Book Summary Preview : The Mighty Mesa

The Big Idea

Dr. Allen’s most valuable experience came from trading options almost every day the market was open for over 30 years. Over these years, he has developed and refined what he calls the Mighty Mesa strategy that is designed to never lose money, regardless of what the market does. A ten-year back test of S&P volatility showed that there were no consecutive 12-month periods where this strategy lost money, even during the turn-of-the-century, 9/11 terrorist attack, and October-November 2008 market melt-downs. Even better, annual gains in the back test averaged over 36% after commissions.

Learn why he believes that this strategy is less risky than owning stock or mutual funds, and it is especially appropriate for your IRA.

Why You Need This Book

This book reveals everything you need to do to create a risk profile graph each month so you can carry out the strategy on your own. Even better, you may choose to farm out the execution to a broker who will do it for you (provided you pick the right broker).

PART I: THE STOCK MARKET WORLD

WHITHER GOETH THE MARKET?

One of the most accurate of all long-term market-timing models is the one based on projections from analysts at Value Line for price changes over the next three to five years for the 1,700+ stocks they monitor.

The Value Line three to five year projections are extremely valuable for many reasons:

• Their analysts are independent and immune from the pressures that can be found in research departments associated with investment banks and brokerage firms.
• Few other firms besides Value Line even bother to focus on what will happen in three to five years, concentrating instead on just the next 12 months.
• The large number of stocks they cover means that random errors in individual stocks become insignificant. Analyst errors on individual stocks tend to cancel each other out.

When Value Line predicts flat or lower markets in three to five years, we all should take notice.

BUYING STOCKS AND MUTUAL FUNDS

Once you have shelled out your cash to bet on a single company, if any of the following takes place, your stock will most likely go down in value:

• An analyst down-grades the stock.
• The company fails to meet expected quarterly earnings.
• The company achieves expected earnings but fails to meet the “whisper” numbers.
• The company meets “whisper” earnings number but falls short of sales expectations.
• The company meets the “whisper” numbers but issues a gloomy outlook for the future.
• The company gets hit with a lawsuit.
• The company is accused of corporate shenanigans.
• Cooking the books
• Back-dating management stock options grants
• Selling unsafe products (and knowing about them)
• Patent infringement
• The company loses a big contract to a competitor.
• A company in the same industry or sector does any of the above, has a bad quarter, issues a gloomy outlook, or whatever.
• The market as a whole falls, taking down most stocks with it.

The bottom line is owning an individual stock is a risky bet that probably has a slightly better than 50-50 chance of going up. You might get lucky and make some money but, most of the time you will not beat the market averages. If you still insist on buying individual stocks regardless of the miserable odds of being successful, there is an options strategy that works better than the outright purchase of the stock. It’s called the Shoot Strategy (as in shoot for the stars).

If the stock goes up, the strategy will result in far greater percentage gains than if you had bought the stock instead. And if the stock stays flat, you will make a small profit – something you wouldn’t make if you just owned the stock.

 

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