It never fails: When stocks take a dive - any dive, it doesn't matter if it's a 100-point dip or a 1,000-point plunge - all over, cable television pundits come out of the woodwork to talk about "buying opportunities" and "buying dips" on all kinds of stocks.
I admit, the prospect of getting a "deal" on a popular stock like, say, Facebook tickles the greed gland. I can see how some would find it irresistible.
But here's the question you've got to ask yourself: Am I getting an unreasonably good deal?
In other words, are you getting the absolute best price possible?
In almost every case, the answer is... no.
And the truth is, you probably never will.
Because the kind of "dip" that brings Amazon.com Inc. down from a P/E of 234.06 to a truly attractive, "unreasonably good" P/E is likely to be one you'll need bunkers full of bullets, fresh water, and gasoline just to survive.
Your portfolio just might be the least of your worries as we enter "Mad Max"-style, "super-unleaded gas and .45 cal. ammo are the new currency" territory.
So instead of waiting around for Armageddon to place your market order, I suggest taking the "rich guy's" approach to buying when the markets get rough...
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This Is the Best Deal Around
Like I said, with stocks at their current high valuations - 25 times trailing earnings for the S&P 500 - and the market cap-to-GDP ratio approaching 1999 levels, it becomes very hard to talk about which individual stocks to buy in a run-of-the-mill dip.
So let's apply some long-term, wealth-building thinking to the process - go after the really "good stuff."
You Must Act Now: America is headed for an economic disaster bigger than anything since the Great Depression. If you lost out when the markets crashed in 2008, then you are going to want to see this special presentation...
On minor dips in the market, I would buy shares of StoneCastle Financial Corp. (Nasdaq: BANX) and add on future pullbacks.
StoneCastle is a closed-end investment company that invests in all levels of community bank capital structures, including common equity, preferred equity, and debt.
I love community banks, and this gets you a piece of the best of the best. Community banks are in the best shape they have been in since the credit crisis, with high capital levels and very low credit risks. They are also benefitting from a long-term consolidation trend that's leading to expanded M&A activity.
The closed end fund is managed by StoneCastle Asset Management, which currently manages approximately $5 billion of assets focused on community banks. Its investment philosophy is "grounded in disciplined, fundamental, bottom-up credit and investment analysis."
Why do I like it now and love the potential to buy on a dip?
Well, the shares trade right around net asset value, so any pullback allowing me to buy shares at a discount to the underlying value of the quality banks in the portfolio gives me a long-term edge that should lead to high returns over time.
It gets much better.
The board is paying a 7%-plus dividend yield, which, if you're smart, can be reinvested. The discount and yield should provide a long-term return in the high teens, and additional appreciation from favorable industry conditions is a safe bet.
It's far from sexy (then again, market conditions don't really favor "sexy"), and it doesn't get cable talking heads swooning, but community bank investing is a solid, "superior-return" strategy for expensive markets.
Right now, I'm all about owning pieces of the very best small banks and small bank debt.
Why? Because it's giving me unreasonably good returns no matter what the market does.
"Trouble Is Brewing": According to Bloomberg's latest report, America could be heading for an economic disaster that would rival the Great Recession. Billionaire Ray Dalio's hedge fund, Bridgewater Associates, has made a $22 billion bet against the market. And Citibank calls our present situation "eerily reminiscent of the mortgage crisis." To see why we believe some of the richest players in the world are preparing for a market collapse, click here.
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About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of Peak Yield Investor.