From Tuesday through Thursday, the S&P has lost 7%. Here’s how long-term investors should view it

 

Similar to how it felt yesterday, back on Friday, March 20th, stocks were in freefall.

From February highs, the S&P was down 32% with no bottom in sight.

 

 

On that day, here’s what Matt McCall, editor of Early Stage Investor, wrote to his concerned subscribers:

I know it’s scary out there. I know the headlines are terrible. I know stocks are down big. But as I’ll detail in a moment, now is NOT the time to panic.

Instead, I urge you to follow Warren Buffett’s advice … and see this time of extreme fear as a time of great opportunity.

What Matt couldn’t have known was that the market-bottom would come on the very next trading day.

***As part of his update, Matt had a plan … a way to take advantage of the historic market collapse

 

The graphic below is what he sent his Early Stage Investor subscribers, preparing them for what he believed was coming …

 

 

With the gift of hindsight, we know how things turned out.

Here’s the chart of the Nasdaq, following a trajectory that’s eerily similar to Matt’s Road Map projection …

 

 

Here’s Matt from a recent update, commenting on the market-action since his call:

To be honest, we’re getting back to highs faster than I thought we would. But once again, it’s not about the timing. It’s about thinking rationally and putting yourself in position to make money.

To help with that, my goal was to create a long-term portfolio of stocks that had fallen to extremely undervalued levels.

I knew some areas of the economy might never come all the way back, but others had — and still have — the same hypergrowth futures they did before the pandemic.

The only difference? They were cheaper.

As of Matt’s update a few days ago, the basket of stocks he recommended as a way to capitalize on the crash was up about 25% in a little over two months. Leading the portfolio is a 76% surge in an artificial intelligence software company, and a 45% rally in a 5G-related software company.

***But the market is all about “what’s next.” And does yesterday’s weakness hint at a bigger pullback to come?

 

From Tuesday through Thursday, the S&P lost 7.1%, most of it coming in yesterday’s 5.9% drop.

Fueling the losses were troubling news about a resurgence in COVID-19 cases, and Fed Chairman Jerome Powell’s comments on Wednesday about the U.S. economy’s recovery that were less than comforting.

In the wake of these negative influences, the CBOE Volatility Index (VIX) which is commonly referred to as Wall Street’s “fear gauge,” surged 48% yesterday.

With this as a reminder of how quickly fear can re-emerge in the marketplace, let’s return to Matt, from a recent update:

It is the hardest thing to do as an investor.

It is also perhaps the most important thing to do if you want to build life-changing wealth.

I’m talking about buying stocks when everybody else is selling. Or, as Warren Buffett famously put it:

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

Believe me, I know it’s much easier said than done. Our brains are wired to avoid danger, so our gut reaction is to join the panic and sell.

But if you can put the emotions aside and let logic, analysis, and market history guide your thinking, you learn that market crises produce some of the best buying opportunities you will ever get.

***Most investors aren’t able to take advantage of these selloffs, remaining slave to their fears

 

This can result in huge missed opportunities — potentially life-changing opportunities.

Analyst Cullen Roche put a comedic twist on this unfortunate reality of investing saying, “the stock market is the only market where things go on sale and all the customers run out of the store.”

As I write Friday morning, the market seems to have recovered its animal spirits … but that doesn’t mean another drop isn’t ahead of us.

But we can say with a high degree of confidence that whatever weakness is immediately in front of us pales in comparison to the wealth-building potential that’s further out in front of us in key sectors.

In other words, perspective is everything …

***And from a long-term perspective, weakness in the broad market that drags down the prices of elite stocks isn’t a crisis … it’s a sale

 

The more pressing challenge for investors involves two things — identifying the sectors that are poised for multi-year growth, and then willing yourself to override fear-based emotions and position your portfolio alongside these sectors when opportunities arise.

As to the first challenge — finding strong sectors — that’s Matt’s specialty. As an illustration, here he is speaking to the opportunity in 5G from a recent update:

The 5G upgrade is a historic event. All the amazing innovations you hear so much about today — like self-driving cars, artificial intelligence, and the Internet of Things (IoT) — will be made possible by 5G.

It’s no exaggeration to say the breakthroughs made possible by 5G will DWARF the economic impact of the internet.

I’m talking about more than $56 TRILLION in new wealth.

Years from now, we’ll look back at the creation of 5G the way we look back at the creation of the internet … or the buildout of America’s railroads.

The second part, controlling your emotions, is harder. But it helps if you remember two things: facts and focus.

Start by arming yourself with facts …

For example, here are some facts about data growth and 5G from Matt:

According to Raconteur, every day people send 500 million tweets, 294 billion emails, and 65 billion messages on Facebook’s WhatsApp messenger service. And on top of that they conduct five billion internet searches.

That’s just the little stuff. Connected cars create four terabytes of data every single day. A terabyte equals 1,000 gigabytes, so that’s 4,000 gigabytes per car per day. For comparison’s sake, a two-hour movie on Netflix requires about two gigabytes of data. So every connected car on the road creates the equivalent of 2,000 movies per day!

Those numbers are from 2019. They will look like child’s play in a few years …

The overall amount of data in the world is expected to jump from 23 zettabytes to 175 zettabytes by 2025 — an increase of more than 7X …

And here’s the kicker: By 2025 there will be 175 zettabytes of data …

Much of the explosion is coming from data created in real time … By 2025, real-time data will make up 30% of all data. That puts the amount of real-time data at more than 50 zettabytes in a few years — more than double the entire amount of data in the world today. A big part of that is the growth of sensors on nearly every device. And as 5G wireless technology expands in the next few years, it will fuel even more data growth.

***Next, armed with such facts, use them to help you focus confidently on future growth instead of being distracted by short-term hiccups

 

It really boils down to where you decide to focus your attention.

Will you concentrate on fears about how COVID-19 might slow our recovery during the next year or two?

Or will you focus on how the numbers suggest 5G will be nothing less than transformational, reshaping our world a decade from today?

Back to Matt on this point:

Will the introduction of next-generation wireless technology slow due to the pandemic? No. The rollout of 5G will continue, changing our lives forever …

Will progress in artificial intelligence (AI) slow due to the pandemic? Absolutely not.

Will electric vehicles stop taking market share from traditional gas-powered vehicles? No way.

As we wrap up, no one knows where the market is headed next week or next month. But we can say with a high degree of certainty that 10 years from today, certain market sectors will be vastly higher, and will have rewarded investors who took advantage when opportunity presented itself.

Today, Matt is seeing many opportunities in 5G and other tech-related stocks.

What are you seeing?

Have a good evening,

Jeff Remsburg