Justin’s note: With the current market volatility, it’s imperative to have a plan. And today’s essay from Palm Beach Letter editor Teeka Tiwari can help you get started.
In it, Teeka goes over the lessons he’s learned from previous crashes—and how to apply them to your own portfolio…
By Teeka Tiwari, editor, The Palm Beach Letter
The worst market crash of my life wasn’t the 2008 meltdown. It wasn’t the collapse of the dot-coms. The worst crash I ever lived through was the 1989–1990 technology bear market.
The Nasdaq was still a young exchange back then. The total market cap was about $900 billion. Today, it’s closer to $7 trillion. During the 1989–90 bear market, the Nasdaq dropped 34%. It was a slow, merciless grind lower.
I was a newly minted 19-year-old money manager. There I was, building a business in the absolute worst market since the 1987 stock market crash. Being young and attracted to tech, my portfolios were stuffed with names like Apple, Intel, and Oracle.
During the lows of late 1990, I was sitting on losses of 50% in Apple, 45% in Intel, and a whopping 82% in Oracle.
I’d love to tell you that I handled that bear market like a champ. I didn’t. That market chewed me up on one side and spat me out the other. I made all the wrong moves. I had no stop losses in place. I had no position-sizing rules.
You can imagine what happened. I ended up selling at the absolute worst time—pretty much near the lows. I compounded my error by not getting back into these names when it was clear the bear market was over.
On a split-adjusted basis, I ended up selling Apple at about 91 cents, Intel at about 87 cents, and Oracle at 12 cents. Today, Apple trades for $156, Intel at $44.50, and Oracle at $48.
Experience is a great teacher.
I came into the market at a truly unique time. I’ve lived through some of the worst market crashes in living memory. The ’89 junk bond market crash, the ’91 recession, the 1994–95 bond bear market, the ’98 Asian crisis, the 2000 dot-com bubble, the 2008 financial crisis, the 2010 flash crash, and a host of other smaller panics.
There are two key lessons I’ve learned:
1. Financial assets such as stocks and bonds should only be one part of your investment strategy.
Having all your eggs in one or two asset classes is not smart. That’s why at The Palm Beach Letter, we take a holistic approach to wealth building.
In addition to stocks and bonds, we also recommend investing in real estate, private business ownership, and alternative income investments.
2. Always have a plan for handling bad news.
When we invest in stocks, we always use a stop loss. The stop loss is there to protect our capital from prolonged and violent moves lower.
On some asset classes, such as our cryptocurrencies, we cap our position size instead of using stop losses.
Cryptos are so volatile that they would stop you out every other month. To handle that, we only put in as much money as we would be prepared to lose if the position went to zero.
In hindsight, the way for me to have played the tech market of the early ’90s would have been to have had a lot of small positions in a widespread portfolio of tech names.
As an inexperienced 19-year-old, I underestimated both the volatility and the potential upside of the names I was in. Today, I can tell you that I have learned from my mistakes.
It’s the reason why virtually every name we own in The Palm Beach Letter has a stop loss attached to it. And it’s also the reason why I made the decision not to use stops with my crypto picks, but insist that we use small position sizes of $200–400 for smaller investors and $500–1,000 for larger investors.
Just like the Apples, Intels, and Oracles of today, we’ll look back on the market carnage of early 2018 with fond memories of being well-positioned to weather any storm. Others will look back and lament on the names they once owned that would have made them millionaires if only they had a plan.
Friends, you have a plan and I urge you to stick with it.
Let the Game Come to You!
Teeka “Big T” Tiwari
Editor, The Palm Beach Letter
Justin’s note: To help you prepare for a crash, we’ve compiled the best advice from all the editors and analysts from across our business. These are some of the brightest minds on the planet—and every entry is timely and extremely valuable for what lies ahead.
It’s called the Ultimate Crisis Playbook. It will tell you everything you need to know about what’s coming. And as a courtesy to our loyal readers, we’re giving away copies for free. You can download yours right here…
We recently had a conversation with Jeff Brown, Bonner & Partners’ top technology expert. What he said shocked us…
There’s a technology being tested that has the potential to permanently cure thousands of diseases. It could even guarantee America’s energy independence for decades to come.
It sounded too good to be true. But then we watched this presentation.