Welcome to our weekly mailbag edition of The Daily Cut.
All week, you submitted your questions about the biggest investment opportunities on the radar here at Legacy Research.
And our analysts have come back with in-depth answers.
It’s been a busy week at Legacy. Our tech expert, Jeff Brown, hosted a special event Wednesday night.
As regular readers will know, Jeff is a Silicon Valley insider and early-stage tech investor.
And this week, he lifted the lid on a strategy that allows everyday investors to access early-stage tech stocks without buying pre-IPO shares… or participating in risky crowdfunding deals.
It’s a system he’s been refining for over five years. He calls it “Penny IPOs,” because it allows you to buy into early-stage companies at discounted prices.
And it’s prompted the following question from a confused reader…
Reader question: I understand that penny stocks can be very rewarding, if you buy the right stock at the right time. Question is, how do we decide which of the plethora of them will actually hit the jackpot?
Sure, if I were to buy a little of every recommended penny stock, some of them would be successful. But subtracting all the misses would offset the gains, no?
– Paul Z.
Jeff’s answer: Hey there, Paul. Thanks for your astute question. I can’t give personalized investment advice. But here are my general thoughts…
It’s true there are a lot of stocks out there to choose from, including stocks selling for just a few dollars or even less than a dollar per share. But even if the share price of a stock is “cheap”… it doesn’t mean it’s a good deal.
What we want to find instead are small stocks that have yet to experience most of their growth and have the potential to become the next Amazon.
When I analyze small companies, there are a few things I’m looking for.
Who are the companies and people backing the company? Is the technology strong or just repackaging other technology? Is the company operating in an exciting market with lots of growth potential? Does it have any novel intellectual property? And very importantly, does the company have any near-future catalysts that have the potential to drive the share price higher?
Finding promising small companies that meet my criteria above in this environment has become more difficult than at any time in the last two decades.
Most of the stocks going public these days aren’t small companies anymore. Uber (UBER) went public last year. But it was already nearly a decade old when that happened. It was already valued at tens of billions of dollars.
So the chance to make money on Uber had already passed by the time most investors were able to get in.
I’ve been sick of this dynamic. So I spent over five years searching for a solution. That’s how I discovered a small subset of tiny tech stocks I call “Penny IPOs.”
These are stocks that still go public early in their life cycles. This gives them the potential to make investors hundreds of percent in days or even just hours.
Penny IPOs fall into a specific area of technology… they follow a predictable pattern… and they are one of the few opportunities that still exist to give investors life-changing gains.
When I backtested my system for finding these stocks, 98% of them were winners.
If you’d like to learn more about my system, Paul, I encourage you to check out the replay of my event, Penny IPOs: The 4X Window.
You’ll find all the details about how these stocks can achieve such incredible results… and the reason they’re set to go into overdrive as soon as October 1.
Next up, one of your fellow readers worries what a cratering dollar means for the stock market…
Reader question: If the dollar is rapidly losing value, what good is it to buy the stocks you recommend? I have to admit I am VERY worried about the economy and the money-printing by the Treasury. A part of me wants to sell 90% of my stock portfolio and buy gold, junk silver, and bitcoin.
I’m not an “end-of-days” kind of guy, but it sure looks like something scary is brewing in the financial system. Why buy stocks at all?
– Paul S.
Standing by with a reply is coauthor of The Bonner-Denning Letter Dan Denning…
Dan’s answer: Great question. See Venezuela. It’s a case of stocks being a liquid hedge against currency devaluation.
There are several ways to hedge against inflation. The rich buy gold, art, farmland, and jewels and move their money offshore.
The middle class can buy trucks (Ford F-150s are everywhere) or real estate. But stocks are the most liquid way to move money out of savings.
Owning stocks is not risk-free. But they’re a claim on the earnings and, in the event of liquidation, even the real assets of a company.
I mentioned this in the most recent Bonner-Denning Letter. Value investing godfather Benjamin Graham (and later Warren Buffett) looked for a “margin of safety” in stocks. They sought stocks selling for less than their liquidation values.
That’s hard to find these days, especially since many companies have intangible assets on the balance sheet that are worth more than real assets.
That means their “goodwill” or intellectual property might be worth more than their tangible property, plant, and equipment.
In any event, in a currency crisis, stocks would not go up in “real” (or inflation-adjusted) terms. But if you can deploy your savings in certain companies, you may later be able to get them back after the crisis passes. That’s the theory.
Switching gears, we’ve been warning you about the coming digital-only dollar, aka “FedCoin.”
And one reader got in touch to find out more about how this will affect crypto…
Reader question: Won’t bitcoin be endangered if FedCoin is the “official currency,” with bitcoin running under the radar?
How would one be able to use bitcoin if it’s not accepted for payment? Even if bitcoin could still be transferred into the FedCoin system for use in the economy, it would then become available for federal confiscation…
I do so enjoy Legacy Research and read EVERYTHING that’s published!
– Anne
For a response, we reached out to chief analyst at The Casey Report, Nick Giambruno.
As we’ve been showing you in these pages, Nick recommends bitcoin as the world’s hardest asset. In other words, it’s the asset that’s hardest to produce – even harder to produce than gold. That makes it a great store of wealth.
Nick’s answer: Bitcoin competes because of its superior monetary properties, and it couldn’t be more different from FedCoin.
You need the U.S. government’s permission and blessing to use FedCoin. Bitcoin is “permissionless” – anyone with an internet connection and a phone or computer can use it.
Congress can (and will) create as many FedCoins as it wants. By contrast, there can never be more than 21 million bitcoins. And there is nothing anyone can do to inflate the supply more than the predetermined amount in the protocol.
FedCoin is centralized. Bitcoin is decentralized.
The U.S. government can censor transactions and freeze, sanction, and confiscate FedCoins whenever it wants for whatever reason. Bitcoin is censorship-resistant. No country’s sanctions or laws can affect it.
In short, FedCoin is a pathetic attempt to compete with bitcoin. A bunch of bureaucrats granting FedCoin “official currency” status through legal tender laws does not change this equation.
If there is a demand for something, people will find a way to use it. In the case of bitcoin, I’m sure people will demand a hard money and find a way to use it, regardless of what the government says.
As a globally decentralized protocol secured by unbreakable encryption, bitcoin is bigger than any government’s ability to shut it down.
If they can’t shut it down, will they ban it? Maybe, but good luck to them. Look how successful cannabis prohibition has been. Enforcing bitcoin prohibition would be much less practical.
I have a lot more to say in the upcoming issue of The Casey Report on this specific topic. To learn more about how to sign up, check out this urgent briefing.
That’s all for this week. Be sure to tune in next Friday for more great questions and answers.
If you have your own question for the Legacy brain trust, get in touch at feedback@legacyresearch.com.
Regards,
Chris Lowe
September 25, 2020
Bray, Ireland