Justin’s note: Today, we turn to master trader Jeff Clark, who explains how to take advantage of the current market environment. As you’ll see, things are out of whack right now in the short term – but you can use this window as a huge profit opportunity…
By Jeff Clark, editor, Delta Report
According to the efficient market hypothesis, there’s nothing insane going on in the stock market. Stock prices reflect all of the currently available information and investors’ analysis of that information.
In the long term, I’ll agree that markets are efficient, investors are rational, and stock prices generally end up where they are logically supposed to.
In the short term, though, the market is nuts.
Fear and Greed
In the short term, stock prices react to emotion, not logic. Fear and greed are more powerful in the short term than a thoughtful analysis of balance sheets and income statements. That’s why crazy things sometimes happen in the stock market.
Back in 2000, for example, any rational person could see the dot-com bubble inflating. Stocks with no earnings, no revenue, and no hope of either were pressing higher nearly every day.
Meanwhile, traditional businesses – with long track records of earnings growth, stable dividends, and long-term business prospects – couldn’t catch a bid.
In 2000, I did not own a single dot-com stock. Instead, my largest holding was Cooper Tire & Rubber (CTB). At the time, CTB was an 87-year-old company. When I started buying the stock in early 2000 at $9 per share, CTB traded at six times earnings and paid a better-than-5% dividend.
In early 2000, CTB promptly dropped to $6 per share.
The stock lost 33% of its value, at a time when the average dot-com stock was racing to the moon.
As you might imagine, the clients at my brokerage firm were frustrated. Their friends and neighbors were bragging about the piles of money they were making in this.com and that.com.
Meanwhile, my clients were stuck in a dusty, old, tire-and-rubber stock that just seemed to fall every… single… day.
All I could do to console my customers was tell them that sometimes, the markets do screwy things. Sometimes, logic takes a vacation. Stocks that shouldn’t go up, do. Stocks that should rally, don’t.
And it is during those times that investors who have the ability to curtail their emotions also have the ability to make outsized gains. But you can only make those gains by going against the emotions of fear and greed… and betting on logic instead.
I lost several clients in early 2000. I refused to buy dot-com stocks. I stuck with buying old, time-tested companies trading at steep discounts to their historic valuations.
By early 2002, most of the dot-com stocks had crashed and burned. The customers who stuck with me were cashing out their Cooper Tire & Rubber trade for a 150% gain.
Here’s my point…
Decoupled From Logic
There are times in the market where it can be far more profitable to take a slightly longer-term view.
Investors’ short-term emotions have decoupled from longer-term logic. So asset prices have, for lack of a more sophisticated term, gotten out of whack.
It is during these times that it can be HUGELY profitable to take a BIG SWING.
Find a stock that is grossly undervalued by almost every fundamental metric. Find a stock that just can’t seem to get off the mat. Find a stock that nobody likes… a stock that if you mention it at a cocktail party, you end up drinking alone.
Then, buy that stock and hold it for a few months.
You won’t be disappointed.
Best regards and good trading,
Editor, Delta Report
Justin’s note: If you haven’t seen it yet, I recommend you watch Jeff Clark’s presentation where he explains how he almost lost his entire life savings… in one day.
As you’ll see, he used a technique that saved him that day… one he’s been using ever since to help people generate thousands of dollars per month – without using stocks or bonds. To see his remarkable story – and learn more about this lucrative strategy – go here.
Today, readers respond to our recent Dispatch: “Mexico Will Have the World’s Biggest Legal Pot Market Soon”…
No they [Mexico] won’t. It will all be coming to America!
That’ll be great. Keep the drugs in Mexico.
Marijuana may be not just a money deal, but also a way for a whole new industry to take root. Creating new, non-toxic, environmentally safe jobs and products. Also a great way to get the citizens and the government and Law Enforcement Agencies on the road to being friends and being a real United States of America. Happy Investing!
Do I think pot should be legalized? No! I think it should be totally decriminalized and all respective laws currently on the books be repealed.
Justin’s note: Cannabis legalization is spreading… and this trend is only going to accelerate from here. And there’s a specific sector of the market that can hand you huge gains over the coming months. To learn more about this niche market, make sure to check out our new video presentation.
And as always, if you have any questions or suggestions for the Dispatch, send them to us at [email protected].