Two guidelines if September weighs on the market … why holding cash no longer comes with a painful opportunity cost … good prices on great long-term stocks … don’t worry if prices go lower

 

It’s been a tough August for stocks.

Yesterday’s positive close saved us from going 20 consecutive sessions without seeing back-to-back gains.

As we noted in yesterday’s Digest, if history is any guide, September will be even bumpier. But if we do see continued selling pressured over the next handful of weeks, here are your marching orders from Eric Fry:

– Hold cash

– Concentrate most of your investments in “megatrend” opportunities

Let’s look at each, beginning with cash.

Cash is sitting pretty in today’s market environment

For newer Digest readers, Eric is our macro investment expert. In Investment Report, he identifies the massive political, social, and economic currents that are shaping global markets, then digs deeper, finding the best specific investments that are poised to capitalize on those macro trends.

It’s an effective approach. Eric has more 1,000%+ recommendations than anyone we know of in the newsletter business – 41. Most investors are lucky to get one such 1,000%-gainer.

Here’s Eric on why you should hold cash during any September bumpiness.

Cash is the one and only reliable vaccine against capital loss.

Like all effective vaccines, it provides no visible therapeutic benefit. It doesn’t make your hair grow, improve your eyesight… or lower your golf handicap. It simply repels harm and preserves your financial health.

Cash is the one and only infallible hedge against loss. It is risk-free and inert – just hanging out waiting for an opportunity, like a baseball pinch-hitter.

And importantly, cash is the starting point of every successful investment. Without cash, every opportunity is a non-starter.

Eric notes there’s a common rebuttal: “cash is dead money.” Well, while that might have been true 18-24 months ago, that’s no longer the case.

As you can see below, the top savings account rate has soared since January 2022. As I write, you can get a 5.26% return on your cash without having to lock it up for a single day.

Plus, with the Fed likely to hold rates at elevated levels for months to come (at best), and potentially raising them even higher (at worst), we’re not likely to see these yields drop anytime soon.

Back to Eric:

I recommend maintaining significant cash levels at all times.

While true that cash will “underperform” stocks most of the time, cash “outperforms” stocks when you need it most… when stocks are falling.

For this reason, cash is a helpful sleep aid… and also the fuel of future gains.

Meanwhile, if September weighs on the market, use it as an opportunity to load up on your megatrend stocks

Eric defines a megatrend stock as one that draws its strength from an unusually powerful mid- to long-term trend.

As an example, regular Digest readers will recall our issue last week that highlighted the commodity supercycle. Eric’s subscribers have been benefiting from that megatrend since 2020 (better still, Eric believes we’re in for another 165% gain from commodities before this cycle tops out).

But whether we’re talking commodities, AI, or perhaps EVs, here’s Eric speaking to the strength of these megatrend investments:

The more powerful a megatrend might be, the more likely the stocks at the heart of that trend will produce explosive gains, even if the overall market is struggling.

Megatrend stocks do not automatically follow the stock market’s day-to-day price action; they produce their market-trouncing gains by charting an independent course that is not closely correlated with the S&P 500.

That’s why investing selectively in megatrends can increase the odds of success… even if your timing is less than perfect.

To illustrate imperfect timing, Eric points toward Amazon.

We’ve all heard the stories about the jaw-dropping wealth you’d have if you’d invested in Amazon around the turn of the century when it was just a small bookseller.

But what if you were late to the game? What if you didn’t find Amazon until 2007? And you invested a huge wad of cash on October 23rd – which would turn out to be the stock’s all-time high up to that point?

Back to Eric:

Within one year of making this hypothetical purchase, your Amazon shares would have plummeted 65%… and two years after your purchase, you’d still be underwater…

But that investment would have produced a 100% gain within four years, 500% within eight years, 1,000% within 10 years… and a gain of more than 3,000% if you had continued holding those shares until today – or 11 times the return of the S&P 500 index over that time frame.

If you had dumped your investment in this iconic company to save yourself some near-term pain, you would have missed the opportunity to capitalize on the online retailing megatrend that powered Amazon’s stock to such a spectacular long-term gain.

Obviously, I cherry-picked that success story. But you see my point.

Free yourself of the burden of buying at the bottom

The market has sold off about 3% in August. It could easily sell off another 3% in September.

So, do you wait to buy at that bottom?

If that’s your goal, remember that it’s virtually impossible to time the ultimate bottom of a market drawdown. Fortunately, such precise timing isn’t required to generate fantastic long-term returns.

Perpetually waiting to invest based on the belief that a lower price is coming is a great way to 1) live in constant state of anxiety, and 2) miss out on prices that time will reveal to have been great entry points.

As we’ve pointed out in prior Digests , when considering investing in a megatrend stock, “how much lower might this stock go?” is worth asking, but it’s not the wisest question – and it certainly shouldn’t be the ultimate arbiter of your investment decision.

Rather, the better question is “is today’s price one that’s likely to generate strong returns for me in three, to five, to seven years down the road?”

If the answer is “yes,” then add to your megatrend stock position in peace without stressing about the potential for a lower price to come. After all, what if turns out you’re at the bottom at that precise moment and you miss the low?

But even if lower prices are to come, here’s some perspective

What most investors worry about it the following situation…

Meanwhile, what we all want is the following…

 

Well, guess what?

These “awful” and “great” decisions come from the exact same level – they’re just on opposite sides of the market’s low point. They would produce the same percentage return for an investor.

We’re looking at the S&P when it plummeted 20% between fall 2018 and Christmas Eve of that year – only to then stage an explosive rally starting after Christmas.

Separating these identical S&P levels was only a handful of weeks.

To be clear, the market doesn’t always enjoy such an explosive V-shaped rally that happens over such a short period

But when you invest in quality, megatrend-fueled stocks, recoveries do eventually come.

So, forget timing the bottom – just focus on a good long-term entry price on a great stock.

Returning to Eric, he believes the market is offering us a good entry point today:

While a selloff like the one we’re in right now – on top of a few rough weeks – is difficult to weather, now may be the best time to buy stocks you’ve been waiting to add to your portfolio.

Maybe they aren’t trading at their 52-week lows, but maybe they’ve sunk below previous support levels and are within budget now.

Thanks to recent market weakness, there are a handful of top AI stocks on Eric’s radar that are trading at good entry prices for a longer-term hold. If you’d like to get the name of one of his top AI stocks, totally free, just click here.

In the meantime, in preparation for September, make sure you have some cash, and get your megatrend buy-list ready to go.

Have a good evening,

Jeff Remsburg