Chris’ note: As we close out 2020, we’re revisiting the best insights from the Legacy team. Today’s essay is a timeless reminder of why you shouldn’t panic during a financial crisis.
While most investors were running away from stocks after their 34% drop in March, colleague Nick Giambruno saw a tremendous opportunity in the market. Below, in an essay he first published on March 25, he reveals how a setup like the one we saw with the coronavirus-induced crash has made legendary investors rich – including Legacy Research cofounder Doug Casey.
Read on to see how you can make 10 times your money during a crash – without taking on huge risk…
What is the greatest secret to investing?
What really separates amateurs from professionals?
Losers from winners?
If you search the internet, you’ll find dozens of people with dozens of answers to this question. Some will say the secret is their proprietary trading system. Some will say it’s their method of picking stocks.
I’m sure some of those ideas are useful. But they’re not nearly as useful as something I call “the most powerful wealth-building secret in investing.”
Master this skill and you’ll consistently spot opportunities to make 5 or 10 times your money on safe investments.
I know that’s counter to the conventional investment wisdom that says you have to take big risks to make big returns.
Well, after learning this secret, you’ll know that’s not true. You’ll know most people have it backwards. You simply have to know how to apply this one skill.
It’s a skill that helped make Warren Buffett one of the richest men in the world. A skill that helped Legacy Research cofounder Doug Casey make millions in the stock market. And a skill that made Sir John Templeton a rich man and one of the most respected investors of all time.
It doesn’t involve investing in speculative biotech stocks or tiny gold companies. In fact, many of these wins came from investing in just the opposite: iconic, blue-chip American companies that have been around for decades.
I’ll tell you more about this strategy in a moment. First, I want to show you three real examples of how it made investors rich.
1) In 1939, legendary investor John Templeton made a fortune betting against the crowd…
At the time, millions of Americans were in poverty due to the Great Depression. And Nazi Germany had just invaded Poland to kick off World War II. The world was incredibly fearful.
But Templeton, a recent college graduate, invested $10,000 in U.S. stocks – the equivalent of $187,000 today.
He knew that extreme fear had lowered U.S. stocks to ridiculously cheap prices. So he bought any stock selling for less than $1 on the American stock exchanges.
Four years later, Templeton sold his portfolio for a 300% gain.
2) In 2008, iconic U.S. bank Lehman Brothers failed…
It was the biggest bankruptcy in U.S. history. U.S. stocks crashed more than 50%… the biggest crash since the Great Depression. And the stock prices of many great businesses dropped 80% or more.
People were terrified of losing everything: their jobs, their houses, their life savings. There was an incredible amount of fear in the markets.
But the fear was masking an incredible opportunity…
It was the best time to buy quality stocks in 30 years.
Investors who purchased quality stocks in late 2008 made a killing.
For example, an investor who bought stock in Starbucks (SBUX) in late 2008 has made more than 1,960% on his money. An investor who bought Apple (AAPL) made as much as 1,416%. Ford Motor’s stock (F) gained more than 1,200% in just over two years after the financial crisis.
And many quality companies gained at least 10x in less than two years after February 2009 – like Crocs (CROX, up 1,347%), Gulfport Energy (GPOR, up 1,227%), and La-Z-Boy (LZB, up 1,016%), to name a few.
3) In 2010, an oil rig named Deepwater Horizon exploded off the coast of Louisiana…
The blast instantly killed 11 workers and eventually spilled 4 million barrels of oil into the Gulf of Mexico. It was the worst environmental disaster in U.S. history… and the biggest oil spill in world history.
The negative media coverage was nonstop. Newspapers ran pictures like this:
Source: U.S. Coast Guard
British oil giant BP (BP), partial owner of the rig, became one of the most hated companies in the world.
In a matter of weeks, BP’s stock price collapsed from $59 to $27… for a stunning loss in value of $105 billion.
At that point, hardly anyone would touch BP stock… but smart investors asked, “Are BP’s assets really worth $105 billion less today than they were a month ago… or are investors overreacting?”
It turned out investors were overreacting. Buying BP stock near its bottom made an 80% gain in just a year. It also locked in a safe 6% (and growing) dividend yield.
Although these stories of massive wealth creation are all very different, they have one thing in common…
They show the power of buying assets during times of maximum pessimism… when no one else wants to buy.
According to Wall Street, you must take big risks to earn big returns.
But these stories show that’s not true.
From time to time, an extraordinary opportunity comes along to buy a dollar’s worth of assets for a dime. And buying valuable assets for pennies on the dollar is one of the least risky investments you can make.
Warren Buffett, Jim Rogers, and Legacy Research cofounder Doug Casey got rich using this strategy.
And if you can spot these opportunities, you can make gigantic returns too… without taking big risks. I believe this is the most powerful wealth-building strategy available to anyone.
Amateur investors run from a crisis. Great investors run toward it.
Chief Analyst, Crisis Investing
Chris’ note: As I said up top, Nick’s advice is timeless. Our Crisis Investing subscribers who followed it, and bought when stocks were beaten down in March, are now sitting on gains of 270%… 322%… and 400% on his recommendations.
To learn more about navigating volatility, check out our free “Ultimate Crisis Playbook.” It’s got 24 tactical steps from our experts across Legacy Research that can help you survive – and thrive – in a crisis. And to learn how to access Nick’s investment recommendations that take advantage of crises to give you huge upside potential, go right here.