Recently, citing “global developments” and “muted inflation,” the Federal Open Market Committee cut interest rates by 25 basis points. That was the Fed’s first rate cut since 2008, during the depths of the Great Recession. So it’s a big deal.
Wall Street knew the cut was coming … and reacted with a yawn. However, investors wanted more and Federal Reserve Chair Jerome Powell disappointed them.
During his news conference, he basically said not to expect any more rate cuts for the rest of the year.
“We started off [the year] expecting some rate increases. We then moved to a patient setting for a few months and now we’ve moved here,” Powell said. “As we’ve moved to more accommodative policy, the economy has actually performed as expected with that gradual increase in support.”
Wall Street didn’t expect that — and didn’t like it. The Dow Jones Industrial Average immediately plunged 334 points. The S&P 500 and Nasdaq Composite also both received better than 1% haircuts.
In other words, folks panicked.
And when people panic, they dump stocks with little regard to their real values or ability to produce income. They sell first and ask questions later.
The Time to Look for Forever Stocks to Buy
I don’t want you do that in a similar situation. I want you to keep your head while others are losing theirs.
You see, panic creates opportunities.
For example, the wake of the 2008 credit crisis was an amazing time to buy business like Apple (NASDAQ:AAPL), Altria Group (NYSE:MO) (the world’s largest cigarette maker), and Starbucks (NASDAQ:SBUX).
Apple tripled in value off its 2009 bottom in less than two years. Altria doubled off its bottom in about two years. Starbucks more than tripled in value off its bottom in about two years.
Days like this are the best time to add to your holdings in what I call “Forever Stocks.” These are stocks and funds that you hold through good times and bad — especially if they pay a steadily rising dividend
I tell my readers all the time that they should think of these investments as their core holdings. Treat these Forever Stocks as your “Elite 8” or “Top 10” — or whatever number you decide on. In my experience, eight to 10 stocks are ideal. In total, these stocks should represent about 25% to 35% of your total portfolio.
These are the stocks you hold through thick and thin, unless the rationale for owning them changes significantly or you decide to replace one of them with a different stock.
And then you buy more of them when opportunity strikes — days when the market drops. After all, buying a great stock near a major peak is less ideal than buying it near a major low.
Fantastic Gains in Store
We are still near the market’s peak, but the investment gains that can accrue from buying an excellent stock at even the worst times can be astonishing. Many, many times, my most outstanding investments started off miserably.
In 1999, I produced an institutional research product in which I recommended buying shares of Royal Garden Resorts (now known as Minor International), a Thai hospitality company.
Two years after I recommended it, the stock was down 37%. But I held on.
And despite this dismal start, Royal Garden went on to post gains of:
- 100% after three years
- 500% after six years
- 1,000% after seven years
- 2,000% after eight years
- 2,888% after nine years
Also in 1999, I recommended buying shares of Adidas (OTCMKTS:ADDYY), the German shoe manufacturer. It, too, plummeted shortly after my recommendation. Two years later, the stock was still down 50%.
But after 18 years, the stock had become a 10-bagger — up more than 1,000%. That result was six times better than what the S&P 500 delivered over the same time frame.
In hindsight, I recommended both of these stocks at “the wrong time.” And yet, both of them went on to produce large, market-beating returns.
It Will Happen Again
Even if the latest opportunity has passed, panic will strike again. After all, stock market crashes and other financial shocks aren’t aberrations. They are common occurrences. Just look at American history over the past 120 years or so.
During the last big market crash — 2007-2008 — instead of panicking, I showed my readers how to short dozens of the big banks and mortgage companies that eventually went bust.
People who followed my recommendations could have walked away with gains like 1,415% on Countrywide Financial, 4,408% on Fannie Mae, and even 6,425% on Freddie Mac.
Smart investors prepare themselves for all possibilities — especially when their retirement savings are at stake — because even a relatively minor decline of 20% could set your retirement back several years or more.
That’s why I’ve spent the past year and more developing Bear Market 2020: The Survival Blueprint.
Part “diary” and part “owner’s manual,” in Bear Market 2020 I take you by the hand and walk you, step-by-step, through the six tactics that will help you and your family navigate America’s next bear market.
History shows that it’s only a matter of time before the next financial shock. So if you’d like to insure you and your family’s financial well-being, this is the perfect book for you.
Eric Fry is a 30-year international finance expert, former hedge fund manager, and InvestorPlace’s resident expert on global investment trends. He founded his own investment management firm and served as a partner several others. In 2016, he won the Portfolios With Purpose stock-picking contest – Wall Street’s most prestigious investment competition – making him America’s Top Trader. With Fry’s Investment Report, Eric’s goal is to track the world’s biggest macroeconomic and geopolitical events – and help investors make big gains from those emerging opportunities. Click here to learn more.