By Kris Sayce, editor, Casey Daily Dispatch
At Casey Research, we are not perma-bears.
We don’t recommend staying in cash… waiting for the market to fall.
Instead, we act.
We look for opportunities… ways to help you make money.
We do that today. Even with the Dow Jones Industrial Average near a record high…
But what and where are those opportunities?
Isn’t this the “everything bubble?”
But it’s also an opportunity to create and build life-changing wealth.
We’ll explain our reason for saying that below…
If this is your first time reading the Dispatch, welcome. If you’ve been here before, welcome back.
At the Dispatch we have two goals:
To introduce you to the most important investing themes of the day, and
To show you how to profit from them.
We do this by showcasing ideas from our in-house investing experts: Dave Forest and Nick Giambruno. And from the founder of our business, Doug Casey.
The big investing theme of today? The “everything bubble,” and why you shouldn’t let folks scare you out of investing…
It’s Never Cheap Enough
By the way, if you’re not familiar with the term “perma-bear,” it refers to an investor who is in a constant state of bearishness. (It’s a shortening of “permanent bear.”)
That is, at any point in time, they believe the market will fall.
If the market is sky-high, it’s a bubble – stocks must fall.
If the market is high but not sky-high, it’s overvalued – stocks must fall.
If the market is on the way up after a crash, it’s a rebound in a secular bear market (don’t ask!), and it couldn’t possibly last – stocks must fall.
And if the market has just crashed, well, it’s just the beginning of a bigger crash – stocks must fall.
In the perma-bear’s mind, stocks are never ever cheap enough.
We’ve seen it. We’ve heard it. We’ve even fallen into the “perma-bear” trap once in a while. Now, don’t get us wrong: it’s important to understand asset classes, the market, the sector, and individual stock valuations.
But it’s also important to know that all these things, including overall economies, go through cycles – boom and bust.
That has happened for as long as we’ve had civilization itself. Empires and economies since ancient times have gone through the same cycle. The point is that for the sake of picking one relatively short period when stocks fall, perma-bears miss the opportunity to profit from long-term gains.
Don’t be one of them.
Here’s an example of what we mean…
The Myth of the 1929 Market Crash (and Recovery)
A classic example the perma-bears use is that after stocks crashed in 1929, it took until 1955 for the Dow Jones Industrial Average to make a new high.
For anyone who had their money invested in stocks in 1929, that sure was a long time to wait – 26 years.
However, just looking at the raw number like that doesn’t tell the full story.
And while it makes sense to be cautious of high-flying stocks, it doesn’t justify staying out of the market because stocks will crash at some unknown future date.
(Yes, they will crash at some point. We don’t dispute that. It’s just whether waiting for that elusive “perfect” time to buy is worth the wait… it isn’t.)
But let’s go back to the 1929-1955 example. While the perma-bears point to this period as an example of the dangers of stock market investing, the index doesn’t represent how a real investor would have invested.
For a start, the assumption is that investors wouldn’t have invested new money after 1929. That their return is purely based on the amount invested at the time of the crash.
But in reality, investors make new investments all the time. In this example, that’s 26 years of investing… 26 years of new capital added to portfolios… 26 years of dividends and reinvested dividends.
The result is a much different story to what the perma-bears want you to believe. According to website dqydj.com, money invested in the Dow near the top of the market in September 1929 would have returned 425% over the next 26 years. That’s a 6.5% annualized return.
That’s a pretty good return. What’s more, while it includes reinvested dividends, it doesn’t include new capital added to a portfolio.
In other words, $100,000 invested in Dow stocks at the 1929 peak (the peak, remember), with dividends reinvested into those stocks… and then rebalanced as stocks came in and went out of the Dow… would have been worth $525,000 by the end of 1955.
How is that possible?
Three key reasons. First, the economy was bouncing back after the end of World War II. Second, the compounding effect of reinvesting dividends.
And third, from 1930 to 1939, the Dow rotated out poorly performing companies from the index and replaced them with better performing companies.
So much for the notion that an investor would only be back to breakeven after all that time.
Here’s What You CAN Control
Look, don’t get us wrong.
We don’t want you to think we’re saying you should ignore risks. And timing is a big deal too. Your age, your proposed retirement age, and the timing of a crash all have an impact.
Of these three factors, you only have control over one of them – your proposed retirement age.
But there is something else you can control. That’s the type of investments you make and – to some degree – the return you expect to make from those investments.
This is why we promote the idea of the Casey “10 x 10” Approach. Split your investments into around 10 investment groups, and then split each of those groups into 10 different investments.
One of those groups could be small-cap stocks. Within that group, you pick 10 small-caps. Another group could be cryptos. Within that group, you pick 10 cryptos.
Another group could be pre-IPO deals. Again, you split your money across 10 different investments. And so on. Of course, there’s flexibility. Some of your groups may only have five or six investments… others may have 14 or 15.
This is how you successfully invest. You identify niche and potentially fast-growing markets, and then allocate your capital to them. The one thing you don’t do is sit in cash, waiting for the next crash.
It’s dangerous. We’ve seen it before. Once you get into that “perma-bear” mindset, the market is never cheap enough. And you end up missing out on the investment opportunities of a lifetime.
We’ll explore this theme in more detail for the rest of this week.
Editor, Casey Daily Dispatch
P.S. One of our favorite categories for the 10 x 10 Approach is… warrants. It’s an extremely lucrative – yet widely unknown – area of the markets…
But you can buy and sell them as easy as any stock in your brokerage account – all while potentially making crypto-like gains to the tune of 393%… 2,805%… even 4,942%.
Senior analyst Dave Forest is the authority on warrants. And he cracks the asset class wide open for you right here.