Cash Flow Per Share Vs Free Cash Flow Per Share Investment Strategies For the Stock Market

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Investment Strategies For the Stock Market

When it comes to investment strategies for the stock market, most people believe that there is only one safe strategy.

‘Buy and hold’

The reason most people believe this is the safest investment strategy for the stock market is because their financial advisors told them exactly that. Have you ever heard the phrase

“The key to successful investing is timing the market, NOT timing the market”

I think this is a lazy approach to investing and is really just an excuse to cover up the fact that some financial advisors have no idea what the market is doing. Shouldn’t successful investors use multiple investment strategies for the stock market? If the market is at a record high and there is a possibility of a correction, then surely there is something else you can do (besides selling your shares) to protect some of your gains?

The reason financial advisors don’t want you to know about any other investment strategies for the stock market (other than buy and hold) is because it’s not in their best interest to know about them. They want you to continue to rely on their advice and make you feel like the stock market is a very scary and dangerous tool – only to be tamed by the so-called experts.

What is your opinion? I definitely believe that the stock market can be very scary and dangerous at times, but like anything; the more you educate yourself, the more comfortable you will feel about it.

So what are the investment strategies for the stock market other than buy and hold?

Let’s take a quick look at one very simple investment strategy that can be used very effectively in any stock market.

Covered calls

This is one of the most effective, low-risk investment strategies that can be used in the stock market. The basic idea behind selling call options on a stock you own. What? I hear you say. Simply put, this means that you rent out your shares for a monthly premium, and in return you give someone the option to buy your shares at a pre-determined price that is higher than what you paid.

Let’s say you own 1,000 shares of XYZ that are worth $15.00 each. People will pay you a monthly premium to have the opportunity to buy that XYZ stock at a predetermined price within a predetermined time frame.

For example, someone may offer you $500 for the right to buy your stock at $16.00 in the next month. Why would you do that? Because if the stock rises to $18.00, they will be able to buy 1,000 shares of XYZ at a discount of $2.00 per share ($18-$16).

The great thing about this strategy is that both sides can win. If that happens, you’d be happy too because you’d keep the $500 premium, and you’d also make $1.00 on each share you sold because you bought them at $15.00. and sold them for $16.00 each.

What happens if the stock price falls?

If the stock price fell from $15.00 to $13.00, you would still retain the $500 premium, reducing your paper loss from $2.00 per share to $1.50 per share.

Writing covered calls (or leasing stocks) is one of the most commonly used investment strategies of the wealthy. This is a great low-risk, low-risk investment strategy for the stock market that everyone deserves to know about.

So you have a simple investment strategy for the stock market that can help increase your cash flow and provide protection against downside. What more could you ask for from a stock market investment strategy? So next time you see your financial advisor, ask them about covered calls and see what answer you get. I bet they probably won’t even know what you’re talking about because their university course didn’t teach the subject.

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