Investors rotate into cash … how this “safe” move can be dangerous to long-term goals … a special event today with Louis Navellier to help bruised portfolios
As I write Tuesday at lunch, the markets are down again on Russia/Ukraine anxieties.
For weeks now, a handful of concerns have dragged on stock prices. The result is that many investors are making a decision that feels safe, but has the potential to damage long-term financial goals.
What’s the move?
From Financial Times:
Investors are building their cash stockpiles in a sign that many money managers are bracing themselves for turbulence across global markets.
According to a survey by Bank of America of fund managers with a combined $1 trillion in assets, cash positions have just notched the highest level since the early days of the coronavirus crisis in May 2020.
Now, obviously, cash protects investors from further stock market declines. But there are three problems.
One, what if the threat of those “further stock market declines” doesn’t materialize? Or those losses are mild, followed by a fast recovery?
If you’re in cash, it means you would have sold in the vicinity of a market low yet didn’t benefit from the ensuing recovery. This is a classic investor mistake, inverting the “buy low, sell high” paradigm.
But let’s say your timing was good and you sold before the market dropped another 25% or so and remained low for a handful of quarters. This leads to the second problem…
When will you know it’s time to buy back in? And will you have the courage to do it? Most investors have a very difficult time with this.
Meanwhile, your “safe” cash position has its own serious issue, which is problem number three – inflation.
As you’re aware, the consumer price index (CPI) running at 7.5% makes you poorer by eroding the buying power of your cash.
But let’s say this “stealth tax” is the cost of having more peace. After all, if you’d stayed invested, your portfolio is vulnerable to additional market declines. And at face value, that feels horrible. No one likes to buy a stock (or hold a position) in the face of declines.
And so, many investors are moving to cash, hoping to wait until the smoke clears, then buy back in.
A bit like this…
Okay, but let’s get specific. The two charts above are charts of the S&P 500 from back in 2018/2019.
Below we evaluate the “terrible move” point relative to the “brilliant move” point, highlighting the twist.
They’re the exact same level.
The only difference is one is on the downswing of a market low, the other is on the upswing.
Actually, that’s not the only difference…
One, if you sold on the downswing, you’re on the hook to pay capital gains taxes (assuming you’re sitting on profits).
Two, if you sold on the downswing, your cash’s buying power has been eroded at whatever the CPI is for however long you’ve been out of the market.
Three, if you sold a stock with a dividend, you missed out on all the dividends the company paid while you were out. This gets increasingly important if the market trades sideways for a series of quarters.
Four, and most importantly, returning to our earlier question – how will you know when to buy back in? And will you have the courage?
You could easily be spooked and buy back in at a higher price than where you sold.
So, what’s a better approach?
Well, you already know. Assuming you’re holding quality stocks, do nothing – if anything, buy. After all, an emotion-based market selloff is just about the only time you can buy fantastic stocks for on-sale prices.
Now, this is obvious advice and it glosses over the real issue…
How do you separate the “quality stocks” that will bounce back quickly and grow your wealth from the average stocks that look okay in a strong market, but collapse and don’t recover well when conditions grow choppy?
That brings us to a special live event this afternoon with legendary quant investor, Louis Navellier.
***Using computers, not emotions, to find the highest-quality stocks in the market
Investors are moving to cash because of fear.
But allowing emotions to dictate decisions is a horrible investment strategy. If not checked, emotions can lead us to panic-sell near great-value market lows…and buy near awful-value market highs.
That’s not the way to make big returns in the market.
So, why not take emotions out of the equation? Instead, use data-driven algorithms to scour the market for fundamentally-superior stocks trading at prices that don’t reflect their potential.
That’s Louis’ approach, and has been for decades.
Even in his early academic days, Louis was using Wells Fargo’s powerful mainframe to create algorithmic models that outperformed the market.
In the years since, he’s further developed these models, resulting in one of the most respected track records in the investment community, as well as the title “King of Quants” given to him by Forbes.
All of his experience has streamlined over the decades and resulted in a core takeaway: Better investing comes through computerized market analysis. Louis will be pulling back the curtain on the specifics of this approach in today’s Project Mastermind event, happening at 4 PM ET.
There’s no “gut feel,” no room for emotions to trip us up. It’s an objective strategy rooted in cold, impartial numbers as well as one fundamental belief – mathematics and computers offer a tremendous advantage in the investing world.
***Let’s look at what goes into Project Mastermind to see how this works
Every public company has millions of data points that are related to its business and its stock price. There are data points related to its fundamental business – like its core operations, as reflected in its financial statements.
But there are also data points related to the macro environment – for instance, how are competitors and the broader market affecting the company?
Then there’s time: Certain data points are more reflective of shorter-term moves, while others relate more to the long term.
Louis’ project focuses on shorter-term price movements. This is especially helpful for anyone nearing or in retirement who’s just had their portfolios dinged by this market weakness.
As you’d probably guess, the variables that impact shorter-term price movements are often more complicated to analyze than longer-term movements. That’s because a huge variety of factors can affect the price of a stock in the short term…
You have quarterly earnings, net profits, gross profits, sales, P/E, return on equity, tangible assets, stock price momentum, trading volume, and relative strength.
But you also have to factor in countless other economic and political influences that are often overlooked. For instance, what’s the effect of a today’s interest rate environment with the Fed about to hike rates? Or geopolitical tensions, as we watch the Russia/Ukraine situation closely? Where are unemployment levels?
Then, what about correlations?
For instance, take a tech company that uses rare earth metals in its products. A majority of these rare earth metals come from China.
How might political tensions with China affect supply? Especially given already-strained supply chains? What are the correlations between these factors and stock movements?
It’s too much data for any one human to crunch. That’s why computers are necessary.
And Louis’ Project Mastermind system cuts through the market “noise” to focus on the variables that truly matter.
***Join Louis today at 4 PM ET to see how Project Mastermind can help your portfolio
Right now, many investors are battening down the hatches. And yes, if the stock is fundamentally weak, it’s probably best avoided.
But there are lots of great opportunities in the market today due to weeks of heavy selling brought about by fear.
Certain quality tech stocks are down more than 60% from last year’s highs. Meanwhile, the entire biotech sector has been gutted for no good reason other than fear. And don’t forgot those 5G, electric vehicle, and metaverse stocks that are selling for prices far beneath where they were just months ago.
Of course, they’re not all screaming buys. But that’s where Project Mastermind comes in, helping identify the fundamentally-superior stocks from the rest. You’ll get those details this afternoon.
By the way, at today’s event, Louis will be giving away the ticker of a stock flagged by his algorithms that he believes is headed for 100%—or more—gains in just the next three months. It’s yours free, just for attending the event. Click here to reserve your seat.
Yes, this is an uncomfortable time in the markets. But it’s also an opportunity. Great stocks selling at discounted prices don’t come along often. That’s why it’s critical to take advantage when it happens. But that demands we correctly identify these opportunities – and that’s where Project Mastermind can make all the difference.
Join us today at 4 PM ET to get the details and Louis’ free stock pick. Click here and we’ll see you there.
Have a good evening,