Record low interest rates have had severe consequences on retirees and net-savers that have found that they are having to work until much later in life than they initially had expected, as the investment income is just not there due to anemic bond yields. The Federal Reserve’s Quantitative Easing program has forced many investors to abandon the safety of investment grade bonds and shift more towards equities or alternative asset classes, which tend to be much more volatile. Due to the market’s rapid and steep climb from the lows hit in 2009, stock and bond valuations appear to be quite stretched, leaving very few attractive risk-adjusted return opportunities.
Fortunately, our experienced deep value investor Tim Travis, CEO of T&T Capital Management employs a strategy designed to minimize the risk of permanent losses of capital and focuses on generating income through combining value investing with the selling of stock options. Tim Travis doesn’t utilize risky strategies such as buying options, which can often have risk-reward ratios similar to lottery tickets, but instead he attempts to stack the odds in investors favor through only buying securities that trade at a deep discount to intrinsic value, and then utilizing options to generate income and reduce risk.
The biggest risk of the strategy is the potential to own a severely undervalued security with strong upside, at an even deeper discount than what would have been available through buying the security directly. These are the strategies that sophisticated Hedge Funds use and are typically not made available to retail investors. T&T Capital Management has a very low fixed-fee structure, without load or redemption fees, so Tim Travis is able to focus on attempting to maximize performance, as opposed to pitching high-cost proprietary products like much of the competition.
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