Welcome to your weekly mailbag edition of The Daily Cut.
All this week, I’ve been shining the spotlight on the heightened stock market volatility we’ve been going through.
This volatility has been miserable for investors.
Since the start of the year, our stand-in for the stock market, the S&P 500, has dropped 13%.
And the tech-heavy Nasdaq is down 21%.
We’re also seeing slumps in some of our favorite sectors, such as crypto and biotech.
And judging by the feedback we’ve been getting, your fellow readers are worried.
This message from Legacy reader Margaret B. sums it up…
What the heck is going on? Help! Stocks are tanking. We need some kind of strategy. Give me a play to short this stuff or something. I need a lifeboat, as I feel like I am sinking into the abyss.
On Wednesday, I showed why time in the market – not timing the market – makes you rich as an investor.
Then yesterday, we looked at why you also need to base your wealth-building journey around a sensible asset allocation plan.
Today, in response to Margaret’s message, I’ve gathered more insights on how to handle the current choppiness. They come from Legacy gurus Teeka Tiwari, Jeff Brown, Jason Bodner, and Dave Forest.
You’ll want to bookmark today’s dispatch. It has essential guidance to protect and grow your wealth in these unpredictable market conditions.
Teeka’s response: I know it’s hard not to feel fear and uncertainty in times like these. But my primary message to you is don’t panic. We’ve been through this before.
We’ve seen rising stock markets for the past decade or so. Now, we’re seeing pullback. That’s just the way the market works. Don’t confuse what we’re seeing with a permanent erosion of capital.
So enjoy your life, your children, and your grandchildren. The stocks you own will do their own thing daily. There’s nothing you can do about it.
Sitting in front of your laptop fretting over the recent price falls won’t help you grow your wealth in any way. If you’ve been following the recommendations from me and the rest of the Legacy team, you own great stocks. You can reap the rewards if you stick with them for the long haul.
If you stay focused on the long-term picture of continued American growth and tech adoption – you’ll be set to make a fortune.
For instance, if you bought shares in Apple (AAPL) in 2007 after it released the first iPhone, the only thing you had to know was that smartphones were real and most of the world would eventually own one.
As long as you stuck with Apple… and didn’t sell every time there was a temporary pullback… you’d be sitting on gains of 33,330%. That was the only thing you had to get right to make a fortune.
Or look at Microsoft (MSFT). Its stock got hammered in the Black Monday crash in 1987. This was about a year after Microsoft went public. And during the crash, it plummeted over 50% in one day.
But all you had to do was ignore the turbulence in the share price and say, “I think Microsoft will be the go-to software for desktop computers. I don’t know how long it’ll take, but I think everybody will have a desktop computer.”
Since its low after the 1987 crash, MSFT shares are up 55,540%.
So if you can stay rational during sell-offs… and not sell at the bottom during a panic… your long-term returns will transform your life in a way you can’t even begin to imagine. All you need to do is let time do the heavy lifting…
Jeff’s response: Many readers probably feel how Margaret feels as they watch their portfolio balances fall seemingly every day.
We’re all going through it. Times like these are trying. They make us second-guess ourselves and wonder if things will turn around.
Things will absolutely get better. But it’s critical to grasp that we’re in a very different market environment now from the one we were in 2021 and 2022. And the way we approach this market must change too.
For two years, many strange things happened. Stocks – especially tech ones – traded at valuations that made no sense. “Meme stocks” spiked out of nowhere. And many folks began to believe stocks and crypto markets could only go up.
By late summer 2020, I was so alarmed I prepared a presentation. I predicted a “second wave” of stock market selling. And I profiled several toxic stocks to avoid at all costs.
These were all popular stocks during the pandemic. But subsequent peak-to-trough losses for some of them were staggering…
Snowflake (SNOW): -55%
Coupa Software (COUP): -76%
Rivian Automotive (RIVN): -82%
Zoom Video Communications (ZM): -83%
Fastly (FSLY): -88%
I don’t share this to rub salt in any wounds. Folks who listened to my warning avoided these losses. But I understand that newer readers may have gotten caught in these downdrafts. I’m sharing this because it proves two points I make all the time. First, valuations matter. Second, picking great – not just trendy – investments matters.
Although the recent pullback is uncomfortable, it also presents opportunities. For instance, choppy markets like this one are perfect for short-term trading strategies.
That’s why we developed our new crypto trading advisory, Neural Net Profits. There, a type of artificial intelligence (AI) called a neural net makes all the trade recommendations.
It processes massive troves of crypto data every day – a task impossible for even a team of the smartest humans.
Then the AI signals when it expects a crypto asset to trade higher within the next 60 days. Or it signals us to exit our positions and take profits off the table.
Our AI is called the Perceptron. I couldn’t be more excited about its potential. It’s a “living” system. So it gets smarter over time as it better learns the patterns that can predict future market moves.
It closed out two positions so far. We booked a 21% gain in 21 days on the first… and a 48% gain in 23 days on the second.
We haven’t yet had our first triple-digit gain. But I know it’s coming. It regularly occurred in our back-testing before we launched. [You can find out how to put the Perceptron to work in your portfolio by going here.]
Jason’s response: It’s useful to look to greatness for guidance. I’m talking about 91-year-old super-investor Warren Buffett.
In 1942, when he was 11 years old, Buffett bought his first stock – an oil company called Cities Service Preferred that’s not around anymore. He spent $114.75 on three shares.
He later calculated that if he’d been able to invest that amount into a no-fee S&P 500 index fund instead… and he’d reinvested the dividend… it would have been worth more than $600,000 in 2019. That’s a return of more than 5,000x.
Now, compare that to the alternatives on offer to the 11-year-old Buffett…
U.S.-dollar cash would have devalued immensely. Say Buffett had stuffed $100 under his mattress. Thanks to inflation, it would be worth just $6 at today’s value.
Gold would have done slightly better. But it would have returned less than 1% of what Buffett could have earned by investing in a fund that tracked the S&P 500.
My point is it’s hard to beat the simplest investment in U.S. stocks in terms of its wealth-building power. But you have to be patient to reap the full rewards.
Dave’s response: Folks are worried about runaway inflation, geopolitical turmoil, and vanishing stock market wealth.
We saw the same thing in the 1970s. Inflation ran wild. Wars raged. It was a tough time to be in stocks.
In the 1930s, the same set of conditions arose. Even in the 1910s, inflation and war were the biggest concerns for everyone in the stock market.
My team and I looked at how different asset classes performed during these times. And every time, we saw “super spikes” in commodities.
They all came at the end of spectacular bull markets in stocks.
When the wider stock market cooled off, investors reliably rotated out of regular blue-chip stocks and got into commodities stocks.
Super spikes come in clusters. It’s not just one commodity that spikes. Inflation and geopolitical turmoil drive up prices almost across the board.
Right now, we’re seeing spikes in oil, uranium, nickel, and copper.
Nickel and copper are particularly interesting because they’re critical for several key tech trends.
Nickel is crucial for the rechargeable batteries that power electric vehicles (EVs). And copper is critical for the wiring in EVs and EV charging stations.
You also need nickel for the stationary batteries that store solar and wind power and feed it onto the grid.
That’s why I’m so bullish on nickel and copper right now. They’re commodities. So they’re benefiting from the current super spike across the sector. They’re also ways to play the EV revolution and the broader transition to clean energy – two of the world’s most powerful market megatrends.
That’s all for this week.
If you have a burning question for any the Legacy experts, get in touch at [email protected].
Have a great weekend.
Regards,
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Chris Lowe
April 29, 2022