Chris’ note: Yesterday, stocks plunged again. The S&P 500 ended the day down almost 12%. That’s the biggest one-day plunge since 1987. This comes after one of the most volatile weeks for U.S. stocks on record.
It’s normal to feel anxious right now. But here at Legacy Research, our job is to make sure you don’t follow the crowd and panic. That’s why we’re tearing down the “paywall” to our best insights and recommendations about how to navigate this crisis.
We’re publishing this morning version of The Daily Cut – Daily Cut AM – as often as we can. It will be where you’ll find our best content – paid or free – on the pandemic and its impact on markets.
Yesterday, you heard from Dan Denning on the different types of bear markets… and what they mean for your wealth. Today, you’ll hear from E.B. Tucker. He heads up our Strategic Trader advisory.
And as he explained in an update he sent his paid-up subscribers… proper wealth protection comes down to four key questions.
And don’t forget to check out our mailbag below for E.B.’s predictions on gold…
If you’re worried about the stock market, ask yourself these questions… and try to answer honestly.
I (E.B.) have been doing this for a long time.
I used to comanage a fund that invested in precious metals stocks. I sit on the board of a fast-growing gold company. And I’ve been an active investor in stocks and other markets for more than two decades.
When friends and colleagues call me in distress about what’s going on with the financial fallout from the coronavirus panic, I ask them these questions.
They can help you right now. So jot them down. Take some time out by yourself or with your spouse. And make sure you answer them after you read this update.
1. Do you have too much money in one place?
At Strategic Trader, I recommend stock warrants as opportunities arise.
If you’re not familiar with them, stock warrants are great ways to make asymmetric bets on stocks.
They have huge upside potential and limited downside risk, in other words.
But they’re also more volatile than stocks. They bounce around in price a lot more.
So good investing means owning a portfolio of warrants, not just one warrant. But the same goes for any speculation.
The cardinal rule is to never bet more than you can afford to lose.
I can’t stress this enough. If you’re losing sleep at night worrying about your speculative portfolio, you have too much on the line.
If you’re just starting out as an investor, I recommend you follow my “five buckets” strategy.
As I showed you here, each bucket represents an “asset class” (group of similar investments) that makes up your portfolio.
If you want to continue to have financial independence… and avoid suffering a loss you can’t recover from… it’s vital you get the right balance.
The result is more stable wealth… without having to give up your quest for outsized profits. I like investing this way because I no longer worry about trying to maximize my profit on every trade… or every time the market changes course.
What you put in your buckets is up to you. But these are what my five buckets look like:
- Long-term stocks
- Real estate
Sure, stocks are crashing right now… as are some more speculative bets. But I also have plenty of gold, cash, and real estate on board. So I’m not that worried.
I know these more defensive plays will shield my wealth. Do the same, and you’ll sleep just fine though financial panics like this – whatever the trigger.
2. Do you separate speculations from investments?
A speculation gives you the chance to turn a little bit of money into a fortune.
For example, last month, my Strategic Trader subscribers cashed in on a 1,031% gain on a warrant we had been holding for less than a year.
And you didn’t have to wager a ton of money to see an outstanding return. When we opened that position, the warrant cost less than 20 cents. And it continued to trade within our buy range for the first six months. Investing just $1,000 in that warrant would’ve turned it into $11,310.
But that’s just one position. Seasoned investors know that keeping a bullpen of interesting speculative holdings can really move the needle on their wealth.
But novice investors get excited about one speculation and swing for the fences. When the inevitable market correction comes, it takes them out at the knees.
In short, speculative investments deserve a proportionate amount of capital.
3. How much cash do you have?
If you have cash… a market downturn is a tremendous buying opportunity.
If you’re fully invested in stocks and other risky bets, low prices don’t help you at all.
In the 2008 crash, I sold about 20% of my largest position just a few weeks before the market tumbled.
What seemed like a small amount of money at the time allowed me to back up the truck… just weeks later.
Having even a modest amount of cash during a market correction can sometimes turn panic into elation.
4. Do you trade on margin?
In other words, do you invest borrowed cash?
If you do, and you’re a novice investor, it’s time to question that decision.
I prefer to own investments outright, even if it means less upside potential.
I don’t borrow to get more. I’ve had bad luck with it. If you’re a professional, it may be unavoidable. If you’re not, rethink this now.
I hope these questions help you think the right way about your money and the market. Your goal should be to get your thinking right. Over the long term, that’s what leads to market success.
The Fed will push interest rates into negative territory.
Be ready for this…
Negative rates mean you’ll be charged to buy a bond or access what you see as a safe investment. You may even be charged to save money in a bank.
This will encourage you to invest, then speculate.
As mortgage rates plummet, folks will refinance home loans. I expect these loans to eventually have a prepayment penalty clause. That’s already the case with many Canadian and European loans. Be wary of the trend to borrow heavily. The money might turn out to not be as cheap as you’d thought.
Gold will take out its 2011 high of $1,900 an ounce.
That’s when the mainstream will pile in. I expect gold and gold stocks to do well all year. If gold stocks sell off with the broader market, it’s a buying opportunity.
[Editor’s note: See the mailbag below for more on E.B.’s predictions for gold.]
Oil is trapped in a broader conflict. And thanks to U.S. sanctions, Russia has the capacity to pump oil at rock-bottom prices.
I was in Moscow in 2015. I saw for myself how U.S. sanctions backfired. Russia could not access international capital markets. It had to spend what it earned.
So, it’s in incredibly strong financial condition relative to larger Western economies that borrow and print prosperity.
I don’t expect oil to trade in the $20 to $30 range years from now. But in the short run, it’s a tool in a larger conflict.
That’s it for now. Just make sure you’re ready to position your portfolio for what’s ahead, with a clear head, and the confidence to turn hard times into opportunity.
Editor, Strategic Trader
Chris here again: Yesterday, I told you we’d be creating a “community center” for you and your fellow Legacy readers.
This will be where you can get your urgent questions answered by our team of analysts.
We’ll get to as many of your questions as we can and publish answers from Bill Bonner, Doug Casey, Teeka Tiwari, Jeff Brown, Dan Denning, Tom Dyson, E.B. Tucker, Nick Giambruno, Dave Forest, and Jason Bodner.
It’s also a place to share a personal story about how you’re coping with the virus… or how you and your family are staying safe… or updates on quarantine, the economy, or the response by the feds.
And we’re already getting some great questions from readers…
For instance, Sandy G. wrote in with a question that’s at the top of a lot of readers’ minds right now:
Thank you for the opportunity to ask questions. Do you have an idea as to how much gold will fall? It has definitely been up and down. I wish to invest in gold but am being most cautious. Thank you for any assistance.
As mentioned above, E.B. is a gold industry insider. He’s also one of our go-to gold investing experts here at Legacy. Here’s his answer…
Thanks for writing in, Sandy. It’s a question a lot of readers have right now. It’s true that gold is a disaster hedge. But it’s not always that simple.
Go back to the housing crisis in 2008. Gold ticked lower with the overall market… until it exploded higher.
In the chart below, we show gold in green and the S&P 500 in blue. Notice how gold recovered first… then shot up 166% to its peak of $1,895 in September 2011.
That doesn’t mean it was a comfortable ride for gold. From the start of March 2008, it took nine months for gold to hit bottom. Gold fell 27% during that time.
The S&P 500, on the other hand, dropped 47% peak to trough.
As a reminder, right now, gold is down 2% on the year. The S&P 500 is down 26%. It’s easy to lose perspective when the market lurches up and down daily.
For more on how to pick up physical gold, you can access a special report from the folks at Casey Research. It will point you in the direction of some reputable gold coin dealers. It will also run through the other options available to you for getting exposure to the gold market.
E.B. also asked one of the premier gold coin dealers in the U.S., Gainesville Coins, to create this page as a starting point for his paid-up subscribers.
He has kindly extended this special offer to Daily Cut AM readers. (We do not get any compensation from Gainesville Coins for bringing you this offer.)
A great coin to start with is the 1 oz American Gold Eagle listed on the Gainesville Coins page.
If you’re tuning in to cable news, you’ll almost certainly feel afraid…
The mainstream media has been doing nothing but shouting and screaming at viewers.
Networks are ramping up the natural fears people have of the virus to get higher ratings.
But it’s not all bad news. Here are some coronavirus news items that run counter to the world-ending plague rhetoric the talking heads on TV love so much…
- China has closed down its last temporary coronavirus hospital. There are no longer enough new cases to support them.
- Here’s how doctors in India have been successful in treating the coronavirus.
- Researchers at the Erasmus Medical Center claim to have found an antibody against the coronavirus.
- A 103-year-old Chinese grandmother has fully recovered from COVID-19 after being treated for six days in Wuhan, China.
- Apple reopened all 42 China stores.
- The Cleveland Clinic developed a COVID-19 test that gives results in hours, not days.
- In South Korea, the number of new cases is declining.
- Italy is being hit hard, experts say, only because it has the oldest population in Europe.
- Scientists in Israel are likely to announce the development of a coronavirus vaccine.
- A network of Canadian scientists is making excellent progress in COVID-19 research.
- A San Diego biotech company is developing a COVID-19 vaccine in collaboration with Duke University and the National University of Singapore.
- Plasma from newly recovered COVID-19 patients can treat others infected by the disease.
That’s all from me for now… but stay tuned for my regular afternoon edition of The Daily Cut.
It will be published here at the regular time of 5 p.m. ET.
And I’ll be sharing with you more insights and advice on how to protect… and grow… your wealth in times of panic…
In the meantime, don’t forget to email me your questions and concerns about the coronavirus pandemic and the financial fallout from it.
Our team here at Legacy is standing by to answer all your questions. I’ll make sure to send them on to your favorite analyst myself.
Just drop me and the team an email to [email protected] and keep an eye on our Daily Cut mailbag for our team’s responses.
March 17, 2020
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