“Stocks are one giant bubble.”
Many investors are thinking this right now. And I get it…
The market is piping hot.
3D printing stocks have climbed 106% over the past year. Genomics stocks have raced 204% higher over the same stretch, while solar stocks have gained 223%.
Individual stocks have done even better.
COVID vaccine manufacturer Novavax (NVAX) has skyrocketed 3,600% over the past year. Green energy stock Sunworks (SUNW) has climbed 2,300%. And electric vehicle charging company Blink Charging (BLNK) has surged more than 2,100%.
It’s gotten to the point where friends and family are texting me out of the blue. They want to know what stocks to buy.
And I know I’m not the only one feeling these “bull market, baby” vibes.
I’ve heard stories of teenagers who’ve made fortunes trading options. I’ve heard of construction workers who’ve quit their jobs to trade stocks full time.
There’s a good chance you’re making a killing too.
One subscriber just locked in a 4X return on edge computing pioneer Fastly (FSLY). And my readers are up 90% in just over two months on an explosive 3D printing play.
My colleague Stephen McBride is sitting on gains of 246%, 110%, 144%, and 128% in his Disruption Investor portfolio.
Chris Wood’s Project 5X subscribers just booked a 422% windfall on streaming tech microcap Magnite (MGNI), and a 399% win on augmented reality microcap Kopin (KOPN).
Now, nothing makes me happier than helping our subscribers collect life-changing gains.
But I’d be lying if I said this was normal market behavior.
And as I’m sure you’re aware, the US economy is still in rough shape due to COVID. Thousands of small businesses have closed their doors. And millions of Americans are out of work.
In fact, unemployment is still almost twice as high as it was a year ago.
Yet stocks are... soaring?
But you should understand something.
While it’s rare for so many stocks to soar as fast as we’re seeing today, it is perfectly normal and expected for markets to climb “a wall of worry.”
In other words, stocks usually climb the most when things feel the worst, in the aftermath of a crisis.
This happened after the dot-com and 2008 financial crisis. In both cases, the “wall of worry” phase lasted years. If that pattern holds true today, we’re in for another 2–3 years of rising markets, at least.
But that’s not the only reason I’m still aggressively buying stocks.
The Federal Reserve is doing everything in its power to support the financial market. With no intention of stopping anytime soon. How does this affect stocks?
Consider this: Back in 2008, a $1 trillion+ injection kicked off the longest bull market ever.
Fast forward to today. The amount of money being borrowed and spent right now is off the charts. According to Reuters, global governments flooded the world with $15 trillion in 2020 to fight the coronavirus economic freeze.
That’s 15X what we saw in 2008! And it all but guarantees stocks will continue to climb higher.
Finally, we’ve seen a historic increase in retail investors, mainly Millennials, pouring into the markets.
Last year all the major brokerages across the board like Charles Schwab, E-Trade, and TD Ameritrade all saw a record number of new account openings. And it was mostly young folks.
Some people see this as a red flag. Not me.
This huge surge in investing interest is a great thing for stocks over the long haul. These younger investors will be pouring money into the stock market for years to come. (Stephen wrote a fantastic essay on this big trend, which I recommend everyone read here.)
Here are three easy steps I recommend taking today…
Don’t get caught up in the hype. The last thing you should be doing is “chasing” hot stocks that’ve already risen hundreds of percent. Resist the FOMO (fear of missing out) associated with seeing other folks make money on a stock you’re not in.
Believe me, there are plenty of opportunities to take advantage of where you can be the early money. In other words, instead of chasing stocks, let opportunities come to you. That’s what Stephen and I have been doing in our Disruption Trader advisory.
We’ve been highly disciplined in our stock picking.
We wait for the perfect entry point to present itself. When it does, we pounce.
This is the #1 reason why our average return across 14 trades since October is 45%. It’s also a huge reason why many of our trades start working immediately.
In fact, our latest recommendation has already spiked 24% since we added it to the portfolio just two days ago. Another one of our recent trades has jumped 20% in less than two weeks. We’re also sitting on a 70% gain in just three weeks in Overstock (OSTK).
We would have never been able to collect big, quick gains like this if we let the “fear of missing out” take over… and piled into today’s popular, overcrowded trades.
You should also practice smart position sizing.
Many investors don’t give much thought to this. They’ll invest the same amount of money into a speculative trade as they would a long-term holding.
This is a rookie mistake.
It’s why I’ll recommended “starter” positions, half positions, and full positions in stocks in my IPO Insider advisory.
In other words, we’ll buy smaller stakes in more speculative positions at first… and then add to them along the way.
For instance, we’ll often wait for a stock to establish a clear bullish trend before putting on a full-size position.
This allows us to participate in the immediate upside of a stock… without exposing ourselves to big losses.
Identify your strongest stocks, as well as your weakest holdings.
And get rid of any “dead weight” in your portfolio.
I just did this in IPO Insider on Friday. I recommended my subscribers sell Fastly.
Fastly had been a top performer for us… rallying 367% since we added it to the portfolio last April.
So, it wasn’t exactly a laggard. But, as I explained in my alert, Fastly no longer looks like a true market leader. It’s lost its momentum in a major way.
So, we parted ways with it.
Now, many investors don’t do this. They get married to a big winner, even ones that have lost their mojo.
But there’s absolutely no reason to get married to a stock in this environment. There are simply too many incredible opportunities out there.
Investors who take these steps will make the most of this “crazy” market, while also greatly reducing their risk.
Justin Spittler
Chief Trader, RiskHedge