Stock Trading and Stock Investing

Because markets are efficient it is hard to impossible pick stocks to get ahead of indexes over long term. Luckily you have better choices.

Here are two strategies for higher consistent returns and less risk. These are also opportunities for index beating returns. And high absolute returns which can reach 30% and above if you use margin and have or gain experience.

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You can have high absolute returns with a lot of stability by buying bond and stock closed end funds with discount.

Closed end fund is like mutual fund. The difference is that closed end fund have limited number of shares. And they can sell for less or more than sum of underlying securities.
Buy fixed income closed end funds with discount. You can go to etfconnect.com and search by discount. The more advanced strategy is to frequently trade the closed end funds and hedge them with options on Treasuries ETFs. This government bond exchange traded funds have ticker symbols TLT, IEF and SHY. Frequent trading can capture short-term fluctuations and significantly improve overall results. If you trade, you might pay attention to shorter duration funds ' not just to discount. Closed end funds with average maturates up to 5 years are more predictable from my experience and therefore easier to trade.

Second opportunity is about selling stock puts. You act as mini insurance company by selling insurance (puts) that stock will not be 20-30% lower 0.5 ' 2.5 years from the initial transaction. Select the put expiration date as far as possible. Stocks with LEAPS ' options expiring up to 2.5 years in the future are preferable.

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Approach picking stocks for selling puts like you buy a business or invest for very long term. I consider this strategy as investing ' not trading. At least from underlying stock selection perspective. Pick companies you, independent financial publications and/or trusted advisors made a lot of research. Look for cash, real estate on balance sheet. Very important is long-term predictable growth (growth even better then hypergrowth, because it is hard to predict when hypergrowth phase stops). One of the most important factors is management. Best picks may and should include companies run or owned by best managers or money managers. I mean Sears Holdings (SHLD) which is run by billionaire hedge fund manager Eddie Lampert. Eddie Lampert is one of the best and highly respected money mangers in USA. Some people call him modern Warren Buffett.
He took about 5 managerial responsibilities at Sears Holdings. And besides being one of the very best money managers he is famous for successful retail turnaround stories.

Second example for stock selection is Hewlett Packard with Mark Hurd as CEO. Look at the outstanding job Mark Hurd did at his previous company ' NCR Corp.

Of course one of the most important things is to buy companies with good valuation.
Don't chase good stories, good products, good prospects and even brilliant managers without regard for stock valuation.

With experience you can add turnaround stories to you portfolio, but make sure to thoroughly researching this opportunities. You can sell much more expensive insurance (expensive puts) in this situations.

By employing this two strategies outlined above you can create balanced portfolio with exposure to stocks and fixed income. Both strategies results to buying securities with discount. With selling puts you also have benefit of leverage because you need to put up in margin 10%-20% of underlying securities.

I feel that both strategies might be part of any size portfolio and might be suitable for investors with lower than average risk tolerance.

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