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Did you know that legendary investor Warren Buffett’s largest holding is the San Francisco-based bank Wells Fargo?
That’s right, Berkshire Hathaway recently reported that it now owns $21 billion or 463 million shares in Wells Fargo (NYSE: WFC), a stake the investment guru has been steadily increasing since 1989. Buffett has even gone on record stating, “I like Wells better than anything by far. We bought Wells this year. We’ve bought Wells month after month, well not every month, for a lot of years.
“I like loading up on the one I like best,” he said. I can’t agree more with his sentiment.”
In June 2013 I bought WFC stock for $40.66 in my High Yield Trader portfolio and immediately sold calls against the stock for an instant 0.6% return over the next 30 days. The return might not sound like much, but 0.6% every month for a year equals 7.2% in income. Add in the bank’s 2.5% dividend yield and you have a conservative income strategy that allows you to make 9.7% every 12 months.
We’ve actually managed to make 15.7% in WFC in just nine months using our unique approach to covered calls.
Let me explain.
Each and every stock in the High Yield Trader portfolio must be a blue-chip, shareholder-friendly stock.
Moreover, the stock must have a highly liquid options market. Without a liquid options market our covered call strategy is useless. This is where most newbie income traders fail. They want to sell options on stocks with rich options premium…typically volatile, high-flying stocks.
We take the opposite approach.
We only buy blue-chip, shareholder-friendly stocks…preferably sector leaders. Our goal isn’t to hit homeruns. We are perfectly satisfied extracting 8-12% annually in safe, reliable income from each stock we purchase. Realistically, the only way to accomplish this is through buying stocks that aren’t volatile.
Once we’ve decided on a stock our formula is quite simple. We simply sell calls that allow us to bring in on average of 0.75% every 30-45 days. By bringing in 0.75% in income we are able to sell calls at a strike price approximately 5% above the current stock price. And the benefit of selling calls 5% above the current stock price is that if the stock rallies above our strike price at expiration we will immediately lock in 5% plus the 0.75% in call premium.
So far, our WFC has been called away twice during the past nine months and each time we made 5.7% and 5.9%, respectively. Remember, that’s 11.6% in income. Add in the additional 4.1% in options premium we collected even when our stock wasn’t called away and our total return is, again, 15.7%.
It’s a very simple formula that becomes even more simplified when you purchase stocks adored by one of the world’s greatest investors. And WFC stock is just one example of the type of companies we look for when selling covered calls. We consistently sell calls on 15-20 stocks just like Buffett’s favorite.
You can quickly see why so many professional money managers use this strategy for investors who seek income, particularly retirees.
I challenge you to find a better income strategy for widely held blue-chip stocks.
And given how this conservative strategy works and our track record over the past year, why would any investor choose to shy away from such a proven income strategy that has outperformed the market and dividend-paying stocks over the long term?
Why Warren Buffett keeps his money outside the U.S.
There’s never been a more forthright or upstanding investor than Warren Buffett, but even he hates taxes. That’s why the Berkshire Hathaway CEO keeps his personal fortune (over $600 million) in an offshore account… on an island paradise that offers the best retirement benefits. Here, the government doesn’t tax dividends or even capital gains. The result is, investors with money here earn more on average than investing in the U.S. alone. Best of all, this billionaire’s secret retirement haven is now OPEN to individual investors. You can join Warren Buffett today… right through your brokerage account – without ever leaving home. Click here to find out how.