The Triple S 'Share Spike Strategy'

Tuesday, 17th April 2018 16:21 - by Ranjeet Singh

For today’s article I thought that it was about time to start to giving my two avid followers some real, tangible value. That’s not to say that I don’t think that you receive great value and no doubt pleasure from my information packed, informative and mildly witty reports but rather you deserve now to see how to make real money from it.

So today I’m going to share with you a very simple but incredibly effective strategy that I use to make money for me and my clients. Now I should warn you as I always do, this is not investment advice and I don’t want you to implement it, lose your money and then hold me accountable. If on the other hand you implement it and makes a lot of money then my royalty is a very modest 10% which I would ask that you send to me at my usual address.

Now, let’s get down to business. Pen and paper to hand please, time to make some money.

Okay, so the first thing that I would say is that investing or trading (the difference between them is just ‘time’ by the way) is very simple. As an investor or trader, you have a potential return on an investment and for that you assume a certain amount of risk. The return to risk ratio determines the price of the investment and your job is to work out whether the price is good value or bad value in comparison to the ratio.

Think of it like betting on the horses. A horse has 2 to 1 odds to win a race. So, you know the amount of money that you are risking and how much money you will get back if you win. Investing is the same except there are no fixed odds which makes it more difficult. Instead of fixed odds you have a share price. The lower the share price the better the odds.

Now I don’t know whether that analogy has helped or hindered your understanding but as I have just reread that paragraph to myself, I certainly feel more confused, if not you, so let’s move on.

So, the secret is very obvious when you think about it. Your job is to move the odds in your favour and the only way to do that is to do one of two things – to either increase the potential return on the investment or to reduce the risk. That’s it. If you can do both simultaneously which is possible with many of the investment portfolios that I sometimes see then you have hit the jackpot which we call the ‘holy grail’ in the City because the chance of you being successful is incredibly high.

But let’s focus on the ‘Triple S’ strategy for now which is a strategy that I ‘created’ and named. It’s not a strategy that is exclusively open just to me and I’m sure some dashing, intelligent trader on the other side of the planet just like me is doing just the same. I just don’t know who they are.

Okay so we now know that if we can either increase the return on a particular share or reduce the risk of that share, then we will automatically improve the odds and therefore the probability of making money.

So now think about return and risk. We should also know that it’s nearly impossible to improve the return. I mean think about it. If you buy shares in Apple, how do you improve the return? You can’t. The return on Apple shares is driven by the company’s profitability, product line, margins, brand value and so on.  The only people who can affect these things are the people and management team of Apple.

To reduce the risk, it’s the same problem. The risk is managed by Apple. If Apple brings out a poor product, loses key staff, is caught up in a financial scandal etc. then this will increase the risk. To reduce the risk, Apple would have to take other actions outside of our control. Whatever the case Apple is in control of the risk and return.

However, that doesn’t mean checkmate for us. Whilst we can’t control the return and risk of Apple directly we can impact the return and risk of the strategy in investing in Apple. We can move the strategy to make it more less risky for us.

You see after wo decades of investing in income and dividend paying shares, primarily in the UK markets, and the countless times that I have pored over charts to try to establish patterns, one recurring pattern has emerged over and over again. And that is that ahead of the ex-dividend date of a company the share price tends to increase.

Now I can’t say for sure why that happens but I have my theory and I think it’s a good one. My theory is that there are very few investors who want to sell their share before the ex-dividend date. I know this because I deal with my own clients and that is what they tell me every time, and I think that my clients are typical of the overall market.

So if my clients are telling that they don’t want to sell close to an ex-dividend date and then presumably other clients of other firms must also be doing the same. At the same time, I also often get a surge of investors who contact me just before the ex-dividend date who ask me to buy shares on their behalf into those shares so that they can qualify for the dividend.

This means that during this short window of perhaps 3 or 4 weeks before a company goes ex-dividend there are two factors coming into play 1) very few sales and 2) increased buys. Basic economics of demand and supply will tell you that means that the price will increase.

Of course, it’s not always as simple as that and sometimes there will be a few curve balls to contend with, like a profits warning or an unexpected cut in a dividend or some shock announcement that you hadn’t legislated for but that is the risk of investing and you would assume that whatever the case.

Remember that is not to say that the share price won’t fall on the ex-dividend date. Of course, it will.

But if in the run up to that date and if there is sufficient buying and very low levels of selling you can often see the price of the stock increase by 2 or 3% in the run up to the X-D date. That may not sound like much but if you multiply that by how many companies you can apply this strategy to and then use a strategy which keeps your costs low including the avoidance of paying 0.5% stamp duty, for example using spread-betting, then this strategy can be very powerful.

Spread betting also has the benefit of not being taxed for capital gains.

However even if you just invest in normal equities the strategy works well. You obviously need to know which companies to buy and get your timing right because not every stock is going to exhibit this type of movement ahead of its X-D date but many will.

For example, I personally have a list of 19 companies that I know with some certainty exhibit this type of movement. As always, it’s about managing the return to risk ratio. If I know that this strategy works particularly well on 19 companies in the FTSE350 then the chance of success is far greater if I concentrate on implementing the Triple S strategy on these rather than casting the net out to say 50 or 100 where the odds are against me.

Understanding the return to risk ratio in everything that you do is a beautiful thing to try and master and the ‘Triple S’ is one way of many I’m sure of playing the game with the odds in your favour.

Watch today’s short video at https://youtu.be/vq2LsnNIOK8

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.