Today I'm going to let you in on an investing secret.
And it's a big one – a huge one, actually.
It's a secret that I use in my own work – in fact, it serves as the framework for everything that I do. And if you embrace it – as I have – you'll find that this secret will pave the way to life-changing wealth.
In our talk here today, I'm going to tell you all about this secret. I'm going to explain what it is – and how to use it.
The goal, of course, is to bring to you a stock that will let you put this secret to work – immediately…
A Welcome Disruption
We're all familiar with the term "disruptive technology."
It's a powerful concept.
At least, as far as it goes.
You see, so-called "Disruptors" aren't limited to the tech sector -these catalysts and Agents for Change affect everything we do.
Disruptors are already changing how we communicate (smartphones), how we date (Match.com, eHarmony), how we mate (Viagra and Tinder… or so I've heard), what we eat (genetically modified and so-called "super foods"), how we work (Monster.com, Jobr), how we get heat, cooling, and light (fracking), how we get around (Uber and Tesla), how we get where we're going (GPS) – and where we stay once we get there (Airbnb).
What investors need to realize is that hidden behind each of these changes is a major opportunity to make money.
Take lending, where Disruptors are completely changing the business – right now.
I've been following this business very closely for just this reason: If you understand how the business is being disrupted, you have a very good shot at extreme profits.
In fact, by identifying the specific Disruptors, you can make money on both the lenders and borrowers – as well as on the new players that are quickly taking the field here.
Here are the Disruptors, here's what's changing – and here's how we'll cash in.
The lending business used to be a simple one – so simple, in fact, that it was said to be governed by the "3-6-3 Rule."
During the four decades that spanned the 1950s through the 1980s, the lending industry was viewed as being so stable that bankers could take in deposits at 3%, lend the money out at 6% – and be out on the golf course by 3 p.m.
More recently, small borrowers – meaning individuals, families, and small businesses – mostly relied on banks, credit unions, finance companies, and credit cards to pay for things or obtain cash.
All those lenders have "fixed costs," like brick-and-mortar offices and paid staffers. Traditional banks needed those physical locations and workers to accept loan applications, check credit scores, verify employment and income, underwrite and service loans and run the marketing, advertising, regulatory, and compliance operations that kept the bank alive.
After all, it costs money to source deposits and to borrow in the capital markets.
And on top of those fixed costs, lenders have to eat losses when borrowers default.
Lenders typically charge high interest rates to cover their fixed costs and as compensation for the risks they had to take.
But because there were so few choices, borrowers had to pay whatever rates the lenders sought.
That's how it's been for years for both lenders and borrowers.
Then along came the Disruptors.
Profiting from Our Peers
Today's borrowers can go online, answer as few as seven questions – and have their loan approved in a matter of minutes. And I'm talking about a full approval, meaning most borrowers know how much money they're getting, the interest rate they have to pay, and how long they have to pay the loan back.
Lending has been changed forever.
Thanks to the new market Disruptors.
Those new players figured out that the fixed costs and loss expectations added an average of 425 "basis points" (4.25 percentage points) to the interest rates borrowers had to pay on small loans.
What these new market challengers realized is that – if they could cut fixed costs and do a better job assessing risk and managing loan losses – they could make the loans easier to get, slash the costs for borrowers, and grab market share. The upshot: They could make fat profits for themselves, for the investors who lend on their platforms, and for their financial backers.
Of course, technology and data make this latest Disruptor possible.
And a new market entrant – known as peer-to-peer (P2P) – illustrates how the lending business has changed. Indeed, this P2P lending model shows us how the new Disruptors operate.
The premise of P2P lending is pretty simple: Individuals lend to individuals. Borrowers are matched with lenders based on who wants to borrow how much for how long – and who's willing to meet those needs based on the prospective borrowers' credit scores and measures of creditworthiness.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.