How to Make Money in Stocks When Fear Reigns
By Charles Mizrahi
Founder, Alpha Investor
Banyan Nation,
“You could smell the fear…” and then he hung up.
When I woke up on Monday morning, the Tokyo stock market was down 12%.
I knew this didn’t bode well for the U.S. stock market when it opened Monday.
The Tokyo stock market had suffered its worst two-day plunge, down 20%.
It was the worst downturn since the 1987 crash.
I called a colleague who manages a large hedge fund to hear his thoughts.
He said, “Global markets are in panic mode … fear is in the air. You can smell it.” He was right…
When the U.S. stock market opened, stocks were sharply lower.
By the close, the Dow Jones Industrials (DIJA) fell more than 1,000 points.
It was the market’s biggest drop in two years.
But the panic in the market didn’t start Sunday evening.
Bearish sentiment was building over the past week.
I tweeted on Friday morning, right after the unemployment report disappointed and DJIA tumbled 300 points…
When the DJIA closed down more than 611 points and the Nasdaq closed in correction territory, I shared:
And on Monday, when the selling spilled over to the U.S. stock market, I said…
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Over the past 41 years on Wall Street, I learned that strong sell-offs are usually driven by speculators and stocks snap back rather quickly.
On Tuesday, the DJIA did exactly that … closing higher by around 300 points.
I share this not to impress you with my amazing skills of timing the market on a daily basis.
Because that’s NOT what I do.
Making money in the stock market is all about how you react when stock prices fall.
And this drop just opened the door to the biggest investing opportunity of the year…
Weathering the Storms: Lessons from Decades of Market Downturns
Having a few gray hairs does have its advantages.
I’ve seen several downturns since I started on Wall Street in 1983. And let me tell you …
Downturns always look bleak…
Just a short time after I came to Wall Street and founded my money management firm, the market crashed in 1987 — Black Monday.
The market plunged 22% in one day.
In 2000, the dot-com bubble burst and the Nasdaq plunged close to 90% from its high.
In 2008, there was the financial crisis where it looked like the end of Capitalism…
Then there was COVID, and then rising interest rates in 2022.
Editor’s Note: Charles doesn’t like to brag, but you should know he’s the only person who’s been crowned both the No. 1 investor AND the top market timer by Barron’s.
He’s made money from EVERY single bear market over the last 40 years.
Bottom line: He knows what he’s talking about. So keep reading for the opportunity he’s watching today to make money in this downturn…
But folks, here’s the thing: Each time, the naysayers were wrong. The world didn’t come to an end.
Instead, markets and our economy went on to greater heights.
Just to put all this in perspective, less than one month ago, the major stock market indexes hit all-time highs.
Here’s what to keep in mind when Mr. Market freaks out:
No. 1: Market Downturns Aren't the End of the World
Downturns are normal. They are a part of stock market investing.
If the world was always filled with sunshine and rainbows, there’d be no opportunity to buy stocks at great prices.
Everyone would bid prices up and stocks would price in a perfect future. Downturns, which most of the time come unannounced … turn the sky dark and it looks like the end of the world.
The world is not coming to an end and the businesses behind the stocks are not going to zero.
The biggest risk investors have is acting with their hearts instead of their heads. Think rationally, not emotionally.
Is the business you own…
✅ Trading in a mega trend industry?
✅ Does it have cash on the balance sheet?
✅ Run by an all-star CEO or leader?
If so, do nothing.
Mr. Market doesn’t “know” something you don’t. During downturns, investors kid themselves into believing Mr. Market is right and they are wrong.
They see the stock price fall and then sell. That’s a huge mistake.
No. 2: Ignore the Noise: Stock Prices Reflect Sentiment, Not the Business
Over the short term — the day-to-day — Mr. Market isn’t looking at the fundamentals of the business. Far from it.
Traders are selling all stocks, both strong and weak businesses, out of fear.
Ben Graham, Warren Buffett’s teacher said that over the short term, stock prices are a barometer of investor sentiment — and nothing more.
Don’t conclude that if a stock is down 10%, or 20% that Mr. Market got it right. Odds are he is way off.
Yes, the stock price is down today, but the stock price tells you NOTHING about the business!
That’s why we focus on the business … and not the stock price. Instead, we take advantage of downturns to buy outstanding businesses at great prices.
Real Talk … this isn’t a time to be hiding under your desk!
Because something big is happening behind the scenes.
And Mr. Market just served the opportunity to buy in at a great price right on a silver platter…
The Magnificent 7's $200 Billion Investment Creates a Golden AI Opportunity
This week’s market downturn handed us a special gift with AI stocks — to buy for prices we haven’t seen in a long while.
And now is the time.
Last week, Meta Platforms (Facebook), Alphabet (Google) and Microsoft reported second-quarter earnings.
And it was in those earnings calls, that all three of these companies said they were increasing their capital expenditures for AI and cloud.
Not by a little, either…
Meta boosted spending to $8.5 billion, Alphabet is spending $13 billion and Microsoft upped their spending to $14 billion.
No doubt about it, Big Tech is going all in on AI. Just take a look at the increase of Microsoft’s AI spending history since 2023…
(Click here to view larger image.)
And Alphabet’s CEO Sundar Pichai said they’re going to continue to up their spending.
Because the risk of under-investing is greater than the risk of over-investing.
In fact, the combined AI spend of those companies and Apple, Amazon, NVIDIA and Tesla — the Magnificent 7 … is almost $200 billion.
And that’s just for this year!
The best opportunity right now can be found in stocks benefiting from the Mag 7’s $200 billion investment in AI…
And there’s one company at the center that stands to gain the most.
It’s been called “mission critical” to the AI mega trend…
In fact, I recently spoke to the chairman of the board and he said, “Charles … we are just getting started.”
No telling how long this gift is going to last. Market downturns are like summer thunderstorms … strong and brief.
So don’t procrastinate.
Go here — I’ll share the details with you about this company and let’s get going!
Regards,
Charles Mizrahi
Founder, Alpha Investor
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