Five Ways to Turn the Fiscal Cliff Into an Outstanding Investment Opportunity

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Many investors believe that a fiscal cliff "dive" is inevitable.

Even with the prospect of a deal lifting the markets yesterday, I can't say I disagree.

The blame game has already started and it's highly unlikely that we'll see anything other than more foolishness out of Washington. And so far all they have done is kick the can down the road to date.

So what can you do about it? Believe it or not, crises like these can be an ideal time to buy stocks. And gold. And oil. And certain kinds of bonds. And more.

The death of financial markets is almost always highly overrated.

Adding insult to injury, fiscal cliff or not, trying to time the markets is an exceptionally bad idea – 85% of all buy/sell decisions are incorrect, according to Barron's. Further, Dalbar data shows that the return of an average investor trying to time the market is a pathetic 1.9% per year versus the S&P 500 return of 8.4% over the same time period.

Over 20 years, that's the financial equivalent of taking a 342% hit in lost performance.

With that in mind, here's a five-point plan for turning the fiscal cliff into an outstanding opportunity.

1) Get ready to go bargain hunting

With Europe entering another recession and some parts of the world flirting with a protracted slowdown that's going to be more like a managed depression, things couldn't be more uncertain.

While I don't personally like this reality any more than you do, from an investment perspective I'm very happy to pick through the oversold stocks and go bargain hunting.

Why?

Because history's rearview mirrors show that fear, panic, crisis and stress are all classic signs associated with opportunity — and profits.

This is particularly true for choices related to energy, resources and certain kinds of technology – all of which the world needs, as opposed to wants, and all of which are backed by billions of dollars flowing their way whether we go over the fiscal cliff or not.

2) Stress test yourself

Never mind the big banks or Wall Street's hooligans, take a good hard look in the mirror.

Many investors are completely unprepared for the psychological impact of our nation going over the edge. And you don't want to be one of them.

Read the fine print on your brokerage statements. Imagine what would happen if the markets drop even further. Are you prepared to go on the offensive? Can your portfolio handle a stock market plunge, or will you be left grasping at straws when the smoke clears?

Focus any discomfort you feel into something productive, like realigning your expectations, your portfolio and your investing tactics so you can capitalize on the opportunities a fiscal cliff dive will create.

The 50-40-10 model I recently addressed in this webinar with US Global CEO Frank Holmes is a great place to start because it ensures a constant blend of safety-first choices, discipline, and upside.

3) Decide under what conditions you will sell.

Many people assume that we will wake up one day and somebody will announce that America's gone over the fiscal cliff.

I don't think that's the case. The markets are already adjusting to that possibility and, while panic hasn't set in, it's only a matter of time if our leaders can't get their act together.

When that happens, the last place you want to be is standing on the sidelines wondering what to do.

Decide now – ahead of time – under what conditions you are going to sell and why.

Your decisions can be part of some elaborate plan or as simple as a 25% trailing stop. It really doesn't matter. That you are prepared ahead of time does.

This strikes some people as defeatist. That's nonsense. No investor has to suffer the ravages of a bear market if they've prepared ahead of time.

4) Make consistency your mantra

Despite unbelievably challenging fundamentals and more than 12 years of disjointed markets, many investors remain hypnotized by the promise of buying something cheap and having it turn into the next Google (NYSE: GOOG), Apple (Nasdaq: AAPL) or Amazon (Nasdaq: AMZN).

This baffles me but I can understand their thinking. You've probably heard as many stories as I have over the years of people who have "made it big" buying some obscure company that turned into a gold mine. The greed gland is pretty powerful.

Just remember that huge profits come with huge risks. What people don't talk about is the fact that many of the most famous traders of our time – guys like Rogers, Soros, and Paulsen for example – work with huge amounts of capital and leverage.

Unless you are prepared to accept the risks like they do as part of a carefully disciplined overall investment plan, don't play the game. Volatility is not for the faint of heart.

For everyday investors, the real path to financial freedom and success over time is through smaller, consistent winners and making fewer mistakes.

This speaks to an investment philosophy grounded in strategies with higher probabilities of success like an emphasis on income and total returns, fortress-like stocks with "glocal" capabilities, put selling, resources and disciplined risk management.

Not coincidentally, those are all key attributes of our sister service, the Money Map Report.

5) Recognize that not all risks are the same

Wall Street's lawyers love to point out that all investments involve risk. I agree. But that's only half the story. What they don't tell you is that not all risks are the same.

That's why we prefer large "glocal" companies that are generally characterized by globally recognizable brands, have fortress-like balance sheets, and have long histories of raising dividends over time.

That's not to say there isn't a place for small cap stocks in your portfolio at the moment. There is — especially when you can identify a specific catalyst for future profitability like a patent or innovative game-changing technology.

My favorite small caps right now are related to medical, bio, and defense tech. All three segments are game changers that quite literally could affect millions of people and produce some outrageous returns, too.

Just keep the risks in line with the rewards.

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About the Author

Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs The Geiger Index, a reliable, emotion-free guide to making big money and avoiding losses, and Strike Force, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.

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  1. Joey Garcia | November 20, 2012

    Re: Alaska's Senator Begich "doesnt care mood" leaving us Senior citizens in Ketchikan for all I know. We have some gripes to air and his office is always closed, opened but unmanned. No wonder it is a red state, but some of us do have bumper stickers or the word "O" somewhere . I think in Ketchikan alone, the democrats harnessed a good popular votes too.
    People are just disgusted with Gov. Parnell when he signed our 2012 dividened not even enough for our children to buy school books, and their McDonalds normal visits.

  2. Richard Giles | November 20, 2012

    It appears that in the second paragraph of point (4) you criticize investors with powerful greed glands yet you encourage such investing on your own behalf in the fourth paragraph of point (5). Kindly explain. Thank you,

    Richard Giles

  3. meltzer02883 | November 25, 2012

    What happened to the November 16, 2012 analysis of Delcath?
    Netquin NQ and Delcath DCTH are 2 companies that you have provided research on that
    I have been following.
    I do not feel comfortable exposing my investing dollars to either of them when the chart shows
    both of them refusing to return to the former uptrend.
    I'm depending on your research to know when to enter a new uptrend.
    When I click on any of the newer articles listed on my Dashboard, none of the appropriate
    articles come up.
    Is that because I had not yet renewed my subscription until today?
    Thanks for your help!

    • BHOLMES1 | November 29, 2012

      Dear MeltZero:

      Glad you posted. If you are having a problems with your service, please give our customer service folks a call (go into your dashboard and pull down the menu under "your reports." You'll find the phone number and e-mail links in the P.B. FAQ). I want to make sure that you are getting all your research. My boss, Publisher Mike Ward, assembled a first-rate customer-service group here to make sure our subscribers are the best served in the industry. Please contact them if you're still having problems.

      We've provided several recent updates on Delcath, and I think have made our views very clear. Please be sure to read the Nov. 30 Private Briefing, as well.

      As far as their performance, since closing at $1.11 a share on Nov. 14, I believe that Delcath is up 42%. NQ shares have also experienced quite a reversal in the last week or so — I believe the gain there is 24% or so since Nov. 16.

      We value you as a subscriber, but even more so as a customer, and our folks are here to help you. Going forward, if there's a topic you want to see covered, please don't hesitate to e-mail us at PrivateBriefing@MoneyMorning.com. Or tell the customer service folks when you speak to them.

      Hope we'll keep hearing from you …

      Respectfully yours;

      William (Bill) Patalon III
      Executive Editor
      Money Morning & Private Briefing

  4. H. Craig Bradley | November 25, 2012

    PROFITS ARE A NECESSITY OF MODERN LIFE

    Excuse Me, but Keith is a professional trader. As such, his approach to "investing" by nature involves a fair amount of portfolio "turn" as the trailing stops he recommends as hedges eventually get taken-out by the market. Hopefully, the end result of Keith's Buy Recommendations is a capital gain instead of a loss. There is always a risk when you trade and you can not hope to bat 300 either.

    Volatile markets and volatile stocks usually translate into stop loss orders being filled (by the market). Its inevitable. In addition, there are numerous other subscription newsletter providers out there who have their own recommendations and proprietary screen for individual stock selection. Its an income stream, win or lose.

    However, I would not call it "greed" per se by either the author or the subscriber. Rather, its a necessity to make a profit however you can inspite of the growing social view that "profits are evil".

  5. Larry Buhrman | November 29, 2012

    I am very impressed with Keith Fitz-Gerald and Money Morning. It all makes a lot of sense to me.

  6. Richard Wick | December 4, 2012

    Keith:

    Would appreciate your opinion about CelSci (CVM) now that they have announced a sale of 35 million shares (presumably new) at $0.30 per share. With warrants that will live for four years allowing additional sales at $0.40 per share. What does this action do to your buy-up-to price that was included in the original research report I and presumably many others purchased last August. Would also like to know what we can expect in the way of periodic follow-up reports on this speculation.

    Thanks,

    Richard Wick

  7. Gary Watschke | December 6, 2012

    Keith,

    The concept of a "free trade" is a good one to live buy. I have two and have come real close with CNH. My question is how do you handle a free trade when it is being taken over as in the case of CNH. The $10 cash dividend will be great even if holding the stock until it is paid. But then what? Do you hold Fiat as if it was your free trade or do sell CNH right after receiving the dividend?

    Have you had other cases where a free trade experiences this or some other transformation?

    Even though you may not be able to speak directly to this, could you perhaps create a comparable illustration?

    Thanks for all your insight. The reading is informative, enjoyable and helpful even if I am a small time "trader" trying to stay above water.

    Gary

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