Finally!
A reasonable day in the markets. This is the first good sign I’ve seen in the financial markets since this crisis began.
But, one might ask, what about those days that went up 10%?! Those were GREAT days, right?
NO!
Volatility is volatility. Volatility is the enemy of your bank account. Most people are long-term investors. Volatility is great for day traders and hedge fund managers who hold stocks for an hour or two. But for long-term investors, you want to buy when people are not panicked AND there is still opportunity in the markets.
But… but… shouldn’t you buy when there is “blood in the streets”?
Of course you should. Right now the market is down over 30% from its high. And yes, that’s a buying opportunity. BUT… as a long-term investor looking for good value… it doesn’t matter to me if I get a stock when the market is 30% down or 20% down. If the information about this crisis is more calm (which it will be eventually, if not rather quickly in the next few weeks), then I am happy to hunt for value opportunities.
Why not 30% down? Because, again, any market that goes up 10% in a day can also go down 10% in a day. I want to act when there’s still opportunity but I have a little more visibility on the future of whatever crisis we are in.
This means staying informed (don’t count on mainstream media). I stay informed through the many guests on my podcast as well as my contacts in the hedge fund community (I was a hedge fund manager and also a professional money manager for over 20 years).
And it also means don’t gut-sell or gut-buy just because there’s blood in the streets or you’re afraid to miss the boat or you think the world is going to end.
- The world is not going to end
- When things are calm it’s easier to focus on the fundamentals of companies so you can buy value when it exists.
TODAY is the first day in awhile that I’m seeing the kind of market I like. The S&P 500 is a little over 1% up as I write this. Perfect! I’d love to see this type of low volatility for a few more days.
That tells me that people are not focusing as much on the panic and the hysteria but they still haven’t put their money back in the markets yet.
Trust me, they will (the reasons for which I will outline in my next note).
In the meantime, I’ll tell you some stocks on my radar. There are many but here are just a few that I am looking at.
For one thing, this is an example of a no-brainer but I AM NOT GOING TO DO ANYTHING ABOUT IT because crazy is as crazy does.
Check out ZOOM Technologies, Inc. (ZOOM). Now check out Zoom Video Communications (ZM).
Zoom is video conferencing software that is changing the game in terms of remote work. This is one of the few stocks that has gone up huge since the crisis began.
BUT… here’s the problem: Both ZOOM and ZM have gone up huge.
ZOOM is not the company that makes the Zoom software. In fact, I don’t even think ZOOM does anything at all. I think it’s an empty shell with no business.
And yet, the stock has gone from $2 to $14 during this crisis because the maniacs out there don’t realize it’s a DIFFERENT COMPANY than ZM.
Does this mean it’s a “short” opportunity? In order words, can you place a bet that it’s going down? Because it will go down. It will go back to $1 or lower.
And the answer is… NO! Don’t do it. Don’t be one of the crazies. Any stock that goes from $1–2 to $14 for horrible reasons can easily go from $14 to $50 overnight before people realize what’s happening.
Funds can manipulate it. Daytraders can screw with it. Bankers can force the small investor to go broke by driving the stock price up before anyone can get out of their short.
It will go down. It’s probably a good bet to bet against it. But I don’t like stress and it’s not the sort of investment that feels “safe” to me EVEN THOUGH it will certainly, at some point, be lower than it is now.
Meanwhile, check out some good, safe plays that pay high dividends. These stocks are called “closed-end funds.” They are funds, but they trade like stocks, which means they can trade for LESS than their total assets are worth.
It’s like someone is selling you a $100 wallet for $90. I would take that bet all day long.
And it’s even better when it’s not $90 but $80, which is what is happening in this market.
For instance, Royce Value Trust Inc. (RVT). Royce is a well known name in value investing. It basically owns a basket of stocks.
Imagine you could buy the stock market as a whole, but get it for a 20% discount. That’s what RVT is right now. And that discount is at its 52-week high, meaning it hasn’t traded this low versus the stocks it owns in over a year.
So, again, it’s like buying a $100 wallet for $80.
But even better, because it’s dipped so much, it pays a 14% dividend. You can’t find a dividend like that from any stable stock EVER.
Does it own penny stocks? Not at all. It just owns a basket of solidly performing value stocks diversified across the world. But when RVT dips, the dividend goes up because you are getting this basket of stocks for a lower price than if you own them directly.
Closed-end funds are ALWAYS my go-to strategy when there is a market crisis like this. It worked for me in the early ’00s. It worked for me in 2008/09. And it’s where I’m spending my time now to find stocks that:
- are high-quality
- have potential to move up a quick 10–20%
- pay a huge dividend.
It’s only in these situations that one can find huge dividends like this that are safe and value-driven.
I have more of these but please write to the feedback email if you’d like to see more.