If you have been paying any attention to the markets - I really hope you haven't been because it's usually a waste of time - you know that stocks have been pretty volatile of late.
There are fears the economy is growing slower than we all think and earnings growth will slow or maybe even decline. There are fears that it's growing faster than we all think and the Fed will be quick to raise interest rates. And there are fears about what the California wildfires will do to the California electric utility companies' balance sheet (Hint: It's not pretty). If you can dream it, some breathless prognosticator has blamed it for the recent stock declines.
Right now, we are seeing some very dire forecasts from some very smart people suggesting that stocks have a lot lower to fall. Goldman Sachs reported two weeks ago that its bear market indicator is at the highest level since the 1970s.
But even amid these dire forecasts, we have reason not to fear. One strategy returned 42.32% and 79.81%, even during the most worrisome of times.
Let's take a look...
Play These Markets Despite the Highest Bear Market Indicator Since the 70's
If you were around for the '70s, go pull up a stock chart of the decade. It was a terrible time to own stocks, for the most part. For the decade, stocks returned about 4.5% on average per year, but there were some sickening declines along the way as the nation dealt with sky-high energy prices and runaway inflation.
The worst reading since the 1970s is kind of scary. With the index reading at 70, Goldman Chief Global Equity Strategist Peter Oppenheimer told investors that "Historically, when the indicator rises above 60 percent, it is a good signal to investors to turn cautious, or at the very least recognize that a correction followed by a rally is more likely to be followed by a bear market than when these indicators are low."
Even über index bull John Bogle of Vanguard Group thinks the next decade could be rough sledding for the stock market. He suggests an average return of about 4%, right in line with what investors earned back in the 1970s.
The prognosticators at Jeremy Grantham's GMO Asset Management are even dourer with a prediction of negative returns over the next seven years.
This is all terrifying stuff, particularly if you are between 40 and 60 years old and were counting on that eternal 10% a year in stock market gains to get you across the financial finish line. The small returns on cash just will not get the job done, but a few percentage points is better than suffering through a massive bear market that leaves you regretting not being nicer to your kids when they were growing up. Talking one of them into building an in-law suite could be your best chance at retirement if you were to suddenly lose 40% or more of your nest egg.
This man makes more money than he knows what to do with - and you'll never guess how...
Some will decide that the best way to ensure that retirement is to ramp up the risk factor. Roll those bones, baby. Let's trade some options and maybe do that swing trade thing with currencies that fella on TV was talking about. No risk, no reward - let's go for the gusto. You know whose retirement account gets bigger when you do that? Your broker's, and that of the fella who sold you that currency trading system.
I have a better idea. Let's find a way of investing in the markets that really does not care much what the market does day to day, and that actually embraces a big, bad bear market as the best thing that ever happened.
Backtesting Proves This Bear-Resistant Strategy Actually Works
There is a simple system for investing in stocks that the big-money institutions cannot do. It was developed by a professor at Columbia University almost 100 years ago and used by both himself and several students to get very rich. You may have heard of one of those students - a guy named Warren Buffett.
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
All we do with this approach is buy stocks that trade for less than their liquidation value and sell them when they trade above that level. It's not a buy-and-hold system. We add up all the cash, and calculate the resale value of the property, equipment, and other things owned by the company. We assume it's a rational sale at or around current market values for real estate and secondhand equipment. Then we subtract out all debt, pension shortfalls, preferred stocks, and anything else the company owns. What's left is the company's Rational Liquidation Value.
Buying stocks for less than this number and selling them when they are above that price has been incredibly profitable. Using this strategy over the past 20 years has provided that handful of investors who use it with huge gains averaging some 20% a year. Every $10,000 invested in this approach is now about $370,900, compared to the $22, 400 or so that the "smarter" investors who bought index funds ended up with.
Where this strategy really shines is when markets turn ugly. Between November 2006 and November 2010, it was an ugly time to be a run-of-the-mill stock investor, as you would have lost, on average, about 4% a year in an index fund. Those of us who have never read a finance textbook could have earned over 15% a year using my Rational Liquidation Value.
It worked out the same way during the Internet Bust back at the turn of the decade as well. Actually, it was a lot better. Index investors basically broke even after riding out a horrific crash. Rational Liquidation investors saw their returns shoot up to 42% a year during this period because there were so many good companies trading at garbage disposal prices.
Without looking, I could not tell you where the Dow Jones Industrial Average closed last Friday. Nor could I tell you how much the S&P was up or down on Friday. I don't really care.
I use a few strategies that are based on the actual value of the company to grow my family wealth, and buying stocks for less than their liquidation value and selling them above that amount is easily one of my favorite and most successful strategies.
Miraculous Microspheres Could Change Your Life - and Mint You Millions
Inside one tiny droplet are tens of thousands of microspheres that are about to revolutionize how doctors treat pain - and create a new generation of millionaires in the process. You've got to see this...
The post This Strategy Netted 42.32% and 79.81% During the Last Two Bear Markets appeared first on Max Wealth.
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.