To Profit from Market Downturns, Be Like Billy Bass and "Don't Worry"

Every redneck worth his salt owns "Big Mouth Billy Bass," who flaps his animatronic tail in time to the beat of "Don't Worry, Be Happy."

My fish sings a slightly modified version of the Bobby McFerrin tune called "Don't Panic, Make 20%." Or 50% – or 100% – as the case may be.

I'm about to tell you a story of how I focused on cold, hard numbers, ignored some scary day-to-day price fluctuations, and ended up making double digits instead of losing my shirt.

All thanks to the WAR metric that's generated my undefeated track record – and that can help you start your own.

Last week's two-day market meltdown, which shaved something like 1,100 points from the Dow, may have also sent some of your long-term, "hidden gem" stocks into a bit of a tailspin.

If you track these things obsessively day by day – which I don't.

The path to an undefeated track record does not mean that no stock ever goes down. Some of the stories I could tell you about holding shares during a decline would turn your hair white if you were skittish. But – here's the thing – it always works out in the end...

I Tuned Out the Noise and Held on to Atlas – and Reaped Big Rewards

Take, for example, Atlas Pipeline Partners (then trading under the ticker APL). I heard Leon Cooperman of Omega Partners recommend this stock at a conference in New York back in fall 2008. Atlas was the proud owner of about 9,000 miles of pipeline in the southwest United States and was producing excellent cash flows that provided an attractive dividend yield.

When I got home, I broke out all the SEC filings and put a pencil to paper. The stock was trading in the high teens at the time, and after hours of calculating the value of the company I came up with a value north of $30.

I was pretty pleased with my purchase. I owned a bunch of pipelines that served some of the booming shale fields in the southwest at a bargain price, and I was collecting a fat dividend along the way. Then, of course, the world ended. Lehman went out of business; Bear Stearns was bought for pennies on the dollar, and financial markets went into a free fall. Atlas was not exempt from the damage. The stock fell into the single digits, and had I panicked and sold, I would have had a massive loss.

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Instead, I just kept looking at the company itself. Oil and gas were still being pumped through its pipelines. The demand for oil and gas was soft at the height of the recession, but unless the world actually ended, they were pretty valuable assets. I could not come up with a situation where the stock was worth less than $40. I actually closed my eyes, wiped the puke off my chin, and bought more.

Tim Melvin’s ruthless investment strategy has created something unheard of – 32 double-digit and 12 triple-digit winners, and not a single losing trade. To learn how you too can achieve results like that, click here to subscribe to Tim’s new Max Wealth research service. It’s free, and as a bonus, you’ll also receive his new report: Bank 428% Gains or More Using the Five Max Wealth Rules.

The economy eventually recovered, and so did shares of Atlas. In fact, in 2015 the company was acquired by Targa Natural Resources (NYSE: TRGP) at $38 a share. If I had panicked and sold or used a stop loss to cover my fear, I would have had a devastating loss. Instead, by focusing on the value of the company instead of short-term price fluctuations, I ended up with a total return of over 20%.

I have several of these stories that have accumulated over the years. Keep in mind that we are focusing on buying good companies at great prices, and bargains are usually created by falling prices. Quite often stocks will fall after I buy them, and it's just part of being an aggressive, patient investor. I am much more concerned about the price in four or five years than I am about the price today!

This especially holds true for the real estate stocks we're recommending in Heatseekers.

There is a lot of misguided selling in REITs right now, and it is likely that we see more bargains that qualify as Heatseekers in the months ahead if this continues. The selling is driven by concerns about high interest rates, and as we know, that's misguided – if not downright stupid. Higher rates are caused by a strong economy. That means higher rents and occupancy levels. We know that since 1979, REITs have outperformed stocks by a 3-to-1 margin when rates were rising. If I see more REITs with a high WAR and a low Cost of WAR I am going to add them to the portfolio. Odds are they will all go down a bit more before going higher as well!

Warren Buffett once said that if you couldn't buy a stock without seeing a price for the next five years, you had no business investing in stocks. He is right. If we follow the rules and are patient and disciplined, the combination of high WAR and low Cost of WAR will be a very lucrative strategy for us. If we panic over every daily change in price, we will be both insane and broke.

I may be insane, but I can guarantee you I'm not going to be broke.

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The post Don't Panic - Make 20% 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.

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