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Chapter 4. Volatility Strategies - Pg. 119

4 Volatility Strategies Introduction Volatility strategies are defined as those in which you can make a profit whether the stock moves up or down. The point is that you don't care which direction it moves, as long as it moves explosively in one direction or the other. The trick, of course, is spotting something that's about to make that move and then determining how to take advantage of it! In my workshops, I always ask my delegates who's ever taken a stock tip before. Typically a number of sheepish faces look around the room at each other before the hands start to rise, and then I usher them all upwards! So, how about you? Have you ever taken a red-hot stock tip? I bet you have . . . or will some time in the future! So, if you took a tip, what happened? Did you win, or did you lose? Here's where most people admit that most of the tips went the wrong way. Very rarely does noth- ing happen--occasionally it goes your way, but in many cases, the precise opposite happens, time and time again! The reality is that, as human beings, most of us will listen to a persuasive voice whose owner appears convinced as to the authenticity of the information he or she is now imparting to you. I tell most people that when evaluating a company, the last person you should ever listen to is the CEO, with the exception of the incompara- ble Warren Buffett! Typically, CEOs are rewarded on the strength of the perform- ance of their companies in terms of profitability and share price. Has a CEO ever confided in you that his company is junk and you should run away from it? Of course not! So it's unlikely that you're going to get an objective analysis from a CEO. So the question is this--what do we do if we get a stock tip and we're tempted to follow it? Well, I'm not so aloof as to completely look the other way, so I'm not