There’s a lot of uncertainty in the markets right now, and it’s weighing heavily on stocks.
Inflation has hit a 41-year high… the Russia-Ukraine war continues… recession indicators are flashing red… and the Fed just did its biggest interest rate hike in two decades.
The list goes on.
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What should investors be doing with their money with all the chaos?
To answer this, I got all our analysts—Stephen McBride, Justin Spittler, and Chris Wood—to walk us through their investment strategy in their premium advisories.
Stephen McBride, Chief Analyst:
In Disruption Investor, I focus on world-class disruptors to own for the long haul. We trimmed the portfolio at the start of the year to only hold positions we had really high conviction in.
During volatile times like this, you want to own great businesses that can weather any storm and come out stronger on the other side. Businesses that can grow no matter what’s going on in the economy.
But more broadly, the drop in markets has created some incredible buying opportunities. Many world-class businesses are trading at 52-week-low valuations. It’s a great time to buy great businesses for the long term… Ones you’re willing to hold for three, four, five years.
One way to buy into these world-class businesses is with a proven investment strategy called dollar-cost averaging. I wrote about it last week, and we’re using this strategy with my latest recommendation, a top-tier cybersecurity play.
With this technique, you place a fixed dollar amount into an investment on a regular basis.
Say you plan to invest $10,000 in one stock. Instead of buying $10,000 in one go, you’d split it up into, say, four chunks of $2,500 over four months.
You’d be “scaling in” slowly as opposed to “going all in” from the beginning. By investing this way during downturns, you accomplish two things: you lose less money on the way down and you make more money from the recovery to follow.
In RiskHedge Venture, my premium crypto advisory, we’re not fazed by this volatility. The extreme volatility in crypto might shock new crypto investors. But it’s nothing new to seasoned crypto investors.
Since 2010, bitcoin (BTC) has been cut in half on eight separate occasions. So, roughly every 18 months, bitcoin, which is the largest crypto asset, loses half its value. Despite those eight 48+% drawdowns, bitcoin’s up 57,000,000% since 2010.
To have staying power through the ups and downs in crypto, you need to have proper position sizing. That means don’t allocate more money than you can afford to lose in any one position.
Bottom line, extreme volatility is the defining feature of crypto. Crypto prices will rise quickly and fall quickly. The trick is to size your crypto investments to survive the downswing… so you can enjoy the even bigger upswing that, historically, has always followed.
Justin Spittler, Chief Trader:
In both my Disruption Trader and IPO Insider advisories, I’m waiting to see which industries emerge as the new leaders from here.
We’re in a stock picker’s market, which means smart investors have a chance to choose stocks that could outperform the S&P 500.
My #1 recommendation for short-term traders is to avoid bottom fishing. Wait for stocks to establish clear uptrends. Even better if they’re part of an industry that’s showing a lot of strength. Bottom line: With all the uncertainty in the markets right now, “bargain hunting”—trading stocks just because they’re dirt-cheap—is likely to backfire.
For longer-term positions, I’m targeting growth stocks. What most people don’t realize is some high-flying growth stocks peaked in February 2021—almost a full year before the indices did. That means they’ll likely form bottoms before the indices do.
Once the market gets back on track, certain growth stocks will emerge as potential multi-baggers you can hold for years.
And just like Stephen said—position sizing is key. Make sure you’re only investing money you can afford to lose.
For more speculative positions, I recommend buying a half-sized position or even a “starter position,” which is one-quarter to one-third of what you’d normally put in a stock. That especially applies to crypto positions, which we’ve started to trade in Disruption Trader.
Chris Wood, microcap expert:
Microcaps are inherently volatile—much more so than larger stocks. These tiny stocks should only make up 10% of your portfolio. Or 20% at an absolute maximum, if you understand the risk and want to be very aggressive. But, the upside for many microcaps is so high, you don’t need to risk much capital to make a lot of money.
Now is a great time to buy some small stocks because they are historically cheap. And, history shows that when they get this cheap, they tend to snap back fast. So, we’re positioned to profit in my Project 5X advisory from the coming snapback.
According to Yardeni Research, the forward price-to-earnings ratio of the S&P 500 large-cap index is currently 17.6. That same ratio for the S&P 600 small-cap index is 12.5. What this means is that large-cap stocks are valued 41% higher than small-cap stocks. That’s the biggest valuation premium since early 2001 after the dot-com bubble burst.
And the last time we saw anything close to this level of cheapness in small stocks was during the COVID-19 crash in mid-2020. In both cases, small-cap stocks went on to crush large caps over the next year.
From the bottom of the corona crash on March 16, 2020, through the next year, the S&P gained 55%. But the Russell 2000 small-cap index jumped 127.5%.
And from the bottom of the dot-com crash in 2001 to 2006, the Russell 2000 rose 70.3%. The S&P 500 returned a measly 10.5%.
History shows that when large stocks get overvalued in comparison to small stocks, we see a big, fast correction that pushes small stocks higher. I expect history to repeat itself. It’s really just a matter of when. We’re prepared in Project 5X.
Of course, as Stephen and Justin said, there’s still a lot of uncertainty in the markets. And markets probably aren’t out of the woods yet. So above all else, don’t invest an amount into microcaps that will keep you up at night.
Today, readers share their thoughts on last week’s piece: The main reason why Netflix stock is tanking…
Your analysis completely missed one of the greatest drivers to the Netflix decline. 50% of Netflix subscribers are sick and tired of the company's woke agenda and the programming catering to leftists/liberals.
They aren't leaving for "new technologies" or competition. They are unplugging their households from liberal brainwashing. Just see what happens to Disney as their US park attendance tanks this year… for the same reason. —Todd
Very interesting! "We're going from a world where Netflix enjoyed zero competition, to a world where the biggest, most powerful media companies on earth will directly compete with it." Do you think we can apply the same logic to Tesla? —Stephen
Stephen McBride’s reply: You’re spot on. Like Netflix, Tesla’s biggest problem today is ferocious completion from all sides. At this point, it’s obvious the world is moving toward electric vehicles. All the richest and most powerful carmakers know it. And they’ve all poured billions of dollars into making their own top-of-the-line EVs.
- Last year, Ford unveiled its first-ever all-electric SUV.
- The first battery-powered Cadillac just hit the road in March.
- BMW, Volkswagen, Toyota, and others are also set to release battery-powered cars.
- Volvo recently announced its lineup will consist of only electric cars by 2030.
- General Motors also wants an all-electric future. The company said it’s committed to 30 new electrical vehicles by 2025.
To play this, I don’t recommend betting on any individual carmaker. It’s impossible to predict who will win this all-out EV race.
Instead, I recommend a “backdoor” way to play the EV revolution. In Disruption Investor, I recommend the company fueling practically every EV on American roads today. In short, it’s the world’s largest producer of a critical metal found in EV batteries.
Readers can discover more about this pick—and two others set up for big gains—in my report “Three Exclusive Power Law Stocks for 1,000% Returns.”
See how to access this report, and get my research on the Power Law, here.
Executive Editor, RiskHedge