You know what I’m talking about…
Since the start of the year, some of the world’s best blue-chip stocks have been cut in half.
We’ve also seen bruising losses in crypto – one of our favorite asset classes.
Bitcoin has plunged 70% from its high last November. And smaller “altcoins” have fared worse.
Even supposedly “safe” bonds are down double digits.
If you have money in the markets, you’re seeing gains that were building up in your portfolio disappear.
And unless you don’t feel emotions the way most folks do, it’s gotten under your skin.
Maybe you’re checking your portfolio more than usual… Maybe thoughts of further losses keep popping into your mind… You may even be lying awake at night worrying about what to do…
It’s perfectly normal.
Few people can see steep losses in their portfolio and take it in stride. Fear of loss is part of what makes us human.
And fear can be paralyzing.
But it doesn’t have to be this way.
I’m not saying you can get rid of the fear of losses entirely. You’ll always feel that familiar twinge of anxiety when bear markets strike. But you can start to view bear markets in a different, more constructive, way.
The fearmongers in the mainstream media won’t tell you about it. They use fear to keep you engaged. But there are five reasons why bear markets are your friend as an investor.
Over the last 50 years, the S&P 500 has risen at an average rate of 10.3% a year, with dividends reinvested.
But those returns aren’t free.
As a shareholder, you’re backing businesses. That’s inherently risky. And you have no protections if they go bankrupt.
And if you own bitcoin or Ethereum, you’re taking on the risk these new technologies won’t succeed.
That uncertainty is why you get paid as an investor. You earn your returns by shouldering the volatility in stock and crypto prices.
Sometimes that volatility manifests as a deep, prolonged, but temporary slump in stock prices.
In other words, a bear market.
But as colleague and former hedge fund manager Teeka Tiwari hammers on, it’s the price of admission for a shot at life-changing gains over the long run.
In our daily lives, we love bargains.
When we see a brand of coffee we like for half off… we pick up two bags.
We spend hours online hunting for the cheapest washing machine or TV.
We even drive miles out of our way to buy gas for a couple of cents cheaper a gallon.
But as investors, we behave in the opposite way.
When a stock we like is down 50%, we don’t scoop up more. Instead, our fearful mindset causes us to pass up on the bargain.
Right now, some of the world’s best blue-chip stocks are 50% or more down from their highs. That list includes Facebook parent Meta (META), Disney (DIS), Nike (NKE), and Netflix (NFLX).
The chances of you not making money on these stocks at these prices over the next five to 10 years is vanishingly low. So, the rational thing to do is buy now while the discounts last.
Here’s Teeka with more…
I’ve been in the stock market professionally since 1989. And I’ve been involved in the financial newsletter industry since 2005. Over that time, I’ve gone through the dot-com crash… the 2008 crash… the 2018-19 Crypto Winter bear market.
I’ve seen so much volatility over the years it doesn’t faze me anymore. I know bear markets are inevitable. I also know they end, and markets make new highs.
So, I deal with the volatility bear markets bring by buying quality assets and then getting on with the rest of my life.
There are two ways to make money in stocks – a rising share price and income payments in the form of dividends.
These are regular cash payments some companies make to shareholders out of their earnings.
And bear markets are great times to build fat streams of dividend income.
Take the story Teeka analyst Andrew Packer told about investing in the wake of the 2008 crash.
In early 2009, Andrew bought McDonald’s for $55 a share.
Today, McDonald’s trades for $259. So, he’s up 371%, thanks to the share price rise off those bear market lows.
But that’s only half the story.
Today, McDonald’s pays out $5.22 a share. That’s nearly a 10% yield on Andrew’s $55 entry price.
You normally have to take enormous risks to secure a 10% yield. Even the typical junk bond – a bond that carries a high risk of default – yields only about half that much.
But thanks to his decision to invest when nobody else wanted to, that’s what Andrew earns on McDonald’s today. And it’s one of the most conservative and recession-proof companies in the world.
Regular readers will have heard me talk about this before.
But the volatility bear markets kick up create opportunities for traders to make outsized gains.
There are two major differences between traders and buy-and-hold investors.
First, traders can capture short-term market moves. Second, they can profit from falling as well as rising asset prices.
This makes them uniquely suited to bear markets. That’s when you see volatility – short-term swings in prices – go through the roof.
It’s why Teeka has been doing so well this year at his Alpha Edge trading advisory.
It’s where he uses hedge-fund level trading strategies to take advantage of the kind of heightened volatility we’ve seen this year in stocks.
And so far in 2022, he’s closed 23 recommended trades for an average annualized gain of 30.1%.
That’s about halfway to doubling our long-term average annualized gain of 20.4%.
It’s due to what he calls Anomaly Windows. These are periods of extreme volatility that allow him and his team to score trading wins on dramatic moves in stocks.
If you’re already an Alpha Edge subscriber… and you followed Teeka’s trades… congratulations. You’re proof it’s possible to grow your wealth in a bear market.
And if you’re not already a subscriber, don’t worry.
Teeka has spotted a major catalyst on the horizon that will ramp up volatility again. And it’s coming as early as next week…
It will create more widespread market panic. But for folks who’ve prepared, it’ll be an opportunity to recapture the gains lost in this bear market – and even more.
You can hear about it from Teeka directly in just a few hours from now.
At 8 p.m. ET, he’s hosting a special briefing about the coming Anomaly Window and how you can profit.
It’s a chance to turn the bear market to your advantage and take part in the kind of gains Teeka has been delivering to his subscribers for years.
As I wrote about in March 2021, we entered an asset price bubble during the pandemic years.
And I urged you to take precautions by diversifying your portfolio outside of stocks, crypto, and other high-flying assets.
The bubble was partly a result of the tsunami of stimulus governments unleashed on the world. It was partly due to so many people being cooped up in their homes with nothing else to do than bet on the market.
And it wasn’t helping that so many rookie investors were getting their news and insights through social media.
That’s why we saw meme stocks such as GameStop and AMC go through the roof. It’s also why we saw wild rallies in meme-based crypto Dogecoin.
That’s not the kind of market you want to be investing in.
It’s highly unpredictable. It favors junk over quality. And it punishes rational analysis.
Bear markets clear away the froth…
They wipe out the wild-eyed speculators. And they reward patient investors by allowing them to buy great businesses at marked-down prices.
That’s been the surest path to lasting wealth for decades.
Regards,
Chris Lowe
Editor, The Daily Cut