Today was one of the craziest days I’ve ever seen in the market.
Some of my stocks were up triple digits … for no reason!
Other stocks of mine were down big … also for no reason.
The market overall was down about 2.5%, which isn’t historic by any means. But the action in individual stocks was insane.
I think this is the beginning of the end of old Wall Street, and we’ll talk more about that soon.
For today, I want to tell you what I think you should do about it …
If you read the news today at all, you probably saw earnings and speculation as the reasons given for today’s craziness.
Well, earnings were pretty darn impressive. And remember, we’re in the middle of a pandemic … so there will be some disappointments and shortfalls. There must be.
The speculative trading is real. You’ve probably heard about AMC Entertainment Holdings (NYSE:AMC), which was up as much as 310% just today as individual investors who hang out in Reddit chat rooms decided to buy in big numbers.
AMC is a heavily shorted stock, and when those stocks see increased buying, you get what’s called a “short squeeze.” Buying pressure builds and builds like a snowball rolling downhill, and you can get some wild price moves.
If you’re not familiar with short selling, here’s how it works: You borrow shares from your broker and then sell them on the open market. You pocket the money, all the while knowing that at some point you will have to buy those shares back to return them to the broker. The hope is to buy them back at a lower price than you sold them, and the difference would be your profit.
When the opposite happens, you’re in trouble. If you need to buy a stock back to return it to the broker and its price keeps going up and up and up, your losses also keep going up and up and up.
Shorting stocks can be risky — your theoretical losses are limitless — and expensive. It’s also an area of investing rife with manipulation … and we saw a bit of that in reverse today.
Oftentimes its research firms — irreputable research firms — that will short a stock and then issue a negative report on it, causing the price to fall and their profits to increase. I absolutely hate the unethical people who do this, and I call them out as often and as publicly as I can. I think it should be illegal.
But today, we saw individual investors giving it to the institutions. The Redditt crowd bought tons of shares of AMC Entertainment as well as GameStop (NYSE:GME). Any investor who was short those stocks, many of which are institutions, scrambled like crazy to buy shares as fast as they could to try to limit their losses. That sent the prices insanely higher.
So what the heck do you do when stocks are acting weird?
Forget about the crazy stuff and focus on what we do know.
There are always short-term wobbles and pullbacks, and sometimes they get out of hand. But if the big-picture and long-term trends don’t change, you get spectacular buying opportunities.
For example, we know that …
Joe Biden is now the president of the United States.
The Biden administration is going to spend big time. The fiscal printing presses are going to be smoking.
President Biden wants massive spending on both infrastructure upgrades and clean energy, probably on a similar scale of $1-$3 trillion.
At the top of the list will be things like solar power, battery storage, improving the nation’s power grid, and a major switch to electric vehicles to lower emissions. All are familiar themes here in MoneyWire.
And clean energy sources like solar power are now at the tipping point where costs just about make it a no brainer.
In fact, a massive change is already underway.
In 2019, only about 2% of electricity in the U.S. came from solar power. (Right away, you can see the huge growth potential.) At the same time, solar accounted for 18% of all new energy capacity last year.
There are several major catalysts that will continue the momentum in clean energy — especially in solar power — regardless of what speculative trading might be going on in the market right now.
For example, Bloomberg NEF predicts that by 2025, the cost to generate power from solar will be cheaper than oil for the first time ever. Money talks, and this would open the door to mass adoption of solar.
Even better for investors, solar is still in its early growth stages. It was actually discovered back in 1876, so the idea has been around for a long time. But it is now at an inflection point as technology improves and costs come down.
The way forward is clear. As the Roaring 2020s move along, the upside potential in solar gives us one of the best opportunities in the entire investment world. When crazy market action makes those stocks cheaper, you get buying opportunities you can’t pass up.
On the date of publication, Matthew McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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