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As modern-day investors, it can be easy for us to get caught up in the day-to-day fluctuations of the stock market. The advent of the 24-hour news cycle, up-to-the-second trading platforms, and low-commission trading (or commission free in many instances) can make your head spin and make matters worse in many instances. However, if there is one lesson stock market history has taught me, it's that a short-term crisis often makes way for longer-term opportunities. Booms and Busts are Nothing New Long before Wall Street was even conceived of, history was littered with boom-and-bust periods. In fact, unless you're hundreds of years old, the first instance happened long before you were born. During the Dutch Golden Age of the 1700s, tulip speculation ran wild. Even though there was little real-world value or use around tulips, the price soared to the equivalent of ten times the annual salary of a skilled artisan! The Extremes of the .com Craze Fast forward to 1999, and a similar phenomenon occurred with the burgeoning internet sector. Investors began to realize that the internet would change how we take in information. However, just like the Tulip Bubble before it, investors suffered from irrational exuberance. Though most internet stocks had yet to turn a profit, investors piled into any stock with a .com in the name and sent it into the stratosphere. One extreme example was Netscape. Netscape soared from $28 to nearly $75 a share on its first day of trading! Many other names went on to have price-to-earnings (P/E) ratios of over 300x earnings - numbers that would wake Warren Buffett up at night. 2008's Global Financial Crisis The housing crisis of 2008 was yet another example of excesses in one direction leading to excesses in the opposite direction. Large banks' excessive risk taking and over-lending aimed at low-income home buyers led to a speculative bubble. You guessed it! Like the dot com craze and Tulip Mania before it, this didn't end well. First, rampant real estate speculation led to unsustainable prices. Then, the devastating crash came which sparked the demise of large banks such as Lehman Brothers and Bear Stearns. Learn from the Market's Past to Understand the Future You may be wondering why I am taking you down this random walk-through memory lane. One of the primary reasons why crisis equates to opportunity in the stock market is the occurrence of "black swan" events. Black swan events are rare and unexpected events that significantly impact the market and can cause a rapid decline in stock prices. The events I walked you through above are all examples of black swan events. However, black swan events can be a product of things outside of the economy that ultimately impact the economy (think the 9/11 terrorist attacks or the COVID-19 pandemic). While these events are often devasting to the world and investors caught on the wrong side of the trade, they also pave the way for opportunities for those who have dry powder (cash on hand) and are prepared to take advantage of them. Like a weed sprouting its way through a cracked driveway, ultimately markets "heal". | ||||
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| Uncertainty Is a Feature, Not a Bug If there is one lesson that I have learned in my years of investing in the stock market, it is this: we cannot predict the future. We can only interpret the present to the best of our ability. Furthermore, we need to remember that we cannot change the world or the market, but we can change our psychology and adapt to the environment we are in. Charlie Bilello, a Chief Market Strategist for Creative Planning said it best: "Uncertainty is a feature of equities, not a bug. Bearing that risk is the price of admission for the long-term investor, without risk there would be no reward." In other words, I want you not to try to avoid risk all together but rather embrace it and learn to navigate it! The Power of Long-Term Thinking What if I asked you to predict whether the S&P 500 will be higher or lower over the next minute? You would probably flip a coin or simply guess. However, if I stretched out the time frame to a year or three years, you would probably have a better grasp of where things are going. If you want to become a successful investor, you must understand that Wall Street is subject to short-term uncertainty and volatility at any given point. Conversely, if you stretch your time frame out to the long term, you will likely find that producing positive results it's much more attainable. Did you know that Amazon founder Jeff Bezos credits much of his success to long-term thinking? When he was at the helm of the e-commerce giant, he focused his energy years ahead, while Wall Street focused on quarterly results. To produce different results, you must think differently from the crowd. A Probabilistic Mindset Will Take You a Long Way Of course, there is more to becoming a profitable investor than just stretching out your time frame. A probabilistic mindset is essential if you want to cash in on crisis opportunities in the stock market. I want you to recognize that even the most well-researched investments can fail. But guess what? You don't have to be right on every trade to succeed. Rather than trying to predict the future, focus on innovative, profitable, high-quality companies with a long runway. Size up the Zacks Rank of the stock, earnings estimates, and the industry group. Though you won't be right on every trade, you will build yourself a portfolio of stocks that are likely to outperform in the long run. So take the probabilistic approach, make informed decisions based on the best available information, and avoid overly optimistic or pessimistic predictions about the future. Market Extremes Flash The volatility index or VIX is a measure of fear in the U.S. equities market. Earlier this month, the VIX flashed its third highest reading in the past 30 years, only behind the Global Financial Crisis of 2008 and the COVID panic of 2020! Meanwhile, the CNN Fear & Greed Index, a sentiment gauge, just flashed its most fearful levels since October 2023. Looking back at these extremes historically, each time it has led to significant long term bottoms 6-12 months out. Alert: Selloff Creates Irresistible Buying Opportunities You can find big discounts on many of the most desirable stocks right now. I believe this is a phenomenal time to add cutting-edge tech stocks to portfolio - especially ones that are quietly driving the AI revolution. They could hand you the juiciest profits in the weeks and months ahead... but they're probably not the stocks you're used to hearing about. With that in mind, I invite you to look inside the portfolio I'm managing, Zacks Technology Innovators. We don't nail every pick but have recently closed winners like +121.0%, +60.2%, and +147.9%.¹ And on Monday, I'm going to add an AI-powered medical stock to the portfolio that has exceptional upside. You can be among the first to see this fresh pick. Plus, you'll also have the chance to immediately access all of the live picks inside the Technology Innovators portfolio. Time-Sensitive Bonus: When you check out our Technology Innovators portfolio today, you're invited to download our AI Total Package - a bundle of new 5 Special Reports. Each highlights a unique way to target huge gains with AI. From in-demand data centers to advanced energy sources, you'll want to look into these promising stocks right away so you're in position for maximum upside. Don't wait. The total cost to see all Zacks tech stocks (and other recommendations) for 30 days is an astonishing $1. That's it. There's no further obligation. Deadline for this unique opportunity is midnight Sunday, August 11. Click for to see these stocks and download the AI Total Package Bonus » All the Best,
Andrew is Zacks' technology stock strategist. His passion is making money on stocks along with education, where he aims to provide valuable insights from both a fundamental and technical perspective in his Technology Innovators portfolio. | ||||
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| ¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. Access grants you a comprehensive list of all open and closed trades. This free resource is being sent by Zacks.com. We look for investment resources and inform you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms of Service". https://www.zacks.com/terms_of_service Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research is not a licensed securities dealer, broker or US investment adviser or investment bank. The Zacks #1 Rank Performance covers the period beginning on January 1, 1988 through July 1, 2024. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank #1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance_disclosure for information about the performance numbers displayed above. Zacks Emails Zacks Investment Research |
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