The worst thing that can happen when you own stocks is for the price to go down. We know it and so does every other trader in the world. This last year or two has been a brilliant example of that, as we have seen literally Billions of dollars being wiped off markets from around the world. In fact it’s this very thought that will stop so many people from EVER trading in the stock market. The fear of a stock market crash is enough to send anyone running for the hills, but Planet Wealth are doing the exact opposite. Lets have a look at why it’s not as bad as you might of thought.

We have to look at this from 2 different perspectives:
1. Stock price goes down a little bit.
We bought the stock for $19.97 and lets say they went down to $19.00 by the end of the month. That’s a ‘paper loss’ of 97c. However, it won’t be for us because we have received a premium for renting out our stocks. We received $1.20 in rental premium which would offset any loss made on the fall in price. We own 200 stocks, so we received $240 straight into our account. Then just rent then out again the next month. It’s that easy. The next month, you might rent them out for $20 and get a premium of 90c. That’s a total premium of $2.10 for 2 months or put another way it’s $420 for 2 months trading. If the price then went up to $20 you would have to sell your stocks, but you would be doing so with another 3c profit per stock. So, to add that all up, you would receive a total of $426 for the trade. That’s still a return of 10% for the 2 months, even when the price of the stock went down. If it didn’t go back up to $20 then you would just rent them out again.

2. The stock price goes down a LOT…
The stock price going down is obviously the worse case scenario and is really the only time we can lose money if not handled correctly. To be a long term investor you need to think about the future and that means preserving your capital. This is this single most important rule in trading. You don’t want to be spending years building up a nice little trading account, only to give it back on a few unlucky trades. That sounds like a night at the casino’s if you ask me. Imagine if you had bought $20,000 worth of stocks and the price fell to 20-30% of it’s original value. Really imagine how that would make you feel.
Now, what if I was to tell you that we could remove that risk and minimize our potential loss…..

In the next post, I will reveal exactly how to protect yourself in a Bearish market.

Happy trading!

Regards,

Stuart Ginbey

Filed under: Planet Wealth • Renting Australian Shares • Renting US Stocks • bearish market • billions of dollars • premium • price goes down a little • stock price goes down • stock price goes down a lot • stockmarket

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