Speaker 1 (00:00):
Hey everyone. This is John Denton again for the local conservative. I’ve got Tim Melvin with me again. Last time we spoke, we talked about the potential economic disaster. If the country locked down again, a lot of people worried about it and rightfully so well today, Tim has special insight on how to protect your portfolio and possibly realize some impressive gains. If you do this one thing, we’re going to jump into that right now. It’s going to sound kind of weird, but I promise you, Tim knows what he’s talking about. I have followed his picks. Hey Tim. Some of them I’ve seen go from $2 or $38 and it’s, it’s crazy. I wish I would have got in on that at the beginning, but you’ve got something that you want to talk about today. How are you going? How are you doing Tim?
Speaker 2 (00:40):
Great, Jen, thanks for having me on again. A great talking to you. Yeah, everybody’s worried right now, as they should be with a great justification, what’s going to happen to their portfolio. If we get another series of lockdown, you know, hampers, the U S economy. I mean, we all took big hits last March. Yeah. It’s recovered. We’re back in the black. We’ve got, you know, some, some good profits going. If we get another lockdown, we don’t want to give that away, but I think it would be a mistake to just sell all of your stocks. Okay. Because there might not be another lockdown. The variant can burn out. We’ll just keep going right on down the road with the markets moving higher, that’s a possible plausible scenario. So there is strategy. We can use, that’s going to allow us to stay fully invested, but also be fully protected. John, from another disastrous downdraft in the stock market caused by lockdowns,
Speaker 1 (01:33):
Right? So that brings us to black Swan. Okay. This has nothing to do with the light side or a Disney movie. This is a legit thing in the financial sector. A lot of people have never heard of it before. So first thing, what the heck is a black Swan.
Speaker 2 (01:48):
Okay. Well, black Swan theory came along. It’s you know, for thousands of years, black swamps were thought to be nonexistent. The Roman poets used to talk about someone being as rare as a black Swan. There were not. Then 1500 years later, somebody wandering the Outback of Australia saw black Swan. It’s like, oh wow, they’re rare, but they’re out there. So in the financial markets, what we’re doing is this black Swan or what we call tail risk hedging. You know, if you look at a probability curve, it starts over here with low probability negative outcomes. This is what usually happens. And you have low probability profitable outcomes or positive outcomes. We’re going to make bets on this end of the curve over here. Okay. The low probability bad at negative outcome is called fat tail risk. Okay? So we’re going to make really small bets that something horrific is going to happen in the stock market and rhyming small, you know, two, 3% of your portfolio stops.
Speaker 2 (02:49):
If those events actually happen, the pay off is so massive that even though that bet loses money, most of the time mathematically it’s the right thing to do. So we’re just going to make these really small, tiny bets that the market’s going to completely crash. And most of the time we’re going to lose money. But you know, John, when it does work, it’s an unbelievable payoff. There’s a guy out there by the name of mark Spitznagel. Now mark, Spitznagel studied under a guy named [inaudible], who was one of the early advocates of this theory. He’s got a hedge fund called Universa that uses a black Swan strategy. He’s just always making these tiny, tiny bets that something bad is going to happen. Most months, indeed, most years he loses money. Last March, when everybody else was feeling the pain, he had a 4400% return. Wow.
Speaker 2 (03:49):
Right now he stays. Yeah. He stays fully invested with his fund. And that’s the only thing he does over the last decade in spite of losing money. Most of the time, 90% of the time, the guy is losing little bits of money. Constantly. His average annual return over the last decade is 105% a year because all that we have on those rare occasions, when he’s right, he is spectacularly. Right. And it’s just huge gains so we can use this. Okay. And I use it, I make my kids use it. Okay. We use black Swan tail hedging to protect our portfolios. 97% of our money goes into the stocks that I pick. Okay. And they’ve done pretty well over the years. We’re happy about that. But you know, we don’t want to have the pain, especially me. I’m 60. I don’t want to go through another 1970s.
Speaker 2 (04:45):
Okay. That would be very expensive for me. So we’ve got a black, you know, black Swan, 3% of our portfolio. Now here’s what happens. Let’s say we get a 30% decline in the market. Okay. Our black Swan theory is going to pay off 10, 20 times what we put in. So if we put in, if it goes up 10 times, we end up losing three grand on a hundred thousand dollars portfolio. If it goes up 20, then for that period of time, we’re going to make 20% on this a hundred thousand dollars portfolio. We don’t have to worry about disaster. Okay. And all we’re doing is we’re buying put options, which are just options that go up. If the market goes down and we’re going way out in time and way down the, the market, the S and P somewhere around four 30, you’d probably be buying a puts at about half of that.
Speaker 2 (05:35):
Okay. Again, very low probability. This is probably not going to happen. Okay. But if it does the options that you buy are going to go up 10, 20, 30, 40%. And the option doesn’t have to get all the way down to 200. Okay. Because volatility is a key part of the pricing formula for options. If volatility explodes, and it does in a crash, those options become worth again, 10, 15, 20 times or more what we paid for. So think of it like insuring your house. Okay. For a very tiny amount of money, $2,000 a year. I pay to insure my house. It’s because I live on the coast of Florida. Okay. I pay that to, you know, make sure that I get paid back. If my house gets blown away by a hurricane. So I, you was a couple of grand a year comes along, we get a hurricane blows away my house.
Speaker 2 (06:31):
I’m going to get a million dollar check. Right. So, yeah. Yeah. I don’t want my house to go away, but I believe knowledge is going to make me feel pretty good about that. That’s the same thing here. You’re going to spend two to 3% of your portfolio to make this small bet every year that something bad is going to happen. Now, the hurricane blown away my house, that’s a once in a hundred year thing. Okay. And black swans usually are that one in a hundred probability, but wall street is such a psychological soup that we have a hundred year storm, every five years, right? Low probability stuff happens in the financial markets with a much greater frequency that pure statistics would dictate. So the black Swan hedge is going to protect you from the crash of 87, the great financial crisis, the internet bust and in between, there’ll be opportunities for, you know, for smaller profits.
Speaker 2 (07:27):
Now here’s the key to making this work. You don’t just put this trade on any old day. Okay. I will just wait for the volatility index, the VIX, a widely known financial indicator that measures how volatile the options markets are right now, when that’s at the lower end of the recent trading range, which is where it is now 15, 16, 17 on the VIX, right? That’s when you put a black Swan on, because remember we’re going to make our money from price movement and volatility it explosion. Now, how do you figure that out? The easy way is to be one of my followers, click the link that we’re going to send to you. I love black Swan protection. We use it as a specific trading strategy that we’ll talk about another day. But you’ll know because I’ll tell you all the work is now done for you. But this can literally save your portfolio by having a black Swan. You could just concentrate on making money in stocks. What do I have to do to find those great businesses at great prices that can make me a fortune? You just forget worrying about the lockdown, the crash, the danger, because if it comes, you’re 100% protected and they’re safe. So this is a chance not only are you protected can make a ton of money if the market crashes, in spite of, in spite of the fact, your portfolio with that,
Speaker 1 (08:49):
Right? And it sounds complicated to a lot of people, but you did an excellent job of explaining that. So this is definitely something that the average person looking to protect their portfolio can, can jump into.
Speaker 2 (08:58):
Absolutely. This is so simple to execute. If you know, you could put a black Swan trade on. If you know, if you’ve got an online brokerage account in under two minutes, it doesn’t take long. And then you’re done. You’re done for the year
Speaker 1 (09:11):
And you’ll have to dress all in black to do the black Swan as I’ve done. And with my black backdrop to make the point and drive it home to our viewers, right? You can just sit at your computer and boom go, right. If you wear a striped shirt like me,
Speaker 2 (09:25):
You can have the you know, the Pelican in the background with Belkin that I’ve got. So yeah, it’s, you don’t have to dress in black or take a negative approach. What you’re doing is you’re not predicting oh, doom and gloom, right. What you’re saying is doom and gloom can happen. And if it does, I don’t want to have to worry about it. Exactly. So now we can just focus on, you know, finding those great investment opportunities that can make us money and, you know, five, 10% decline who cares about those. Those are normal that’s day to day. But if we get out to 20, 30, 40%, well, that’s where real money gets lost. Yeah. I don’t, I don’t want to be in that game. So using a black Swan hedging approach keeps you out of the game, keeps you out of, you know, you don’t have to worry about that anymore. Make it even better. I’m watching it. I’m tracking it. I know the math. I’ll tell you when to put it in on, oh, you can just click the little link. And when it’s time, I’ll tell you,
Speaker 1 (10:18):
And that’s why we’re here to let people know. You know, you’re doing the heavy lifting for them. You’re the one that’s keeping an eye on. What’s going on. You’re making the recommendations. You’ve got the track record. I’ve seen it folks. It’s impressive. So Tim, again, thank you for joining me today and talking about this weird thing called black Swan theory. We’ll say it one more time. Make sure I get it right. Black Swan theory. There we go. That’ll be something that everyone will remember. Again, pleasure. Thanks for joining us. But before we go real quick, I want to remind people of your other reports. You’ve got these also reports that talk about water toxic stocks and how the avoid them, right? The myths about the electric vehicle investments your weekly stock watch list and the truth about dividends. While some dividend stocks can make you go broke. You know, that sounds counterintuitive, but it happens. All they gotta do is click on the link at the bottom, get signed up for free and check out your website. Right. And they get all those reports.
Speaker 2 (11:13):
That’s exactly right. I think he all his reports free. So yes. Thanks for having me on John.
Speaker 1 (11:17):
Absolutely. It as usual, I’ve learned so much talking with UTM and can’t wait for our next our next session to jump into finance and learning more. I really appreciate it.
Speaker 2 (11:29):
Thank you again for having me on I’ll talk to you again soon. Awesome.
Speaker 1 (11:32):
Well, thanks everybody for joining us again. Keep in mind black Swan theory that that’s what we’re talking about today. It sounds weird, but Tim’s on to something. He knows what he’s talking about. And as we’ve said already, make sure you click the link below, below this video. And you can sign up for free to get all of Tim’s reports to see what he’s talking about, to follow his information so that you know what you need to do. If something happens to the market, like if we go down into another lockdown, if things go crazy, what can you do to protect your money and to grow it? That’s what this is all about for people like you, hardworking Americans who are simply trying to grow their wealth and protect what you’ve worked so hard for. Again, this has been John Ditton with local conservative. Thanks for joining us. I’ll see you next time.
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