Editor’s Note: At Brownstone Research, we believe in “balancing the scales” in favor of the retail investor. And our colleague Larry Benedict agrees.
Larry is a professional trader with nearly four decades of experience. Today, he share the “basic and highly profitable trades” that retail investors have been barred from, and why similar strategies are now opening for everyday investors.
Today, I want to talk about one of the most volatile, profitable eras for trading the market I’ve ever seen… the dot-com bubble of 1999 and 2000.
Back then, IPOs were the hot thing. And almost all of them were tech companies.
But I struggle to even call them “companies.” They were making no earnings, no revenue… Some of them probably didn’t even have offices.
At that time, I ran the charitable trust account for Spear, Leeds, and Kellogg.
Thanks to our connections, we were able to get shares in companies before they went public on the open market. When they did go public, they opened up multiples higher than their IPO price. And there were at least 10 of them a week.
Our strategy for trading this was simple. We sold our pre-IPO shares right after the initial pop higher on the day they went public and made a decent return. And we did that over and over.
And since you’re a subscriber to Jeff Brown’s work, you’re likely familiar with this dynamic. Large institutions—like the one I was a part of—received the highly desirable pre-IPO shares. But regular investors were left with the scraps…
The market was unfair for the average investor in that time… The folks who couldn’t get their hands on pre-IPO shares wound up buying these companies for far too much.
In many cases, that initial pop – where most average investors were buying – was the highest price those stocks would ever trade at.
Pair that with the mania in technology companies and how much money was changing hands, and you had a bubble.
It was a tough time to be an investor…
But for savvy traders, it was a gold mine.
My Biggest Dot-Com Bubble Trade
The best trade from that era was on a company called 3COM…
3COM owned Palm Pilot (PALM) – the old PDA maker. And because of that, everyone who owned 3COM stock back then would get stock in PALM.
PALM was one of the hottest IPOs of 2000. It was so popular, the market was valuing 3COM, the parent company, for less than its stake in PALM.
That’s all thanks to the tech bubble… The PDA fad was in, and PALM seemed revolutionary.
So, the big play in trader circles was to be short 3COM because of how the market was valuing it… and because you got stock in PALM for free, helping cover potential losses.
The day of the IPO, PALM opened at about $80 per share after being priced at $38 the night before. We sold on the opening. Then we shorted 3COM as part of the trade because we knew 3COM would probably go down.
3COM fell 21% on the day. This company had a 90% stake in PALM. And its market cap wound up lower than the value of that stake…
We made $30 on our short and $80 on our long. It was one of the best trades we had at the time. And I’ve never seen anything like it to this day.
These were basic trades – and highly profitable ones. But the average investor just couldn’t make them.
Retail investors could only pay good prices on the smallest IPOs. And they couldn’t trade like big brokerages could.
Nowadays, it’s unfortunately not much different.
Many of the best opportunities are restricted to hedge funds and other kinds of institutional investors… either because of high capital requirements or because most people simply don’t know these deals exist.
That’s what I’ve set out to change…
On Wednesday, December 7, I plan to share how I’m going to bring my readers access to some of the best deals around at my 750% Boost event.
Even this year, as markets have tanked, I know a way you could have made 750% more yield than your typical savings account… and 998% more yield than big dividend stocks.
That’s a lot better than losing as much as 30% if you’ve held shares of the Nasdaq this year.
And it’s one of the few ways we can actually beat inflation…
Even better, your downside is limited… which means these are safer than just buying a stock or crypto and hoping it shoots higher.
So if you would like to learn more, then please consider attending on December 7.
Editor, Trading With Larry Benedict