How You Should Handle the Market's
"Sucker Punch" |
Money & Markets Daily,
Back in September 1987, Mike Tyson was still just an up-and-coming young prizefighter… one with an undefeated 31-0 record.
At just 21 years old, it was already clear that Tyson was one of the greatest brawlers ever to set foot in the ring. But skeptics still doubted Iron Mike’s ability to strategize.
The media pressed him about his next opponent, Tyrell Biggs, in particular.
Biggs was a super heavyweight Olympic gold medalist. A master tactician in the ring.
Reporters asked Tyson if he was worried about Biggs’ “fight plan.” Tyson responded with the now-legendary quote: “Everybody has a plan until they get hit.”
Well, just yesterday, the stock market took a Tyson-sized hit.
Now it’s time to see whether investors have what it takes to remember their plan…
A Body Blow for Investors Across the Board
Yesterday’s rout began overseas in Japan. The country’s Nikkei 225 index sank 12%, closing out its worst day since 1987.
The panic quickly spread to Europe before hitting American futures markets, with the Dow Jones Industrial Average opening 1,000 points lower Monday morning. The Nasdaq sank to a level not seen since May, and the S&P 500 was down 3%.
The sell-off has been linked to renewed fears of recession and profit-taking among the so-called "Magnificent 7" stocks. Over the weekend, news broke that Warren Buffett sold off more than half of Berkshire Hathaway’s position in Apple, with many other investors clearly following suit.
If we zoom out to look at the bigger picture, it becomes clear that Monday’s sell-off was “shocking but not surprising.”
If you’ve been following my articles here and in Banyan Edge, then you’ll know I’ve been warning readers about the perilously high valuation of Mag 7 stocks for over a year now.
By weight, these seven stocks account for nearly a third of the S&P 500. So when their shares are rising, the index typically does well. But when investors turn to profit-taking, things can go south quickly (like we saw yesterday).
But even though Mag 7 stocks were among yesterday’s biggest losses, they weren’t alone.
One key metric I always keep my eye on is called the “Advance-Decline Ratio.” And during yesterday’s sell-off, 23 stocks were sinking lower for every single stock rising higher.
That kind of near-universal downturn often coincides with capitulation. Investors throw up their hands and say: “Dump everything.” After that point of maximum pessimism, stocks start to turn around.
While it’s never easy to deal with a 3% down day, our long-term investing plans haven’t changed in the slightest…
Mega Trends for 2024 and Beyond
Instead of index investing or Mag 7 stocks, my Green Zone Fortunes investing strategy is built around the concept of mega trends.
These mega trends are powered by towering demand in some of the stock market’s hottest industries — from artificial intelligence to semiconductors and the $6 trillion global energy market. But then we drill down into a specific niche within these powerful mega trends, further stacking the odds in our favor.
At the end of the day, I’m still using the same traditional buy-and-hold strategy you’ve probably used throughout your years of investing. I’m still recommending specific stock investments.
But since each stock is part of a broader mega trend, we need to have a degree of patience.
In short, we must be willing to ride the minor ups and downs in the broader stock market … for the chance to make lucrative, longer-term profits on these mega trends.
Of course, that doesn’t mean we simply “hold and hope.”
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Managing Risk and Keeping Your Cool
Discipline is one of the greatest advantages in the professional trader’s arsenal.
Since most professionals are trading with “house money” and not their own hard-earned savings, they’re better suited to stomach a short downturn without giving in to the urge to sell.
But you can follow suit with a defined trading strategy to help maintain your discipline.
That’s why we publish stop-loss exit strategies for most of the positions we add to our portfolio.
Not all of our positions work out as we expect them to. But with well-defined stop-losses, you're pricing in your exit plan just in case markets sour on the stock.
Rest assured that my team and I monitor the market’s health every day.
We keep a close eye on our stop-losses.
And of course, we’re always on the hunt for new opportunities.
We aren’t letting a pullback in the S&P 500 scare us out of compelling opportunities in lucrative mega trends!
Here’s What You Should Do Now
Just follow your risk management. Sit tight, stay calm and follow your plan. That’s all you need to do.
If you’d like to see how I’m navigating this market, check out Green Zone Fortunes.
I’ve mentioned mega trends a few times throughout this story, and it’s for good reason.
These are the areas of the market that are driving future growth.
Just look at AI…
Even with this recent sell-off, many AI-related stocks are still up double-digits (even triple in some cases) in 2024 alone.
In fact, the AI stock we're tracking in Green Zone Fortunes recovered quickly and popped 10% Monday night following the sell-off. To see why I believe this stock has plenty of room to run even higher, click here to watch my special presentation.
To good profits,
Adam O'Dell
Editor, Money & Markets Daily
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