Blog : Opportunities in Stocks are Born in Blood

by Peter Leeds on August 24th, 2015

 
My apologies for the disturbing title, but there is truth to it.  The greater the chaos on the markets, the larger the potential gains.  This is a fact which has played out countless times, and it will continue to be accurate during this current market commotion, just as it will in future times of chaos.
 
Major financial media will look on the bright side.  For example, the Dow Jones Industrial Average dropped 1,000 points first thing Monday morning, but it recovered to be "only" down 300 points midday.  They hail this as a victory.  A sign of buying demand and strength.  A 300 point decline, and they are using this as proof of positive market vibes!??!?
 
The biggest panic generates the greatest undervalued investments.  In other words, fresh money is surrounded with compelling opportunities right now.  Many of the shares which took a big hit today (and over the previous week) will recover very well.  The question is will that recovery be from current levels, or at some point in the coming weeks from even lower levels?
 
Given the whipsaw action in China, with repeated 7% moves in single days, and their intentional golden flash crashes, and surprise currency debasements, the Asian influence is keeping our markets on our toes.  We do not know what they will do next, and it may have implications for us.
 
Even if we ignore China, and events in Europe for the matter, we still have not reached a capitulation point here.  With capitulation (whereby everyone is just tossing away their investments in a full panic mode) we will have found a bottom, and brighter days will be ahead for shares.
 
Capitulation needs to be broad-based.  If your relatives aren't diving into their 401K's and selling their holdings, then we aren't there just yet.  We are probably not at a bottom so far... but we are getting closer.
 
So here is an opinion of what to do:
 
Cash on the Sidelines:  if you have cash on the sidelines, watch and wait.  Be ready to invest in some great undervalued companies, but hold off a little while.
 
Already Invested:   if you are invested already, you'll be seeing your losses swelling.  Don't worry about it, just hang on for what will be a long ride, but know that all companies should recover well.
 
The Opportunities:  look to invest in businesses which will not only survive the market turmoil, but will thrive because of it!  There will be a flight to safety for many investors (think gold, gold production stocks), and greater revenues for businesses which people turn to in times of stress and economic hardship (think alcohol, medicines and pharma drugs, fast food).
 
This has been why a growing proportion of our stock picks have been in businesses engaged in many of the safe-haven, in-demand industries mentioned above.  
 
Our newest pick comes out Tuesday, and we expect it to do very well.  The fact that you can buy it for a fraction of what it is worth, and now for much less than it was trading a week ago, is just too compelling for us to overlook.
 

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