Be Ready to Buy When 'Mr. Market' Panics
Editor's note: Many folks simply don't understand how the stock market really works...
In reality, it's just common sense. When "Mr. Market" hands you a fantastic value, you must be ready to buy.
Today's Masters Series essay first appeared in our free DailyWealth e-letter earlier this week. In it, Stansberry Venture Value editor Bryan Beach explains what the market's mood swings can tell us... why good businesses go on sale... and the beauty of a "value bowl"...
Be Ready to Buy When 'Mr. Market' Panics
You might have heard about "Mr. Market"...
This allegory comes from Warren Buffett's mentor, Benjamin Graham. In his seminal investing book The Intelligent Investor, Graham likened the stock market to an impetuous neighbor he calls "Mr. Market."
Every minute of every weekday, Mr. Market makes bids to buy the companies you own... and provides quotes to sell you thousands of businesses that you don't own.
But Mr. Market is capricious. And thanks to his shifting moods – as I'll show you today – you can make a lot of money by hunting for stocks in the bargain bin...
As Buffett – Benjamin Graham's star pupil – elaborated on "Mr. Market" in his 1987 letter to Berkshire Hathaway shareholders...
Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market's quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business... At other times he is depressed and can see nothing but trouble ahead for both the business and the world...
The more manic-depressive his behavior, the better for you.
Many people don't understand that the stock market isn't some code to be cracked or system to be beaten... It's really just common sense. Mr. Market is always there, ready to make you an offer.
Most of the time, his offers are reasonable and fair. But when he makes a stupid or irrational offer to buy or to sell, you should take him up on it. Otherwise, just ignore him... After all, you know full well he'll be back again the next day.
Notwithstanding last year's brief COVID-19 market panic, the fact is that we're now more than a decade into a bull market. So there just aren't many value companies lying around. The no-brainers are gone. Anything remotely close comes with "hair" on it.
Fortunately, I've never been afraid of a little hair. One of my favorite value setups is when a good company's shares fall for a reason that is not related to the underlying fundamentals of its business. Businesses can go on sale for any number of reasons.
I've covered a lot of those reasons over the years...
For instance, one-time solvable problems – like the temporary cost overruns that plagued a single project for HVAC contractor Limbach (LMB) – can be a source of temporary market opportunity. I recommended Limbach to our Stansberry Venture Value subscribers in December 2018. Within three months, shares had doubled... And we were able to lock in some gains.
Investors may also overreact to the macro trends they see taking place. For example, in September 2019, Mr. Market had a panic attack and decided that nobody would ever buy a house again using a human realtor...
As a result, the market cap of traditional realtor Realogy (RLGY) slid from $2 billion in early 2019 – about $13 per share – all the way into small-cap territory. We scooped up shares when they changed hands for just $6 and sold for a quick 70% profit just two months later.
We also like to take advantage of specific "delisting" scenarios. To be clear, I wouldn't recommend delisting situations to most other investors or speculators... but our team happens to have extensive experience with these situations. I'm talking about cases when an otherwise solid company delists from a national exchange while its accountants redo prior-period financial statements.
These radioactive situations always come with "forced selling," which drives down prices. Such was the case with Hanger (HNGR), which we introduced to our subscribers in December 2017, and Osiris (OSIR), which we covered in November 2018.
It often takes much less to give Mr. Market a good scare, though. And as you can see below, these kinds of value situations make for interesting, bowl-shaped charts. Take a look at what happened to the four stocks I mentioned above...
All of these stocks were Venture Value recommendations, except for Osiris. We didn't time these "bowl" shapes perfectly, but we still made fantastic gains... We sold LMB at a 43% gain, HNGR at 26%, and RLGY at 71%.
In short, when the market hands you a fantastic value, it's simple... You want to be ready to buy.
By buying at the bottom of the "value bowl," you're betting that Mr. Market will go back to paying what he used to pay for solid, established businesses... And that's a great bet to make.
Good investing,
Bryan Beach
Editor's note: Bryan recently identified a specific group of stocks that has outperformed every other sector over the past 15 years. Now, the COVID-19 pandemic has kicked things into overdrive. And Bryan predicts these stocks will soon soar much higher...
Because of that, our publisher Brett Aitken is sharing an urgent message today about a critical new development that could propel these stocks even higher in the coming months. The good news is, there's still time for you to take action... Get the full story right here.