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The Hidden ‘Sweet Spot’ of Bear Market Buys

We’ve seen big moves in stocks lately. The new coronavirus has sent investors panicking… then running back in relief as economic measures roll out. Stocks likely haven’t hit bottom yet. But while you don’t want to “catch a falling knife,” now is a good time to be building your wish list of profitable, lifelong investments…

By Austin Root, American Moonshots Portfolio


The idea that you ought to buy and hold stocks – even though you know a bear market is approaching or intensifying – will seem like nonsense to a lot of investors.

So don’t misunderstand me. You must be cautious in today’s wild market… using all the safety measures we recommend, such as position sizing, asset allocation, hedges, and trailing stops.

But the recent fall in stocks has a silver lining. It means we’ll soon get the chance to pick up cheap shares of the market’s most profitable, most resilient companies.

And while you might not want to hear it… we’re offering this advice because it’s what we’d want you to tell us if our roles were reversed.

Today, I’ll review one key characteristic of stocks that we look for in good times – that becomes especially important in bad times…


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Here’s a simple question: Do you think you could name any of the 20 best-performing stocks in the benchmark S&P 500 Index between 1957 and 2007?

Wharton economist Jeremy Siegel wanted to answer this question thoroughly. It’s not as easy to figure out as you might think. The composition of the S&P 500 changes frequently. Siegel had to go back and get the actual list of stocks from 1957… and then follow each one to see how much they paid out in dividends, spinoffs, mergers, and liquidations.

So… what were the 20 best-performing stocks over that 50-year period?

Almost without exception, these companies sell high-margin products in stable industries that are dominated by a handful of well-known brand names.

Look at the top 10 names on this list – all of which produced 15%-plus annual returns. Our bet is that most of you have a number of these companies’ products in your house right now.

Crane probably stands out as an exception, along with a couple of others. So what is it that Crane (a maker of high-margin industrial parts) has in common with these other companies?

It’s extraordinarily capital-efficient.

Because of the 165-year-old company’s excellent reputation, the unique, proprietary nature of its products, and the stable, long-term nature of its business, it doesn’t have to spend a fortune on advertising… or on building new manufacturing plants to come up with new products every few years.

This means that as sales grow, the company doesn’t need to reinvest more and more capital into its business. Over the past 10 years (2009 to 2019), Crane has earned gross profits of $10 billion… and spent just $478 million on capital investments.

That’s only 4.8% in expenses – a percentage that has remained stable during this period. And that means the company has more profits to distribute to shareholders. That’s the whole secret of capital efficiency.


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One of the reasons we’ve found it’s safe to buy capital-efficient companies during bear markets is that they can support their share prices…

Longtime Stansberry readers know we’ve recommended shares of Berkshire Hathaway (BRK-B) in the past as a great bear market stock. That’s largely because we know Berkshire will begin to buy back its own stock when its valuation falls… for instance, in times of economic hardship.

Capital-efficient companies can do the same, because they’re producing so much cash. In fact, a great test of any capital-efficient company is whether it’s producing enough cash to buy back all its outstanding shares.

This test combines the stability of that company’s cash flows (which is necessary for a high credit rating and access to cheap capital) with its cash-earnings power and a low share price. These are the three most critical factors for a successful bear market investment.

And here’s another hallmark of capital-efficient companies: They almost always return more money to shareholders each year than they spend in capital investments. They wait to buy back stock (or make wise acquisitions) when prices are low.

How can you do the same? How do you know when the right time is to buy these stocks, which almost always trade at rich premiums to the average S&P 500 stock?

To find the most capital-efficient companies, we look for the following criteria:

  • Companies that have reasonably large market capitalizations.
  • Companies with high returns on assets.
  • Companies that produce large amounts of free cash flow (“FCF”) in relation to the revenue they generate. FCF is the amount of cash left over after all operating expenses and business investments.
  • Companies that consistently reward shareholders with dividends and stock repurchases.
  • Companies that consistently grow their revenues, year after year.

During a bear market, you should focus on buying capital-efficient stocks with these five traits. We at Stansberry Research have analyzed, recommended, and respected many of them for – in some cases – years.

In short, the recent fall in stocks has been painful. But it could soon give us a chance to invest in the market’s top performers… the kind of stocks you want to buy and hold forever.

The Investment Pros Hit a Fear Extreme

By Chris Igou, analyst, True Wealth


Fear is driving the market today. But don’t turn to the investment pros for help.

Normally, that’s exactly what you’d want to do… look to the pros for guidance during a panic. It’s human nature. If we don’t understand something and need answers, we go to someone who has them.

That could lead you astray in the financial markets right now, though… if you’re looking to hedge-fund and mutual-fund managers, at least.

It’s not just mom-and-pop investors that are scared. These investment pros are also in fear mode. In fact, fund managers are the most bearish they’ve been since 2011.

If you follow their lead today, you could be making a big mistake. While it’s not safe to buy just yet, their fear is another sign that big gains could be on the way over the next year.

Let me explain…


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Humans constantly look for reassurance. And when someone up the chain of command agrees with your idea, you’ll likely dig in deeper.

But as I mentioned, history says looking to the investment pros could be a big mistake today. To see this, we can look at the National Association of Active Investment Managers (“NAAIM”).

The NAAIM Exposure Index is a weekly survey that helps us get a feel for what professional money managers are thinking. It’s a great indicator of how bullish or bearish those folks are at any given moment.

Essentially, the survey asks what percent of their portfolios are in stocks. A zero indicates that they don’t own any stocks. And a reading of 100 means they are fully invested.

Today, these fund managers have gone from almost completely invested to holding nearly no stocks at all. They’re the most bearish on stocks that they’ve been in four years. Check it out…

These folks were heavily invested just a few weeks ago – and rightly so. Stocks were at all-time highs. But that story quickly changed…

As of the most recent results last Wednesday, fund managers’ level of exposure to stocks is now at 11%. That’s the lowest level since 2011 – and it’s a powerful contrarian signal…

We’ve seen seven other cases where the investment pros have turned fearful since 2010. And each case ended up being a great buying opportunity.

Even more, most of the last seven cases led to roughly 20% gains or more over the next year. Check it out…

Fund managers are the most bearish they’ve been on U.S. stocks since 2011. And based on the table above, it looks like a great buying opportunity.

Now, the market is still in a downtrend. We never recommend trying to “catch a falling knife.” Longtime readers know we want to see the trend turn back in our favor before buying.

Still, today’s fear is setting up a major buying opportunity. We’re not there just yet… But once the trend reverses, expect big returns in the stock market.

The Best Way to Help Your Portfolio Survive the Next Crisis

By Bill McGilton, editor, Stansberry’s Big Trade

This is what we prepared for…

Stocks have plummeted. The Dow Jones Industrial Average suffered its worst-ever point loss on Monday.

It’s impossible to predict events like the global spread of a deadly disease… like the coronavirus, the cause of the current crisis. But with the right strategy in place, you can hedge against unforeseen disaster – months in advance.

Just think back to what happened in December 2018… Back then, the S&P 500 Index plummeted by more than 300 points in the course of a month. It fell roughly 20% from its October 2018 highs.

Most investors saw any gains for the year evaporate. Even David Einhorn – one of Wall Street’s more famous hedge-fund managers – watched his Greenlight Capital turn into one of the year’s worst performers… down 28% at the end of November.

Meanwhile, our Stansberry’s Big Trade portfolio soared…

In November, we held 13 open positions with six winners for an average gain of 1%. By December, we were sitting on 10 winners for an average gain of 65%. Five were showing triple-digit gains.

Now, volatility is spiking again… handing us more triple-digit winners and the ability to offset some of our losses.

All this might sound beyond belief. But we’ve been waiting for the peak of this decadelong bull market. And in Big Trade, we’ve used a key strategy to lock in our “portfolio insurance” before the next downswing…

The market is more volatile than it has been in years.

Gone are the days of 2017. Back then, the Volatility Index (“VIX”) – also known as the market’s “fear gauge” – was trading at sub-10 levels… all-time lows.

Now, the VIX is soaring. Investor panic is at multiyear highs – surpassing levels reached in 2008. Take a look…

The market has sold off sharply since mid-February. Investors are afraid of the coronavirus and the resulting slowdown in the economy.

But it can get much worse from here. That’s where this strategy comes in…

The strategy we use in Big Trade is all about intelligent use of speculation. We buy put options as a form of insurance to make leveraged bets against bad businesses – companies that are heavily indebted with poor prospects.

These are asymmetrical bets, meaning there’s disproportionate upside. A winning trade can pay many times more than the cost of a put option or a short recommendation.


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Here’s how it works – and what it has to do with volatility…

Options traders use fancy terms like “Black-Scholes” and “implied volatility” when they talk about option prices. But trading options is really no different from other types of insurance.

A risky company will cost more to insure (using put options) than a conservative, blue-chip company. This price difference is called the “implied volatility.” Risky companies cost more to insure because the market expects them to have bigger price swings than more stable blue-chip companies.

Simply put, the VIX is actually a measure of implied volatility. It looks at options prices for all the stocks in the S&P 500. When the VIX is high – in the aftermath of a crash, for example – put prices on every company are up drastically.

Investors become desperate… and will pay a lot more for portfolio insurance. So a VIX level at more than 20 typically signals market fear, while a VIX level at less than 15 represents a calm market.

This is very important to understand. You see, times like today’s crisis are when our speculations pay off. When the VIX is at such hugely elevated levels, it sends our portfolio insurance skyrocketing.

We want to buy well ahead of panics like these… when volatility is low, and the market is pricing options as if there’s nothing wrong.

When the VIX is at less than 20, we’ve used those opportunities to build out a portfolio of cheap puts. Then, when the market finally wakes up and pushes the VIX higher, we take profits as the prices on the puts skyrocket.

We also recommend placing small bets across a diversified portfolio of companies. That limits our risk, but gives us plenty of upside. In other words, if an individual put expires worthless, it should be so small relative to your overall portfolio that it won’t hurt you.

And if we get a sell-off (like we’ve seen recently), the price of the put can soar triple digits… and help offset some of the losses you may experience in other parts of your portfolio.

We have started to see the benefits of these bets in recent weeks… Since the end of February alone, we’ve closed four trades for gains of 227%, 137%, 126%, and 81%.

And this could be just the beginning of a volatile 2020.

There are other ways to hedge your portfolio – for instance, buying safe-haven assets like gold and taking short positions in troubled companies. But this is by far the best way to make truly outsized returns in a crisis.

If we see more losses from here, I hope you’ll have this strategy in place… helping your portfolio bear the brunt of the next market sell-off.

And the good news is… we’re adding a new service to Stansberry’s Big Trade. Because of the spike in volatility, we can take advantage of it in a different way. Let me explain…

Everybody wants insurance right now. Option premiums have raced higher… even on the best businesses in the world. Stocks like Apple, Microsoft, Coca-Cola, Hershey, etc., have all sold off with the market crash.

Now is the time to add to our Big Trade strategy… and take advantage of fear. If we can’t buy cheap and sell high, the best thing to do is the opposite – sell high, and then wait to buy low.

The combination of cheap stock prices on high-quality businesses and high-risk premiums in the options market makes a good opportunity for smart investors to cash in on fear.

So in addition to buying puts on the weakest companies, we’re going to generate income by selling expensive puts on some of the best companies we wouldn’t mind owning if we get put shares. In today’s environment, we can collect high premiums by selling these put options.

In a brand-new special report, we just showed subscribers how to sell the put options up front, receive a cash payment up front on five high-quality stocks, and profit as the fortunes of these solid businesses improve. (Again, this is the opposite of our usual strategy of buying puts – where we profit as a business declines.)

Moving forward, we’re only going to sell puts on the best companies that we wouldn’t mind owning if their stocks get put to us… by writing insurance on companies that offer high premiums. In this way, we’re being paid handsomely by other investors for the obligation to buy these stocks if they fall below the strike price.

No matter what happens, we’re set to win.

If the stock doesn’t fall below the strike price by expiration, we keep our put premium and we don’t have to buy shares. (That’s what we bet will happen when we open a position.) But even if the stock does fall below the strike price, we’ll still be buying shares of a great company that we don’t mind owning anyway, at a good price.

Our goal with this adjusted put-selling strategy is to cash in on falling volatility and rising stock prices as the stock markets settle… and before the puts on these stocks expire. In this way, we can buy back the puts we sold at a minimal price and close out the position – earning a higher annualized return on our investment.

So as you can see, in Big Trade, we’re always adapting our toolkit to help our subscribers make the most of what’s happening in the markets… And now, we’re positioned to profit whether it’s the calm before the next storm or taking advantage as the panic subsides.

This Is How Much Cash You Should Keep in a Crisis

By Chaka Ferguson, managing editor, Palm Beach Daily

You never know what life can throw at you… That’s why you need cash.

That’s what I wrote last month – before the coronavirus pandemic took a sledgehammer to the global economy.

The Dow had its largest single-day point drop on Monday. And since February 12, it’s down 31%. From their highs around the same time, the European and Asian markets are down 35% and 24%, respectively, too.

The outbreak has caused massive disruptions for everyone… Even PBRG staff at our Delray Beach, Florida headquarters are working remotely indefinitely.

Today, I won’t provide you with a series of predictions or best guesses for the year ahead. We’re in uncharted waters. No one can really provide answers yet.

But it is clear we’re likely headed for a recession.

So what I want to share is how we’ll handle this unprecedented crisis at PBRG…


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Put Aside This Much Cash

Look, we know times like this can be stressful. The coronavirus has the markets and entire communities on edge.

But history proves that these sell-offs are temporary – and the market will eventually rebound.

And if you follow our asset allocation and risk-management guidelines, you’ll emerge on the other side of this pullback in a much stronger position than you’re in now.

You see, the long-term trajectory for the stock and crypto markets is up. So don’t let this temporary setback deter you from the bigger picture.

This may sound like cold comfort in extreme times. But remember, the sun will rise tomorrow.

In the meantime, one of the best things you can do is hold cash…

At PBRG, we recommend you keep up to 10% of your portfolio in cash. That includes checking and savings accounts, money markets, CDs, and certain cash-like ETFs and mutual funds.

You should always keep some cash on hand. Whether it’s for an emergency, a bear-market buying opportunity, or something else, you’ll be glad you had some.

Now, we understand not everyone is in the position to raise 10% cash or already has that much cash on hand.

In that case, Palm Beach Insider editor Jason Bodner recommends the following…

We all have to be home for a while. And there’s big fear about what will happen to businesses, both big and small. But you need to take care of yourself and your family. So look over your budget and find areas where you can trim and save.

Even if it’s just a little, reserving some cash is just one action you can take during crises like we’re seeing today.

But the most important thing you must do now is stay rational…


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Stay Calm

No amount of risk management or asset diversification will matter if you don’t make rational investment decisions. (This goes for your other life decisions during this crisis, too.)

The first thing we have to accept is that this sell-off will be painful. We could see the market drop 40–50%, or more, before this pandemic is over.

But as Daily editor Teeka Tiwari says, the market is self-healing…

I’m one of the most conservative investors I know… Yet my losses over the last three weeks are now over $1 million. Sure, they’re unrealized losses. But I can’t stop myself from thinking of what else I could be doing with that million bucks…

There are some questions we should not ponder. And this is one of them. As long as you’re using sound investing methodology, correct position-sizing, asset diversification, and minimal to no leverage… there’s no profit in diving into the well of “what ifs”…

You’re likely to emotionally drown yourself in self-recrimination. Worse, you may financially drown yourself with panic-based decisions.


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Teeka recommends you sit still during this period of market volatility. As he points out:

So even if we end up dropping 40–50% – or more – during this market crash like we did in 2008 (and I want you to know that is absolutely possible)… the long-term compounding power of stocks will come to your rescue – as long as you stay rational.

Now, we all need to take this very seriously. We should follow the CDC’s recommendations… wash our hands frequently for at least 20 seconds… and avoid crowds and traveling.

But we don’t have to be paralyzed by fear.

Remember, the best thing you can do right now is just hold still until this carnage is over. And in the meantime, enjoy your family and live your life…


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Just like with stocks, the forced selling in cryptos is giving us a perfect entry time into this market.

Teeka says it all has to do with two forces coming together in 2020 that’ll create the perfect environment for you to potentially turn a handful of $500 investments into as much as $5 million.

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What to Make of the Kooky Action in Gold

By Dr. Steve Sjuggerud


“What’s the deal with gold right now?” you might be asking.

“I thought it was a crisis hedge, Steve. But the metal has been falling.”

If you own any gold – or were thinking about buying some – these are valid concerns. Lots of folks think of gold as a hedge against uncertainty. And that’s usually the case.

Why, then, is gold down double digits in less than two weeks?

Gold isn’t broken. Don’t worry about that. In fact, if we look at history, this action makes a lot of sense.

This might surprise you… But when crisis hits, history says you shouldn’t expect a big pop in gold right away.

Let me explain…


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This goes against the conventional wisdom. Most folks believe gold is a crisis hedge that immediately goes up when stocks crash. But it isn’t always that simple.

Yes, gold is a crisis hedge. And it does its job. But the way it gets there isn’t what most would expect.

The Great Recession of 2008 is the perfect example. Take a look at how this major gold fund performed compared with U.S. stocks…

This isn’t what you’d expect. As the housing crisis unfolded, gold chopped sideways, largely falling alongside the S&P 500. It looked like investors had no safe haven… But that wasn’t the case.

In reality, the issue was patience.

Investors who got into gold as the crisis unfolded did incredibly well… eventually. It just took a little time. But just about any investment in gold – whether during or after the crisis began – led to outperformance over stocks. The chart below shows it…

Look at how gold did compared with stocks if you’d bought in early 2008 as the crisis hit…

Despite the initial chop, gold massively outperformed stocks if you’d bought as the crisis began. It’s more than that, though…

In 2009, even as the market recovered, gold was the better bet.

If you had bought stocks in April 2009, just a month after the S&P 500 bottomed, you would have underperformed gold over the next year. Fast-forward to 2010, and the story is still the same… Gold buyers outperformed the market over the next year.

That may seem crazy. But it was true for buyers getting in at the beginning of 2011, too. Even a recent crisis tends to mean big opportunity in gold.

This should get your attention. For the first three years of the recovery, gold was the outperformer. Not stocks.

We’re starting to see this play out again now…

The news of the coronavirus broke in January. And you might have expected to see a big jump in gold prices. After all, a new SARS-like infection is darn scary.

The metal did jump at first, before stocks started falling. But it has fallen alongside stocks over the last couple of weeks.

This is similar to what we saw in 2008. Gold tracked stocks as the crisis began to unfold… Then, over the coming years, it dramatically outperformed thanks to low rates and high fears.

We’re likely in for a bit of chop before gold dramatically outperforms. That’s exactly what happened last time. But the important thing for precious metals investors is that you don’t need perfect timing.

In times of crisis, you shouldn’t worry about timing the gold market exactly right. You just need to take advantage of the near-certain rally over the long term.

So yes… if you only glance at the gold market, it seems odd right now. But if you dig deeper, you’ll see that things are playing out exactly as you’d expect.

History says that buying gold today is a recipe for long-term outperformance. All you’ll need is a little patience.