Wars, famine, recession, expansion, earnings beats, earnings misses, rising interest rates, falling interest rates, and, if you're so inclined, lunar cycles. These are just a few of the anxiety-inducing topics that can be worked into any conversation about the stock market.
Arguably the "coolest" worrisome topic of the moment is debt.
Byron Wiens, a market prognosticator and strategist who now hangs his hat at private equity giant Blackstone, pointed out recently that total U.S. government debt is now some $20 trillion.
Then there's margin debt, which is always a gas to talk about. Total margin debts in customer accounts are near record levels. That's surely a sign of speculative excess indicating customers are way too bullish.
However, in some contexts, those debt levels are hardly worth shaking a stick at. It's just 2.2% of the total market cap of all stocks, which is still below the excess levels of 2007.
Of course, the mere mention of debt levels being "near all-time highs" makes for a very scary story about stocks.
This list of worries goes on and on, with each one more fearmongering than the last.
But there's an easy way to beat the fear-filled bears and zany, hype-driven bulls that dominate the mainstream media.
It's a simple piece of advice that's allowed me and my readers to secure triple-digit winners time and time again.
And I'm going to share it with you today...
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The Bears Will Leave the Canned Beans Aisle Barren
In addition to critical debt levels, investors can also panic over whether or not...
- ...the U.S. Federal Reserve will overreach and cause the economy to grind to a halt;
- economic growth figures will continue to miss economists' expectations, as they did in Q1;
- demand for durable goods remains weak;
- consumer sales stay at their slowest pace in five years;
- home affordability reaches out-of-control levels in some markets.
If you submit to these fears, then it's obviously not time to be buying stocks or even wasting time to look for opportunities in the stock market. There's too much debt, too much government intervention, and too much that can go wrong. It's just too risky to be in the market, so better to sell everything, collect the cash, buy gold bars, stock up on canned beans, and prepare for the worst.
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...
However, the thing to keep in mind is that all of these economic fears have been more or less true for five years now. There were plenty of other things to worry about along the way, like European debt problems and the outcome of the 2016 election.
Basically, you left a lot of money on the table if you buried your cash in the yard and holed yourself up in the basement until there was nothing to worry about anymore.
But it'd be unfair to put all of the blame for this fear-laden market environment on the Chicken Little crowd. The bulls among us also use the news to create the biggest fear of them all.
That would be the fear of missing out, or "FOMO," as the kids say.
And this is possibly the most destructive emotion that can guide an investor's decisions - and can lead to wealth destruction of epic proportions...
The Bulls Can Be Just as Unbearable as the Bears
Chasing stocks at stupidly high valuations is a surefire way to limit your gains and expose yourself to losses, all thanks to the ridiculous hype the media sells you every single day.
Take one look at the headlines on a typical weekday, and you'll hear about some new technology changing the world, biotech breakthroughs, strong earnings growth, cord-cutting, driverless cars, AI, crypto mania, and so on.
That's not to say all of this is untrue, but it's still a barrage of news designed to drive you to action. Impressive profits ahead. Stocks are going up forever. Do not miss out. Buy, buy, buy.
There's not much of a difference between this greed mentality and the fear one I just mentioned. Sure, they play on different human emotions, but both can cause you to earn far less than you should in stocks or, even worse, suffer outright losses.
This is all thanks to financial news networks and the Internet, which, in many ways, are the worst things to ever happen to individual investors. There's too much information that's delivered 24/7, 365, without stopping. It's easy to freeze in the no-man's land between fear and greed as a result of this constant onslaught of headlines.
How do we profitably invest in this push-pull environment? It's simple: Ignore the noise and subjective news, and just rely on the numbers.
We have to look for those unreasonably priced opportunities that no else is exploring and use them to earn the high returns that get us our retirement dream home or get little Johnny his overpriced Harvard education 10 years down the road.
Despite the current high valuations and a reduced outlook for the broader markets, I can still find about 40 small banks that trade below their takeover value based on my formula for valuing banks.
I know that doesn't sound very exciting. Small banks aren't curing cancer or surfing the social media revolution. They aren't any fun to talk about around the water cooler, because they're usually replaced in the headlines by Amazon and crypto.
But sometimes, big things come in small packages.
I own a bunch of small banks, and while they can be boring at times, they are incredibly profitable when they do become exciting.
In fact, we've sold seven that were taken over for 100%-plus gains and had 14 triple-digit takeover winners in the portfolio last year alone.
Other than small banks, I've also found a handful of real estate investment trusts that are unbelievably undervalued when I compare the value of the properties they own to the current stock price.
They have dividend yields well above 10-year Treasury bonds or even junk bonds, so I'm getting paid every quarter while I wait for the value of the real estate to be reflected in the stock price.
Again, these are not exciting companies. One is in the staffing business, another is in construction, another sells tools, and yet another repairs aluminum and steel seagoing vessels.
You get the idea. These are boring businesses that no one cares about, and they are worth far more than the current stock price. While it doesn't sound very exciting, using this strategy has more than doubled the market return over the past 10 years.
With a portfolio based on opportunities where the math and accounting numbers show us that we're buying sound companies at unreasonably good prices, we don't have to worry about the news or the market direction.
If the market goes up, we'll make some money. If the market goes down, it's like having a sale at our favorite store. We own a business based on the underlying math of what it is now and not what we hope it might be someday.
As I like to say, I buy businesses, not betting slips. That's the key to staying neutral in the perpetual clash of the "bulls versus bears" mentality.
The Scary Details the Fed Didn't Reveal
On Feb. 27, Chair Jerome Powell revealed the Fed would raise interest rates.
What he didn't say is that those rate hikes could send the U.S. economy into a tailspin... and very well might lead to the greatest economic collapse since the Great Depression.
If you are not willing to lose everything in another market crash, then click here.
Because it's possible to protect yourself from the coming economic disaster - but you have to act now.
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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.