lowe) put together.
Our aim is to give you a crash course on what warrants are and why they make such great speculations…
Daily Cut: What are warrants? How do they differ from regular shares?
Dave: Warrants give you the right to buy stock at a specific price for a specific period of time. That’s similar to options, except the underlying company issues its own warrants.
Think of them like a company stock option plan, except for shareholders. You can convert the warrants into stock. But not until they become company stock can you vote your shares or collect things like dividends.
Daily Cut: Why are warrants so much cheaper than regular shares?
Dave: Warrants tend to sell at a lower price than shares because of the strike price and the current price of the stock.
The strike price is the price at which you can convert your warrants into stock. So if the strike price is $10, you can buy that company’s stock for $10 for each warrant you own. If the stock is trading for $15, you still have the right to buy the stock for $10.
So if a stock trades at $15, the warrant should be about $5. That’s because if you convert your warrants into stock (exercise them), you have to pay the company $10 per share.
That’s not true in every case, which helps give us an advantage when deciding which warrants are worthy of speculation. But that’s a simple way of looking at why warrants sell for less than regular shares.
Daily Cut: Why do companies issue warrants as well as regular shares?
Dave: There are two reasons companies issue warrants. The first is the company went bust and is reorganizing, and it needs to give its bondholders something extra for the trouble.
In these cases, as part of the reorganization, previous bondholders usually come away with a bunch of stock and warrants to help recoup some of their previous losses.
The second reason companies issue warrants is they’re trying to raise money from investors. Sometimes this is through an IPO (initial public offering). Other times they’re part of a SPAC (special-purpose acquisition company), or “blank check company.”
In a traditional IPO, we typically see small companies issue warrants to give investors a kicker – something to sweeten the deal – for taking a risk.
In a SPAC deal, the SPAC sponsors who are raising money to find a business to take public issue warrants for a similar reason. The difference is early investors in the SPAC don’t know what company they’ll ultimately hold shares of. The warrants help compensate them for the risk.
Daily Cut: How do warrants differ from options?
Dave: Traditional options come from an exchange. The underlying company has nothing to do with them. So if you exercise options, you buy those shares from another investor. And they’re usually for shorter periods of time, like 12 months or less.
Warrants come directly from the underlying company. It issues new stock if you exercise your warrants. Warrants typically have 5 to 10 years until they expire.
And they’re much easier to trade than options. That’s because you don’t have to have any special permission from your broker like you do with options. It’s the same process as buying or selling a regular stock.
Daily Cut: Why are warrants less risky than investing in traditional stocks?
Dave: There’s risk in everything, even in holding dollars in your pocket. However, with warrants, you can usually control the same number of shares of stock for less.
If a stock is trading for $10, and its warrants trade for $1, you can control your shares for a tenth of the cost. If you have 100 shares, your downside is $100 instead of $1,000 if things go south.
So the dollar amount you speculate with is much less than when you buy shares outright.
Daily Cut: How do warrants offer more upside?
Dave: Warrants are like stock that acts like options. That’s because warrants give you a leveraged bet on the upside in the stock.
So if a stock doubles, its warrants might triple or more.
Daily Cut: Do warrants trade back and forth between investors after companies issue them?
Dave: That’s the beauty of warrants. They can trade on major exchanges after companies issue them. When you buy warrants on an exchange, you’re buying them from another investor.
Daily Cut: Why don’t more people know about warrants?
Dave: One reason is there just aren’t many warrants out there. Today, we have over 5,000 stocks to choose from. At any given time, we may have only 500 warrants we can trade.
But since a lot of those warrants aren’t worth trading, it’s a much smaller universe to be able to pick winners from.
Another reason is warrants are lucrative. When there’s anything accessible that helps make massive gains for wealthy and connected investors, they like to keep it secret.
Daily Cut: How do warrants fit in as part of a portfolio or an overall wealth-building plan?
Dave: Warrants aren’t for the rent money. I always like to remind my subscribers that you should never bet more on a warrant than you can afford to lose.
In an overall wealth-building plan, they belong in your speculative bucket. That means they shouldn’t be your plan A.
At the end of the day, just one big winner – like a 50x return – can make a huge difference in your overall wealth. Even if that bet was a tiny fraction of your portfolio to start.
Daily Cut: What areas are you looking into for your warrant recommendations?
Dave: I like to look for market megatrends, such as 5G and electric vehicles. I also like to look at sectors most investors aren’t paying attention to. Think oil and gas right now.
That’s all we have time for today.
If you haven’t yet signed up for Dave’s summit on warrants, be sure to reserve your place here.
And as always, if you have a question for anyone on the Legacy team, be sure to send it to [email protected].
Have a great weekend.
October 8, 2021