From James Altucher, editor, Top 1% Advisory: Last week I showed you how poker and Scrabble taught me to make six times your money in stocks. Today, let me first tell you how you win a game of chess (you’ll see why)…

Rule No. 1: Make sure all of your pieces are protected.

There are exceptions to this rule. But in general, just make sure you aren’t leaving anything hanging in such a way that the opponent can take it without being forced to “pay” for it.

Rule No. 2: This is one most beginners don’t know… but it’s important. You need to accumulate tiny advantages throughout the game.

An example is to have your rook on an open file or have a less-exposed king than the other guy. Or to have a pawn that has no other pawns in front of it (so it can get to the other side more easily).

The idea is that while you’re accumulating these tiny advantages, your opponent realizes you’re crushing him when your advantage is overwhelming.

An investor can take the same view on his portfolio…

No company or stock is truly safe. I’ve seen amazing scandals ruin companies very, very quickly.

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But here are some examples of small advantages you can accumulate until—just like in the chess game above—you’ve put yourself into a better position.

You can:

  • Invest in a stock that correlates with a strong demographic trend.

  • Invest in stocks with strong investors who also own them (like Warren Buffett).

  • Own companies that have a lot of cash in the bank and zero debt (one of my favorites).

Oh, and I should tell you these guidelines…

If a company has a lot of cash in the bank and zero debt, then it’s not going to file bankruptcy anytime soon.

If you want entertainment, it’s funny to watch the Yahoo message boards. Many of the people who post there don’t understand the difference between a stock and the company it represents.

Sometimes a stock will go down and people will start shouting on the boards, “They are going to file for bankruptcy!!!!”

If a company has zero debt, it won’t file for bankruptcy. It can only file for bankruptcy when it can’t pay its debts.

Here’s an (extreme) example of a totally safe stock:

Company XYZ is worth $100 million on the stock market but has $150 million in the bank. In this case, someone could buy the whole company, shut it down, and still have $50 million left over.

That’s a ridiculously safe stock.

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And believe it or not, these situations happen. They were around in 2002 and 2009. Buying baskets of these stocks proved to be very lucrative.

Not all stocks are safe to the point of having more cash than they’re worth. But some stocks have assets that—when liquidated—will add up to more than they’re worth. (They might have real estate, for example.)

I’m going to borrow from Warren Buffett again:

If you think a company will be around 20 years from now, then it is probably a safe investment.

For instance, Disney and Google will probably be around 20 years from now. I don’t know if they’ll go up 500% from here, but they aren’t going bankrupt either.

Some people judge a company’s safety by its volatility. If a stock stays within $39-40 for an entire year, it has very low volatility.

But that’s just an illusion of safety. It can fall quite quickly in the case of a scandal. I’ve seen it happen. I’ve been in the middle of it. It’s horrifying.

The goal is to find a very unique combination of stocks. Ones that could go up quite a bit but also have a good margin of safety around them.

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There are two poker sayings that apply to investing:

  1. “Those who chase straights or flushes go home on Greyhound buses.” (In other words, don’t buy a stock if a good earnings report is the only way you’re going to win on the investment.)

  2. “If you can’t spot the fish at the table, then it’s you.” (There are a lot of sharks at the table: hedge funds, mutual funds, day traders, Mr. Buffett, and so forth.)

The bottom line is: If you accumulate tiny advantages, you have a better chance of winning.

P.S. The biggest “tiny” advantage I know of is a “backdoor” I discovered that allows you to legally bypass Rule 501… for a chance to make five to 10 times your money with my favorite asset.

I’ve made about $15 million with this backdoor approach. It’s not right for everyone, but if you’re interested, click here to see how it works.