Dear Reader,
For some of you, this is your first financial/stock market crisis.
So let me calm you down and show you how this is another generational buying opportunity.
Been There, Done That… Several Times
I started in the investment advisory business in 1994. There was a recession that year. I was 25 years old with a new wife and a child on the way.
I thought to myself that I couldn't have picked a worse time to enter the stock market. But as it turned out, it was actually the best time.
You see, there's an old saying in the stock market: Don't confuse brains with a bull market. Basically, it means a monkey can make money in a bull market.
But it takes real intelligence, instincts, and courage to make money when you're swimming upstream.
And that's where we find ourselves today.
And I'm also here to tell you we are in the middle of a great opportunity. Let me explain.
In my 26 years in this business, I have experienced — and survived and thrived in — many financial disasters. They include, but are not limited to…
- The dot-com boom and bust. (How crazy was the dot-com boom? The Nasdaq was up 84% in a single year.)
- The terrorist attacks on 9/11.
- Oil going from $25 a barrel to $150 a barrel (peak oil).
- The housing bubble and bust (mortgages given to the unemployed and homeless).
- The financial crisis of 2007–2009. (The worst financial crisis of my career. I was genuinely terrified.)
And in between these crises, I've experienced many other, lesser disasters/crises like the Asian currency crisis, Russia's default, the Afghanistan and Iraq wars, the Long-Term Capital Management default, the Enron scandal, the GM bankruptcy, the SARS scare in 2003, the swine flu epidemic in 2009 (approximately 151,700–575,400 deaths worldwide during its first year of circulation), MERS in 2012… and too many more to keep listing.
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In every single case, the mainstream media said, "It's different this time." They said it was the "end of the world"… "We will never recover"… "This will change everything going forward."
It's as bad when you hear a politician or an activist say, "I want to change the world."
In every single case, they were wrong.
They are saying the same thing now with coronavirus. And again, they are dead wrong.
In terms of market sell-offs, we've been through much, much worse.
Take the example of the tech-heavy Nasdaq during the late 1990s. After bubble-peaking from an 84% gain in 1999, the index completely starched out with a loss of over 50% in just nine months. And then after 9/11, the Nasdaq would lose a bowel-shaking 80% from its all-time high just 18 months prior.
Here's a chart of that period for the Nasdaq:
Imagine having $100,000 invested in stocks at the end of 1999, only for it to be valued at $20,000 2½ years later.
To give you an example of what that would look like in today's market, the Dow would have to drop to 5,880… losing over 23,000 points.
That's not going to happen. You can quote me on that. And I'll explain why in a minute. But first, let me explain why the next crisis — just less than two years after the dot-com bust — was a generational buying opportunity.
The terrorist attacks on 9/11 were so bad the markets were closed for nearly a week.
And on the first day of trading after 9/11, the market fell 684 points, a 7.1% decline, setting a record for the biggest loss in NYSE exchange history for one trading day. At the close of trading that Friday, ending a week that saw the biggest losses in NYSE history, the Dow was down almost 1,370 points, representing a loss of over 14%. The S&P 500 lost 11.6%. An estimated $1.4 trillion in value was lost in those five days of trading.
Major stock sell-offs hit the airline and insurance sectors, as anticipated, when trading resumed. Hardest hit were American Airlines and United Airlines, the carriers whose planes were hijacked.
We are seeing almost a carbon copy sell-off in the exact same stocks.
The Financial Aftermath
American Airlines stock dropped from a $29.70 per share close on September 11 to a $18 per share close on September 17, a 39% decline. United Airlines stock dropped from a $30.82 per share close to $17.50 per share on the close on September 17, a 42% decline.
Similar steep declines hit travel, tourism, hospitality, entertainment, and financial and banking stocks as a wave of temporary fear and uncertainty swept through the nation. Among the financial services giants with the steepest drops were Merrill Lynch, which lost 11.5%, and Morgan Stanley, which dropped 13%.
Insurance firms reportedly eventually paid out some $40.2 billion in 9/11-related claims. Among the biggest losers was Warren Buffett's Berkshire Hathaway. Most insurance firms subsequently dropped terrorist coverage.
The economic fallout of 9/11 is the same as what we are experiencing with coronavirus.
9/11 would sow the seeds of the triplets of misery just a few years later: oil bubble, housing bubble, and financial assets bubble.
You see, in the wake of 9/11, the Feds pumped hundreds of billions of dollars into the economy (coupled with cutting interest rates to the bone). Easy money and even crazier easy lending gave birth to the housing bubble. It was so bad that the unemployed and homeless were getting mortgages.
When those, ahem, adjustable-rate mortgage bills came due (with the addition of higher interest rates), markets went "no bid." In other words, when you went to sell your house, stocks, fixed credit, anything, there were no buyers. There was literally no market.
And this was the brutal result:
The Dow lost over 50%.
Ninety-nine percent of the public didn't know it at the time, but we were 24–48 hours away from a complete freeze on savings in the banks. Even to this day, I shudder at the thought of what could've happened. We were on the edge of a global meltdown.
But…
The Feds came in and backstopped everything (with the exception of Lehman Brothers).
There's a saying on Wall Street: "Don't fight the Fed."
And I don't
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Because in every single crisis, the Fed has come in to save the markets. This time is no different.
This is another generational buying opportunity.
Right now stocks are selling at fire-sale prices. Can they go lower? Of course. Probably will. But I can guarantee that five years from now, those stocks and the markets will be much higher.
My company has always been an unconventional investment firm.
We look at opportunities most investors never think of… and Wall Street pros are too scared or too stupid to invest in.
Right now I have a list of REITs whose dividend yields are now well above 11% and going higher with each daily sell-off.
These REITs and their dividends will allow me to live a luxurious life in the years to come. And I want you to be able to do the same.
So let me repeat: This current market sell-off is also an opportunity.
And sometimes these opportunities hit you when you least expect it.
Yesterday I was at the Dunkin drive-thru getting a coffee. I paid with physical money and I got physical change back. And it dawned on me that the cash I just received could get me sick.
Money is filthy.
You think crypto and other "cashless" stocks aren't going to go gangbusters after this crisis ends?!?
Everything is on fire sale, including for cruise line, hotel, and airline companies. The U.S. government is going to back them with whatever they need.
The U.S. government announced a $1.5 trillion package yesterday... and said this is just the first pitch in a nine-inning game.
Sometimes it's just that easy. If you have the courage and patience.
Crisis equals opportunity. In my 26-year career, I've never seen one that didn't.
Think about this: Coronavirus will eventually end. Maybe this year. But we are still dealing with the aftermath of 9/11.
We will get through this with flying colors. The Fed and U.S. government are going to throw everything at this.
Don't fight the Fed.
So relax.
Oh, and by the way, here's what some stocks did between 9/11 and now:
- Amazon +24,600%
- Apple +18,200%
- Nvidia +6,600%
- Regeneron Pharm +1,100%
- Netflix +36,700%
Wish you could go back in time and buy those? You'll say the same thing five years from now.
Your herd leader,
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