July 11, 2024
I've Seen This Before … Here's What to Do
Dear Subscriber,
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| By Nilus Mattive |
I’m skeptical of this stock market rally.
Sure, it’s nice to see the markets notch one all-time high after another.
But I’ve been doing this for a long time now.
I know what happens after tech stocks hit one all-time high after another … and every little pullback turns into another monster rally. You probably do, too.
It’s enough to make you feel like the one sane person in a world of insanity.
I remember what it felt like as a young man getting his first job on Wall Street back in the late 1990s. Back when valuations soared to obscene levels, and tech companies held lavish parties all over the city.
My friends and I would go to these events held at the hottest nightclubs with free food and open bars. We’d hear stories like the one from my neighbor, a college student, who parlayed her day-trading money into a new baby grand piano.
I had accepted a new role with a team involved in building an online investment platform for alternative assets with funding from a major investment bank.
What a time to be 22 years old and living in New York City!
A year later, the parties ended … my neighbor sold her piano … and I had no job.
Here’s a chart of the Nasdaq over the time I’m describing …
You can see that from 1998 through the beginning of 2000, it soared from the mid-1,000s all the way to 5,000 …
And then quickly returned back to the mid-1,000s by 2002.
The best a buy-and-hold investor could have experienced was zero appreciation.
Someone with bad timing could have lost 70% of their money.
By the time I joined forces with Dr. Martin Weiss in 2006, people were back to celebrating … mostly about real estate this time.
Yet Martin and I both labeled the situation as another speculative bubble.
Because I had just left New York City and moved to South Florida — ground zero for the house-flipping frenzy — it was completely obvious to me.
But Weiss’ warnings were falling on deaf ears.
Nobody wants to hear reasonable arguments or historical data when there’s lots of money to be made!
The problem is that, once again, a lot of the profits eventually went up in smoke.
Here’s a chart of residential real estate prices in Miami as measured by the Case-Shiller Index from 2000 through today …
You can see that nearly all the gains made through 2007 had vanished by 2009. And positive price appreciation only started returning in the midst of the Covid pandemic.
So again, someone with bad timing could have lost a fortune and waited more than a decade to get back to break even. In this particular instance, millions of Americans actually lost their homes and never recovered.
Which brings us to today …
The Nasdaq is now sitting more than three times higher than its prior peak reached almost a quarter-century ago.
If you’ve been holding that entire time, terrific! You’ve done very well.
But if you think two-thirds of your money can’t disappear in a matter of months, well, history simply isn’t on your side.
And if you’ve been buying high-flying names more recently, the pain could be a lot worse when the tide turns.
A lot of people forget about the brutality of the math ...
- If you buy an investment at $1,000, and it goes up 200%, you now have $3,000.
- If that same investment then drops 70%, you’re left with $900 … 10% less than you originally started with.
It’s not a coincidence that I’m using these figures. It’s roughly how much the Nasdaq has gone up since 2015 … around the time when I believe valuations started becoming disconnected from reality. And on the downside, it’s how far the Nasdaq fell during its last collapse.
The point is simple …
Big drops eventually come. They can come quickly. And they can erase many YEARS of good times when they do.
Perhaps this is why Warren Buffett recently pared back his Apple stake and told Berkshire Hathaway investors that he expects the investment company’s cash pile to approach $200 billion in the second half of 2024.
To put that number into greater context, Berkshire’s entire stock portfolio is worth about $330 billion!
Recent data on everything from prices to jobs has only provided more fodder for Buffett and my concerns.
And then there’s the recent resurgence of several meme stocks — largely spurred by a single picture from “Roaring Kitty,” the king of the Reddit traders — which suggests plenty of newbie investors are happily embracing high-risk activities once again.
We also have the upcoming presidential election … the fact that our national debt continues to soar to unprecedented levels … and credit card balances continue to rise against a backdrop of dwindling personal savings.
Maybe I just worry too much.
But it all feels like 2000 or 2007, which is why I want to revisit an old playbook of mine …
My Personal Playbook for the Rest of 2024
“Risk-on” assets — tech stocks, junk bonds, and yes, probably cryptocurrencies — work great when things are going up. They also amplify losses on the way down for both technical and fundamental reasons.
In contrast, conservative companies that pay steady dividends typically fare much better.
The ongoing income itself helps cushion the downside, sure … especially if the weakness lasts for a long period of time.
But it’s more than that.
The very reason they’re able to pay steady dividends in the first place is because they tend to operate mature, recession-resistant businesses.
One quick and easy way to buy a large swath of these dividend payers — and dividend growers — is the ProShares S&P 500 Dividend Aristocrats ETF (NOBL).
It holds all the companies in the S&P 500 that have been paying and increasing their dividends for the past 25 consecutive years.
But there’s another way to avoid the hysteria and “risk-on” mentality. Simply cut out the emotions of investing.
Dr. Martin Weiss — whom as you’ll recall joined me ahead of the housing crisis to warn investors — recently announced a new emotion-free system that uses an AI model that was 10 years in the making.
This removes the emotions that spur the huge spikes before a collapse. This data-based, advanced-AI approach has already proven it can beat the market consistently.
I urge you to check out Dr. Weiss’ latest interview about it here. But you need to hurry; he’s going to take it offline soon.
Best wishes,
Nilus Mattive
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