When most main street investors see the word “derivative” in an investing context, they shiver 3 times.
They think of Buffett’s quote about derivatives being weapons of financial destruction.
They imagine trillions of dollars floating around on “dark exchanges,” unregulated and endangering the entire financial world.
The word derivative, drums up images of Michael Burry (played by Christian Bale in the hit movie The Big Short) sitting in Goldman negotiating some wacky contract to bet against the housing market in the US.
News reports tell you that derivatives are to blame for the financial crisis of 2008/2009, bank liquidity scares, fears over an avalanche of financial destruction because of a few greedy bankers who want to line their pockets and are willing to put the world’s economy at risk to do it.
Frankly, the reaction is as ridiculous as it is encouraged by the Wall Street and Banking elite.
The people at the top of the finance pyramid in the US want you scared of derivatives...because if you’re scared of them you won’t use them to make the same kind of returns the financial elite make.
Don’t believe me?
Do you remember that oft repeated quote from Buffett? About “weapons of financial mass destruction?”
Well would it shock you to know that Buffett uses derivatives all the time in his investing and trading? He uses them to LIMIT his risk, and to increase his returns in a reasonable safe way.
But he’s not the only billionaire investor who uses derivatives. Mark Cuban used derivatives to protect his fortune, and famous activist investor, Carl Icahn has used derivatives for years in his investing.
Even billionaire investor, and political activist, George Soros uses derivatives in his investing portfolio.
Whatever you might think of Soros’ politics, no one can deny his investing acumen. He has created a billion+ dollar net worth for himself and some of the world’s richest and most successful people trust his fund with their money.
Here’s the truth, the bankers and financial elite want to keep you in the dark about the availability and power of derivatives because they would much rather you put your money on deposit and let them manage it for you.
They can pay you a ridiculously low interest rate while they use YOUR money to rake in double and triple digit returns on a weekly and monthly basis.
You can’t blame them really, it’s not hard to guarantee you a 5%, 3%, or even a 2% yearly return when they’re using your money to make 10%, 25%, or even 50-100% per week or per month.
As my father used to say, “It’s good work if you can get it!”
At this point I need to make something very clear to you…
There are different kinds of derivatives. As a matter of fact, the term derivatives is really a catch all phrase used to describe any security that “derives” its value from a different underlying security.
For example, if you own a house, you can rent that house to a tenant. The house is an asset, and the rental contract is a derivative. It’s that simple.
The rental contract gets its value from the underlying asset - the house. You don’t need a rental contract for the real estate to have value…
But if you don’t own the real estate you can’t have a rental contract. (Well, that’s not 100% true...more on that in just a moment!)
Banker and Wall Street financiers have convinced the general public that you can’t use derivatives because they are complicated and risky. But that’s not really the truth.
Anymore than it’s true that you can’t rent a house you own because being a landlord can be risky.
True that if you let just anyone move into your house, you could have problems. Your derivatives (the rental contract) could be worthless…
It could even cost you money.
However, if you properly screen your tenants and rent to good people, being a landlord can make you a lot of money by allowing you to extract money (rent) from your asset (house) that you wouldn’t ordinarily have access to.
So you get the appreciation of the value in the house AND you get a monthly income stream from the house.
Heck, I know people who had rental property during and just after the Great Recession who did fine…
Because even though they lost money on the underlying asset (their house) they continued to collect an income stream based on the derivative (rental contract) they had in place on their property.
I hope this is starting to crystalize how truly simple derivatives can be.
Sure there are some derivatives that are complicated, risky, and dangerous...but I’m not going to waste your time talking about those derivatives.
The derivatives I want to talk to you about are simple to understand, reasonably safe (no investment is 100% safe, but these derivatives are secure and liquid) and can be VERY profitable for retail investors just like you and me.
As a matter of fact, the specific kind of derivative I’ve been talking about - that I call the “Main Street Derivative - has been available to retail investors and has been regulated by the Federal government since 1973.
All of the examples above of famous and successful investors - Buffett, Cuban, Icahn, and Soros - all used Main Street Derivatives to increase yield and protect against lose i their underlying investments.
In other words, to go back to the example I just used, they “rented” their house in order to increase the amount of money they made from the investment in the house and protect their money if the house lost value.
For retail investors like us - the Main Street Derivative can offer double and triple returns for you in 30 days or less…
All while putting significantly LESS money at risk than a comparable stock investment.
That’s why bankers and Wall Street financiers don’t want you to know about derivatives and how powerful they are…
They want to manage your money and make the lion's share of the profits, while “guaranteeing” you a few small crumbs at the end of the year.
I’m not just speaking out of turn here, I grew up “on Wall Street.” I’ve seen the inner workings - good and bad...
And I’m tired of seeing good, hard working people being taken advantage of because they don’t have the information they need to make solid decisions about how to better manage their money.
More on that in a moment, but first…