How My $694k Loss Is Your Gain

Early in my career, I had a whopper winner on my hands. And the best part was… I found it through one of the first tests of my investing system.

I was positively giddy about it. For one, I was looking at one of my first big personal wins as a trader. And two, it showed that the system I built worked.

But while it was my biggest winner yet, in time it would turn out to be one of the most painful trades I ever made…

Because if I’d done one thing differently, my payout would have been over 24 times more.

In today’s issue, I’ll tell you how this eye-opener changed my perspective forever… More importantly, I’ll tell you how to avoid making the same mistakes I did.

Mastering this new perspective is what built my wealth – and I want to show how it can work for you.

How I Paid My Market Tuition

Veteran traders like to say that losing money is the market’s tuition.

Well, I think my mistake paid for market college… Graduate school… And multiple PhD programs…

Only I didn’t realize it at the time.

Let me explain…

It was October 2007. I was trading tens of millions of dollars a day worth of stocks and options for my big bank and hedge fund clients.

After years of shuffling around other investors’ money, I was really starting to learn how to make money for myself.

I was also well on my way to developing my stock-picking system. After handling some of the biggest stock purchases on the planet, I learned a lot about how Big Money moves markets.

It’s really simple: when huge investors managing billions of dollars want to buy more stock than is currently available, the stock must go up.

This was the cornerstone of my system because I watched it happen nearly every day. In fact, I didn’t just watch it – I made it happen. I was the one buying the shares for my clients, and I was the one pushing the stock prices higher.

So I wrote a series of algorithms to scan through all the stock data and help me identify the very types of orders I was doing. Then I looked for big buying on great quality stocks: the ones with growing sales, earnings, and profits with unique businesses.

I built a “Big Money radar” if you will… It flagged all the stocks that were seeing Big Money buying.

And on October 25, 2007, I saw Big Money buying in Mastercard (MA). Not only that, it had an earnings announcement coming up.

The trade I placed next was a huge step for me: one of the first real tests of my system…

The stock was trading at around $141.90 or so when I saw the buy signal. The very next day I bought November 23, $150 calls to test my system with my own money, for roughly $11.50 per contract. In other words, I paid $1,150 per contract for the right to buy 100 shares of Mastercard stock for $150 before the November 23 expiry – about a month away.

Earnings happened on Halloween… And Mastercard shattered expectations.

Here’s a snapshot from those results right from the company itself:

The company was growing sales, growing earnings, growing their footprint, and guiding for more growth in the future. When I saw a stock like that get Big Money buying, I knew it was a good bet.

And I was right. After earnings came out, the stock gapped up right through the $150 strike price of my calls. In fact, it closed at $178.10 – 25.5% higher than where the stock was when I bought the calls just six days earlier.

Those calls I bought were up more than 150% in a week! I was on cloud nine, and I couldn’t resist the opportunity to take my chips off the table. After all, my system flagged the stock, my thesis was right, and the trade was an absolute beauty.

I pocketed my thousands of dollars and walked away with a smile.

There‘s another old Wall Street phrase that was loudly blasting in my brain: Nobody goes broke taking a profit.

I felt like I had it all figured out.

My Change in Perspective

But here’s the rub… Mastercard went on to become one of the all-time great outlier stocks. Since I made that trade, the stock is up 2,300%.

So, while nobody goes broke taking a profit… No one gets rich leaving 2,300% on the table.

Let me put that another way: If I had purchased 20 of those calls, I would have made about $30,000. Certainly awesome for a one-week trade.

But if I held those 20 calls and exercised my right to buy 200 shares of MA at $150, I would have spent $30,000 on the stock. Accounting for a 10-for-1 split in January 2014, my 200 shares would have become 2,000 shares.

Had I done that and held it until today, it would be worth $724,000. Just see for yourself…

Yes, I left a 2,300% profit on the table. I won the battle but got decimated in the war.

This might be familiar territory to you. If you’ve ever sold a stock too early, only to watch it go on to return multiples, it can feel like missing the forest for the trees.

So here’s what I learned from this experience, and what I want you to take away…

I realized that what my system does is pick the stocks that outperform over the long haul. I could get timing right on a great setup. I could even walk away from a trade and make great money doing it.

But winning on that trade and losing out on more than 24 times the money taught me a key lesson: It’s much better to be an Outlier Investor as opposed to an Outlier Trader.

Forest for the Trees

Making a nice chop on a big trade is great in the moment. But it seems tiny when looking back on a successful long-term investment.

That points out another thing: When you identify a great longer-term investment, it becomes much easier to ignore the fluctuations along the way. That longer-term patience brings calm and low stress when stocks are under pressure. You have to focus on the forest – not the trees.

Here’s a prime example… When COVID news hit the markets hard last year, Mastercard fell from $347 all the way to $210. It might have felt like a disaster – especially to traders. A swift drop of -39.5% is enough to give some people a heart attack.

But since that March 2020 low, the stock rallied a stunning 72.4% – all the way back to its highs.

The lesson I learned is this: I have a knack for picking outlier stocks. I do all the hard work up front. When I buy them, sometimes they take off like a rocket. Other times they don’t.

My odds are better than 50/50 near term. But when I stretch out that horizon long term – say three, five, 10, or even more years – my odds of success go way up.

That is why I turned from a trader to investor. It allows me to ride out volatility with confidence and capture the huge potential gains I’d leave behind as a trader.

My market tuition cost was actually way more than $694,000. Unfortunately for me, that wasn’t my sole mistake – not by a long shot!

But that winning trade, and losing investment, was the best money I never made. Because it made me learn the investing style that works best for me, and continues to pay dividends both for myself and my subscribers.

It helped turn me into the Outlier Investor.

Regards,

Jason Bodner
Editor, Outlier Investor

P.S. I took another interesting lesson from this experience…

Don’t get me wrong, I still like trading options. And I recommend option trades to my subscribers regularly.

For example, we recently closed out a 150% short-term profit on a setup my system spotted. And we have long-term option exposure to another stock that we hold in our portfolio.

These two strategies combined make for long-term profits… With shorter-term, turbocharged profits along the way. To hear more about it, and the system that leads me to these trades, just click here…