On Monday, members of the Small-Cap Rocket Alert family kicked off 2014 with a bang when one of our recommendations, a small-cap biotech company, rocketed ahead 90% in a single day's trading.
An 90% gain in a single day is fantastic, but some of my subscribers reported amplifying those returns by way of options – pulling single-day gains of 700%, 776%, 1,042%, and even 1,500%.
Typically those kinds of returns are relegated to professional traders using proprietary computer programs to maximize gains while keeping risk at a razor-thin level – but they don't have to be.
I'm going to talk today about my favorite way in 2014 to buy income-producing stocks using one of Wall Street's favorite strategies: other people's money…
How Traders Boost Returns and Manage Risk
Specifically, I'm talking about short-selling one asset (that's where other people's money [OPM] comes in) and collecting cash into your account in order to buy another, non-correlated asset.
You might be asking yourself, why I'm concerned – at all – with buying income-producing assets with the potential of single-day returns of 90%, 700%, or even 1,500% on the table.
The answer is quite simple: risk management.
Historical data, and my own research is very clear on this, shows that quality income-producing assets have the ability to significantly reduce your overall portfolio risk, while at the same time offering you great upside potential.
It's important to remember that professional traders measure every trade through the metric of risk management, and so should we.
So what is one of my favorite low-risk trades for 2014? Shorting the Japanese yen…
This Short Looks Certain to Free Up Your Money
After more than two decades of slumping economic growth, the newly elected Prime Minister of Japan, Shinzō Abe, advocated what amounts to a desperation play to kick-start the Japanese economy with a stimulus program that we, in the West, refer to as Abenomics.
On the outside, Abenomics was designed to inject liquidity into the Japanese economy – but many analysts (myself included) think the real motive was to devalue the yen in order to gain an edge for Japanese exports.
No matter what the motive, the end result was a boost in exports and a massive 50% gain in the Nikkei – and for the purpose of today's discussion, a 21% decline against the U.S. dollar in 2013.
In order to maintain the effect of Abenomics, the Bank of Japan is going to have to keep the value of the yen depressed because any strength in the yen will likely torpedo the Nikkei's ascent, stifle exports, and put Japan back into recession.
That's why I'm shorting the yen in 2014, because from the 30,000-foot level, it looks like a very solid play.
The next obvious question is, what do I recommend buying if I'm short the yen?
A Simple Trade to Leverage Your Gains
My favorite income-producing asset is Alerian Mlp (NYSEArca: AMLP), which is an exchange-traded fund (ETF) that holds a basket of U.S.-based oil and gas pipeline master limited partnerships (MLPs). Shares of AMLP are currently yielding 6.01%.
Shorting the yen directly is going to be difficult because it requires using a Forex account and then shorting the yen on margin.
That's probably too risky for most people, but I have another way to accomplish basically the same thing – a simple "pairs trade."
About the Author
Sid is the investment community's best-kept secret. Since 2009, he has served behind the scenes at Money Map Press as Director of Research, analyzing hundreds of securities and profit opportunities for subscribers. He's an expert in the identification of specific market catalysts with "alpha" potential in a wide variety of industries, but especially the small-cap sector. From his years of research and training, Sid has an extreme attention to detail and a passion for identifying unique opportunities the market doesn't yet understand. He brings those recommendations to members of his Small-Cap Rocket Alert.
Sid is also an accomplished drummer and music producer. He lives in Denver.