Let's Play a Game Called "What Comes Next"
Don't worry: We have a plan (and the stocks) to win long term no matter what ...
Let’s play an investment game …
One that I call “What Comes Next?”
Check out the “story mix” on the Yahoo! Finance home page Sunday night — and then zero in on some of the headlines (and a couple others I stitched in from CNBC and other financial sites):
Trump presidency likely won’t be a problem for Nvidia stock.
Trump likely to exempt Canadian energy from tariffs.
What Trump’s second term could mean for student debt.
Policymakers don’t want to tank the stock market.
JPMorgan braces for “impactful” first two years of Trump presidency.
Trump tariffs could reheat inflation if countries retaliate.
Trump supercharged the markets, but his policies could make rally sputter out.
You get the idea.
It’s the ex-reporter in me: But I tend to look at these things very closely. And when you see words and phrases that include “likely” and “could” and “don’t want to” and “set to” … well, you need to step back and say to yourself: “Hold on a second … what are these ‘news’ stories really saying … and just what are we really looking at here?”
Because words and phrases like “could” and “likely” are “waffle words.”
If each of these writers were sitting here with me right at this moment – and facing my stern, unspeaking gaze — they’d probably feel compelled to tell me: “Well Bill, this MIGHT happen … but, then again, it might NOT.”
In other words, they’re speculating … or (in many cases) flat out guessing.
As in … they don’t know.
Here’s where it gets “interesting” — as in “tricky” for investors.
In our game, what comes next is “uncertainty.”
All these speculative stories here today will give way to a whole different slate of “maybe it will/maybe it won’t” stories tomorrow. And the day after that. And next week, next month, and next quarter.
And very often — and I’m talking a whole lot more frequently than most folks realize — those “speculative” stories of today will be contradicted by the ones that follow tomorrow … or the day after that.
Trust me: I spent 22 years working in the newsrooms of America … so I know how this works … and I know this is true.
For everyday investors — regular folks that all these media companies and brokerage firms refer to as “retail investors” — here’s where it gets tricky.
It’s difficult enough to “adjust” to the actual “news” stories of the day — stories like Tuesday’s presidential election and then Thursday’s U.S. Federal Reserve meeting.
Those are “real” events, as it were.
(Check out our reports on each — on the election … and that Fed meeting, with stock picks in each.)
But if you then attempt to keep up with (and make adjustments to) the speculative stories that follow – the “might” and “could” stuff that may or may not be correct — you’ll get whipsawed.
And you’ll end up (as the old saying tells us) “glued, screwed and tattooed.”
Trying to keep pace with the market’s day-to-day swings – let alone all the “theories” that result — is a fool’s errand.
It’s a Wealth Killer move.
Now, these speculative, shoot-from-the-hip, clickbait-oriented stories do get one thing correct: We are headed into a stretch of intense uncertainty — for the U.S. economy … for global geopolitics … and for the stock market.
Uncertainty is bad for stocks … in the near-term.
The good news: Wealth Builders like us don’t play there.
We’ve got a better way … and today I’ll give you some moves to get you started.
After a Record Week, Uncertainty Peaks
The three key U.S. stock indices — the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite — all hit record closing highs last week.
In a Friday note to clients, Northern Trust Chief Investment Officer Katie Nixon “sorta/kinda” said investors have traded one brand of uncertainty (a contested election) for another (the economic, corporate-earnings and other “what-comes-next” catalysts that’ll drive stocks up … or down).
“Investors hate uncertainty, and, with the election decided, markets now have clarity, and are able to lay fears of a contested election to rest,” Nixon wrote. “Investors can now train their focus on what matters most to markets — economic and corporate fundamentals.”
I don’t know what those economic and sales-and-earnings “fundamentals” will look like, of course. There’s a lot of worry that inflation will accelerate. There are more Fed meetings to come. And there are geopolitical issues — like tariffs, the military actions in the Middle East and over in Russia and The Ukraine — on the slate, too.
That could lead to volatile markets.
And volatility is like a “siren’s song” for folks who want to trade.
Which brings us to the first of our Wealth Builder/Wealth Killer “Do’s and Don’ts” tips.
Tip No. 1: Don’t Trade
Just don’t do it. Wealth Builders invest for the long haul – playing on powerful storylines that lead to the best stocks.
Wealth Killers trade. And lose.
I know some folks will argue with me here. And I’m sure that some of you will say: “Hey Bill, I’ve made money trading.”
According to a Bloomberg report with data from the Futures Industry Association, options trading zoomed 478% from 2013 to 2023.
In a report from S&P Global Market Intelligence, researchers found that options trading by retail investors climbed more than tenfold from 2010 to 2020 — from $20 billion at the start of that decade-long stretch to $240 billion by the end.
Between January 2010 and February 2021, retail investors lost more than $3 billion, according to that study.
Those losses will continue; in fact, they’ll accelerate.
Even if you get lucky once … or twice … that luck will abandon you.
Besides the risk, there’s the time: Trading in the short-run takes so much more time than investing in the three, five, seven years or more that Wealth Builders focus on.
Just don’t get seduced.
In fact, if you want to make money as an investor as traders lose, here’s one stock that’ll let you do so.
Tip No. 2: Conduct an Inventory
As you know, stocks have zoomed. So it’s fair to ask: How are you doing? Is there anything you have that missed the train?
That, alone, isn’t a bad thing — after all, we’re long-term players. And if the underlying “story” still holds true, then it’s fine to keep going. But if that stock’s story has changed, then maybe you shouldn’t be holding on.
You folks know our storylines, which we detailed recently in this report that includes the Artificial Intelligence (AI) Era, Biotech Blockbusters and the New Cold War … and this one includes Income, the Death of the Middle Class and the Private Equity Tidal Wave.
One AI company I recently mentioned: Corning Inc. GLW 0.00%↑, which makes fiber-optic cable for AI data centers. One biotech play to consider here is “Pet Biotech” Zoetis Inc. ZTS 0.00%↑.
Tip No. 3: Beware of Scams
When it comes to investing, two emotions dominate: Greed and fear. Scamsters know this … and they find ways to prey on them — and sometimes both at the same time. Right now, for instance, they’re pitching “passive income” opportunities; but because you have to “do” something to access the income, those opportunities aren’t passive at all. Real income puts cash in your pocket — after you’ve accounted for inflation, taxes, market rates and risk. Below is a list of seven income stocks to research — and every one of them offers yields of 10% or more.
And beware of the “new” scams, which are sure to come along. Those dishonest opportunists will watch the headlines — like the ones I shared at the outset — and will work their magic from there. They’ll identify the “hottest” stories du jour, and will then create investment “products” supposedly designed to capitalize on those stories … to suck you in. Start watching for “Trump-related” investment products … and beware — they are Wealth Killers. Stay the course … and travel the Wealth Builder path.
Tip No. 4: Keep Some Powder Dry
It doesn’t take a big “event” like the Great Pandemic, The Big Short Era or even the Asian Contagion to tip stocks over. Sometimes corrections, crashes or bear markets show up as part of the normal, healthy market cycles. Once you “flip the script” and see that, you also understand that market reversals are opportunities — to “shop on sale.” You can “Accumulate” more shares of stocks you already own. Or you can start a “Watch List” of companies whose shares you’d like to buy on price pullbacks.
With my “Five Stocks in Five Minutes” pullback plays list a few months back, I did exactly that. One of the stocks on that list: Investment-banking giant Goldman Sachs Group GS 0.00%↑.
Goldman is my own brand of “Trump Trade” kicker: It’ll benefit from the revved-up dealmaking we expect to see during this new administration. And it’s the “Mercedes” of investment bankers — these guys just don’t lose money.
There you have it: Four tips that’ll let you navigate whatever uncertainty careens your way — and plenty of investments that’ll help you win, too.
See you next time;
I like tip no. 1