- Will our stocks get hit in a potential market crash?
- The hidden danger of stop losses…
- How investors can access pre-IPO shares…
Dear Reader,
Welcome to our first mailbag edition of The Bleeding Edge in 2021. All week, you submitted your questions about the biggest trends in technology. Today, I’ll do my best to answer them.
If you have a question you’d like answered next week, be sure you submit it right here.
This week, we’ve explored some data-heavy topics around COVID-19 to better understand what is actually going on with vaccine availability, ICU bed availability, and vaccine safety.
So today, I thought we might have a look at something that always gives me a chuckle when I travel these days.
It may come as a surprise, but I never stopped traveling throughout the entire pandemic. I haven’t missed a single month since March last year, and sometimes I was on several planes each month. I traveled to more than 20 states across the U.S. so that I could understand what was actually happening.
If we were to have believed the press and some scientists, millions would have been dead in the U.S. by now. We would have entered the greater depression already, and there would be no effective therapies for those with a severe reaction to COVID-19.
But my belief was that the economy was fundamentally strong, recovering very rapidly. I also knew some existing medicines were effective against COVID-19 and that our productivity levels were a lot more normal than most would believe.
But I needed to see it with my own eyes, which is why I traveled so much and spoke with so many people. And airports and airplanes are a great way to see what kind of economic activity is really happening.
My time spent in the “field” was critical to the economic and sector analysis that lead to such outsized gains in all of my research services. It’s the kind of intelligence that we can’t find sitting at home in front of a computer screen.
This is truer than ever before. We know very well that our search results are filtered and manipulated, our social media channels are censored, and we are presented with highly biased information on a daily basis.
These are all reasons why critical analysis can’t happen through a Google search bar. And it’s why my team and I need to get out there no matter what is going on.
And what always makes me laugh about air travel these days is the sheer spectacle of it all. Pure theater.
For example, here is what we see when we walk into the check-in area at an airport:
Source: Australian Associated Press
And then, less than an hour later, here is what our world looks like:
Source: Marketwatch
Shoulder to shoulder. And yes, so many of my flights over the last six months have been completely full, or nearly full… even the middle seats.
And then 30 minutes later, after the small bags of food and drinks are handed out, the passengers remove their masks and eat.
It’s hilarious. And absurd.
We’re all shoulder to shoulder, in a pressurized cylindrical tube, flying at 33,000 feet, breathing the same recycled air. And we’re wearing face coverings that are scientifically proven to have little or no efficacy at stopping the spread of the virus.
The truth is that no one in a high-risk category should ever travel by plane. This is what the medical community should be advising. If we have parents or grandparents in high-risk categories, we should not let them travel by airplane. Put simply, it is one of the single best places to catch COVID-19.
I had COVID-19 in March, and I probably caught it on an airplane when I flew back from San Francisco to the East Coast from a conference. I’ve built natural immunity.
And knowing what I know about COVID-19, I’d still be flying if I hadn’t already had it.
Have a great weekend and safe travels.
Now let’s turn to today’s questions…
In a crash, is there a safe harbor?
Let’s begin with a question on a possible market crash:
Hello Jeff,
You mentioned that we may have a big second market crash again. You suggested that we buy some positions now like [recommended stocks], for example. When the market crashes, will these positions be safe? Or will we also get hit? Please kindly advise.
– Kim T.
Hi, Kim, and thanks for writing in.
Yes, I am quite concerned about a second crash or a major market pullback along the lines of what we saw last spring. The reasons, however, would be different the second time around.
As we think back to March last year, the crash was all about the press- and social media-induced fear and panic surrounding COVID-19. And the scientific community did not completely understand the virus or what parts of the population were at risk. No one knew how long the overreaction would last.
Irrespective of what the media would have us believe, we now have extensive research on COVID-19, how to treat it, how to vaccinate against it, and what parts of the population are and are not at risk.
Yet despite the fact that we now have two vaccines currently being distributed around the country – and several more in the clinical pipeline – we’ve seen continued anxiety surrounding the COVID-19 virus.
And a Biden presidency makes it more likely that we could see a second lockdown. This is one of my single biggest concerns for the equity markets and the economy this year.
To be clear, I think a dramatic move like that is entirely uncalled for. And it would have a terrible effect on the economy, cost millions of jobs, result in even more small businesses closing, and result in millions of years of life lost for school-aged children.
And it could possibly even lead to a second “flash crash” like we saw last March.
All my subscribers can rest assured that my team of analysts and I are keeping a close eye on the markets in the coming weeks. We’ll alert subscribers if we need to close out positions or reposition any of our portfolios to avoid an expected downturn.
In general, though, there are several factors that make me confident that we can weather any volatility on the horizon.
First, we’ve positioned ourselves in companies powering trends that are moving forward regardless of pandemic conditions or any other curveball that gets thrown this year. These are key trends like remote work, biotechnology, online commerce, and cloud computing. Companies in these sectors have flourished over the past year and will remain strong in 2021.
Second, part of our secret to success is picking companies that are reasonably valued. Many stocks these days (even popular ones) are ridiculously overvalued, with valuations as high as 100 or even 200 times their sales (not profits). That’s simply not sustainable.
In a crash, these overvalued stocks will experience a great deal of pain. Some may drop as much as 92%. (Readers can find out more about these “toxic” stocks right here.)
But in our portfolios, we look for companies that have been overlooked or misunderstood by Wall Street and other investors. Our recommendations will fare better and recover more quickly during volatility like we saw last March.
As a perfect example, just look at our Near Future Report performance in 2020. After a drop in March during the crash, our portfolio experienced a dramatic recovery. Assuming equal weighting in each position, we closed out the year with realized gains of 124%. We can compare that to the 18.1% return from the S&P 500.
And as of this writing, every single one of the 27 equity positions currently in our portfolio is in the green – nearly all of them up by double or triple digits!
We’ve had similar experiences over the past year in our Exponential Tech Investor and Early Stage Trader portfolios as well.
So while it’s natural to be concerned about market downturns, we can feel confident that we’re as prepared as we can be for whatever moves the market makes in the coming months.
We also don’t want to miss out on a healthy stock market in the event that there is no nationwide lockdown. And if we do experience a market drop, that will likely be an excellent buying opportunity as well…
How to reenter a position…
Next, a reader wants to know more about entry points:
Hello Jeff,
Thanks for all your hard work and exceptionally high-quality contributions. I do have one question of clarity. I got stopped out of my [recommended stock] position after it enjoyed that remarkable liftoff recently.
My understanding, and please correct me if I’m wrong, is that this is considered the first catalyst, after which the stock price typically falls back in line until the second of three catalysts happens? Then it will do the same until the third catalyst takes place.
Is this correct? I’m trying to determine my entry point back into [this stock]. Thanks for your guidance and have a super Holiday Season.
– Ross I.
Hi, Ross. I hope you’ve had a wonderful holiday season as well. Thanks for sending in this question.
First off, I’d like to take this as an opportunity to remind my newer readers about a very important point concerning stop losses. I strongly encourage my readers not to put their stop losses in as orders with their online brokers.
You can maintain them using your own methods (e.g., a spreadsheet) and check them regularly. You can also set up your own alerts using TradeStops or Yahoo! Finance. Subscribers to my products can also wait to hear from us with sell alerts. We will always alert you if you need to act.
When a stop-loss order is placed with an online broker, it can be seen by market makers. Market makers are companies that provide quotes on buy and sell prices for stocks. They provide liquidity in stock markets, but they don’t act in investors’ best interests. They’re simply there to make a profit any way they can.
They’ll see a stop loss, open the stock when the market opens (or pull it down momentarily), stop the investor out, buy those shares at a grossly discounted price to the real market value, and then pull the market price back up to normal trading levels.
I’ve personally seen this happen in my own investing experience. It should be illegal. But it’s not. So please remember: Investors should never enter their stop-loss prices on their online broker accounts.
As for your question about catalysts and entry points, Ross…
I can’t give personal investing advice, but I have a few other comments…
In our Early Stage Trader portfolio, we have various catalysts we look forward to that can send the stock price of our companies soaring. These can be things such as beginning new clinical trials, releasing results, and company presentations and updates.
I recommend these companies ahead of time – sometimes months ahead – so we can get in before any of these run-ups. But we don’t know ahead of time which catalyst will be “the big one.” Sometimes it will be the first catalyst. Sometimes it might not be until a later one. We get in early so we’re ready in either case.
As for establishing a position…
When we open a new position, I include buy-up-to prices that provide a guideline for what I think a reasonable entry point is. I consider the company’s valuation and future prospects.
When a stock is trading above the buy-up-to price, however, my official guidance is to wait for a pullback below the buy price to establish a position. And occasionally, I will decide to raise the buy price when a company shows even greater promise over time in order to enable new investors to build their position.
As for the specific stock you referred to (whose name I’ve removed out of respect to my paid subscribers), I’m keeping a close eye on it. And just for clarity, I did not set any official stop loss for that stock. But I’ll be sure to keep investors informed if there’s a new opening to invest, or if I chose to raise the buy-up-to price.
How to get pre-IPO shares…
Let’s conclude with a question about pre-IPO recommendations:
Really enjoyed the prediction series. I have a question if possible. Which category of the pre-IPO [initial public offering] deals is open to investors outside the U.S.? Everything I have seen so far has been for U.S. citizens only – which puts me off investing in further pre-IPO recommendations.
– Sue F.
Hi, Sue. I’m glad you enjoyed my prediction series over the holidays. And thanks for sending in this question.
To catch readers up, I’ve recently been writing about a new way for us to get ahold of pre-IPO shares. Currently, Wall Street has a stranglehold on the IPO market, preventing regular investors from getting shares of companies before they go public – when the truly life-changing gains are possible.
As regular readers know, I have been involved in private investments for two decades now. It drives me crazy that normal investors have been locked out of this space.
Of course, the insiders claim that pre-IPO investments are “too risky” for most investors. They pretend like they have the investing public’s best interests at heart.
Nothing could be further for the truth.
These guys have profited for over a decade now by reserving shares in the hottest companies in the world for themselves. They milk all the gains they can while the company is private, and then they dump their overvalued shares on an unsuspecting public market.
It’s borderline criminal. Except it’s 100% legal.
I have spent years now looking for a way to break the insiders’ monopoly. And I’ve finally found it.
In fact, I’ve spent hundreds of hours over the last year building out a new research product that will help normal investors gain access to pre-IPO shares in some of the most exciting private companies on the planet.
And I’m hosting an event next week to tell investors all about it.
This new service will enable us to invest in some of the best tech and biotech companies in the world before their initial public offerings (IPOs).
The good news? Investors don’t need to be accredited or have a certain net worth to use this service. There are no minimum investments required. And there are no crippling restrictions to contend with.
And to answer your question, Sue…
I don’t know your particular situation, and I can’t give personalized advice. But as long as an investor’s brokerage allows them to purchase U.S. stocks, then they should be able to buy shares in these pre-IPO companies I’m talking about.
I am also excited to say that we will not be limiting ourselves to only tech and biotech companies in my new research service. We will venture into other high-growth sectors as well. That’s a first for Brownstone Research, but it is something I have planned to do for quite some time now. I finally have the team and the resources behind me to make it happen.
So please join me next Wednesday, January 13, at 8 p.m. ET for my Pre-IPO Code Event. That’s where I will share all the details about how these deals work. As always, my presentation will be free to readers of The Bleeding Edge. Just go right here to reserve your spot.
That’s all we have time for this week. If you have a question for a future mailbag, you can send it to me right here.
Have a good weekend.
Regards,
Jeff Brown
Editor, The Bleeding Edge
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