A rare opportunity to make 250% or more...

How much is a good idea worth?

Hundreds of millions of dollars? Maybe more? Today's Digest is certainly worth that much in the hands of the right investors. Below, you'll find details on what I believe is a very good idea.

This strategy rarely works – but only because it's rarely available. When it is available, it's essentially a "lock."

What you'll find below is the most valuable strategy in the markets. It's also one of the hardest things for investors to do emotionally. The only way to overcome that critical barrier to success is by studying this idea and trying it a few times yourself.

Remember: There is no teaching. There is only learning.

As longtime subscribers know, I spend my Fridays writing to you about the one thing I'd most like to know if our roles were reversed. More often than not, this involves trying to show you an investment strategy I know you're unlikely to actually try – like selling puts, buying discounted bonds, or learning how to invest in insurance stocks.

These strategies involve many complicated ideas. They would take most investors a lot of studying to understand and execute. Those barriers are good in a way, as they encourage readers to be conservative.

My fear with this week's idea is actually the opposite. What I'm going to show you below is so simple and so intuitive, everyone reading this Friday Digest will know exactly how to execute this strategy.

The hard part, for conservative investors, will be managing the emotions of this trade. On the flip side, if you know that you're a gambler at heart... if you inevitably bet too big... if you can't tolerate volatility... stop reading right now. What follows is a strategy that requires an ironclad grip on your emotions and a dedication to supremely disciplined investing.

Meb Faber (www.mebfaber.com) is brilliant and one of the few truly original thinkers in finance. The chief investment officer of Cambria Investment Management, Meb has been coming to our annual Spring Editor's Conference for a decade. He always brings an insightful idea to the table – one that has been seriously vetted and researched.

Recently, he sent around a note about one of the most valuable and "core" ideas in finance – reversion to the mean.

As every investor knows, nothing goes up forever. The current bull market (from 2011 to present) is one of the longest running in history. Sooner or later, the "gravity" will cause the market's momentum to slow, and then to reverse. And when the market "reverts to the mean," stocks, on average, will plummet. Some investors will have "reasons" to sell. But most investors will simply sell because everyone else is selling. Lots of money will be lost.

Every investor who lived through the 1987 market crash, Russia's 1998 default, the tech wreck of 2000-2002, or the mortgage debacle of 2008 knows that every six to 10 years, something goes awry in the stock market.

It's obvious. It's common sense. Trees don't grow to the sky. Sooner or later, the market "reverts to the mean."

Meb's idea is based on this concept. Just like stocks don't go up forever, they don't go down forever, either. Sooner or later, financial markets form a bottom. Sooner or later, the correction or bear market creates such value that it attracts new buyers. And sometimes, for no apparent reason at all, stocks will suddenly shoot higher.

Meb decided to study both whole countries (with an investable stock market) and asset classes (types of investments) to determine if they showed any obvious or tradable pattern. What he found is interesting...

Meb studied five major stock markets from 1903 until 2007. He wanted to know what stock prices did on average in these markets after falling for three consecutive years. He discovered that in major stock markets, share prices didn't often fall three years in a row. Three consecutive years of lower prices almost never happened – those instances occurred less than 3% of the time.

But when markets fell three years in a row, the following bull market was extremely powerful. The average return in stocks during the fourth year was more than 30%. That's a significant result, something that wouldn't happen by chance. This big move higher is caused by reversion to the mean, not chance.

When Meb studied asset classes, he found similar numbers. After three years in a row of declining equity prices, the average return in the fourth year was 34%, almost three times higher than the average return of all the years in the study. Again, statistical analysis tells us these are meaningful results, not just chance. They're proof of mean reversion in equity prices. Buying markets and asset classes that are down three years in a row is a rare and valuable speculation. But... can we make the results even better?

Meb also believed that mean reversion would lead to even more powerful rebounds in prices where the value destruction had been the greatest. He studied countries with stock markets that declined by 80% or more. On average, these countries saw their indexes rebound by nearly 120% in the three years that followed.

And that's not all...

Meb found the same kind of powerful rebounds in different industry groups, too. He studied U.S. industry groups going back to the 1920s. When a U.S. industry group fell by 80% or more from a peak, the average return three years later was more than 170%.

Here's my humble suggestion...

I believe that some combination of rising interest rates, rising defaults in the corporate bond market, and global currency/trade wars will likely cause the U.S. stock market to decline substantially. No, I don't know the exact timing of such a move. But I believe it will happen with the next few months. Downward reversion to the mean will play a role.

Likewise, I notice that the gold and precious-metals sector is in the midst of a three-year decline. I see that junior mining stocks have declined every year since 2011. Most of the best names in the space are down more than 80%.

I'm 100% certain that eventually, this downward trend will reverse. And I know that when that occurs, the resulting price increases will be dramatic. I believe average gains in excess of 250% are likely.

Investors smart enough to "hedge" their exposure to the U.S. stock market by establishing a "toehold" in the highest-quality gold and junior gold-mining stocks will likely be far more successful over the next three to five years than investors who don't.

I have another reason to believe we're approaching a significant bottom in gold: I've been getting phone calls from leading precious-metals investors. They're looking to sell assets and asking me for terms. They're getting desperate to raise money. These were some of the richest men in the world five years ago... and now a few of them are virtually broke. That's what happens when an industry declines by 80% or more. And that's what a bottom "feels" like.

I've seen this happen in lots of cyclical industries, most notably in gold mining and commercial real estate. The leaders in these industries are risk junkies and cowboys. They always go broke at the bottom.

So... what should you do with this information?

Start with the most basic thing: Just learn more about reversion to the mean. Go buy Meb's book, The Ivy Portfolio, where he discusses his research in detail.

A used copy will cost you less than $10. A digital version that you can begin reading immediately on a Kindle costs around $10. And a new hardback version will run you $35. I'd recommend springing for the new hardback version, as you'll want to reference it again and again.

Getting this education will allow you to make better (less emotional) decisions about whether you want to try this kind of investing. The best way to manage the emotional fear of buying into a distressed sector is simply to learn more about timing the bottom. Meb has done the most homework on this topic.

The next thing I recommend that you do is sell about 10% of your existing portfolio. Take profits from things like biotech and airlines – industries that have enjoyed huge runs higher. With this 10% of your portfolio, identify eight to 10 gold stocks that you're certain will be in business five years from now.

Focus on high-quality business models (like royalty companies) and companies with high-quality balance sheets. Focus on great management teams. Buy these eight to 10 names on days when gold gets kicked lower and the stocks sell off even more. Learn to enter "stink bids" – limit orders that are 5%-7% below the market price. You'll be surprised how often those bids will get filled in a weak market.

Build this portfolio patiently over several months. Be a buyer when other investors are selling.

If you don't know the gold sector well, I recommend subscribing to my friend John Doody's newsletter, Gold Stock Analyst. John is simply the most knowledgeable analyst following gold-production companies, by a wide margin. He has been doing it full-time since the early 1990s and has a great track record. He's well-known in the industry, and he talks to all of the management teams regularly.

Regards,

Porter Stansberry