By Kris Sayce, editor, Casey Daily Dispatch
When markets go up…
Which type of stock goes up the most?
When markets go down…
Which type of stock goes down the most?
Up or down, it’s the same type of stock.
This continues our theme of the week.
September is historically the worst month of the year for stocks.
That means it can be the best month of the year to buy stocks.
Which stocks? Details 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.
If you’ve liked our theme so far this week about buying into the market’s worst month… today we’ll show you two ideas you could put into action right away.
A Cornerstone of Our Business
The type of stock we’ve hinted about today is the cornerstone of Casey Research.
It has been the focus of our research since day one. It’s Doug Casey’s bread and butter.
There’s a reason for that. Picked at the right time, these stocks often provide the biggest and most lucrative gains in any market.
These stocks, if you like, were the original “altcoins”… long before any crypto existed.
We’re talking about small-cap stocks.
Small-caps – simultaneously – can be the most profitable and riskiest type of stock you’ll ever come across.
It’s why we like them so much. (It’s also why they’re another perfect investment for the Casey “10 x 10” Approach.)
But it’s also for that reason most investors will never touch them. They look down on them… call them “penny stocks,” forget about them, and put their money into what they consider to be “respectable” stocks.
What a mistake.
Check out the following chart. It shows the S&P 500 (dark blue line), Russell 2000 (orange line), and S&P Small Cap 600 (light blue) indices.
The chart goes back to 2003.
As you can see, the S&P 500 has returned a respectable 459%. The Russell 2000 (the most often quoted smaller companies index) has returned 550%.
While the Small Cap 600 Index, which contains the market’s smallest stocks, has gained 672%.
Just by looking at the chart… you can see how differently each type of stock behaves. The peaks and troughs of the Small Cap 600 Index are much higher and deeper than those of the S&P 500, meaning more volatility… but higher reward, too..
Two Ways to Play the September Slump
That’s why if you buy the idea that this recent market action is temporary… and that stocks will rebound higher… then buying now makes a lot of sense.
Fair warning: You can see from the chart that when small-cap stocks fall, they fall hard. So even though small caps have fallen recently, there’s every chance they could fall further before rebounding.
So don’t say we didn’t warn you.
But the good news is that if September goes to form… this month will have the lows… making it a great buying opportunity.
With all that said, how do you play it?
As we always say, we prefer individual stocks. It’s much better to pick a portfolio of half-a-dozen to a dozen stocks in this area. (Remember, the Casey “10 x 10” Approach recommends around 10 investments in 10 different asset classes or investment types.)
For instance, Casey Research senior analyst Dave Forest has a great range of small-cap mining stocks on his recommended buy list. They aren’t all trading below their buy-up-to prices, but there are several that have dipped into buy range in recent days.
But we also know that some folks like a “quick fix” with ETFs… an instant portfolio. Two easy ways to get this quick fix are through small-cap ETFs.
One to consider is the SPDR S&P 600 Small Cap ETF (SLY) – it’s based on the small-cap index we showed you in the chart above. Another ETF to consider is the VanEck Vectors Junior Gold Miners ETF (GDXJ).
The latter gives you instant exposure to a range of junior gold mining stocks. In fact, we like the latter the most as a great buying opportunity. It has fallen around 25% since it peaked in June.
So while it could fall further this month, it’s already trading at a great price for speculators.
To sum up, the September playbook is true to form so far. We know it’s not easy to take the plunge and buy stocks when the market is volatile. But often, this is the best time to do it.
History tells you that taking this contrarian bet is worth it.
A year from now, we think buying this month will have been a great decision for your portfolio.
Editor, Casey Daily Dispatch