Keep This Lesson in Mind as the 'Final Surge' Takes Off
Editor's note: The "Melt Up" is entering its final phase...
True Wealth editor Steve Sjuggerud has been "pounding the table" on the idea that there would be a final "blow-off top" at the end of the bull market for years. And in the past few months, that's exactly what we've been seeing...
Amateur investors are pouring into stocks, and the market is skyrocketing.
Steve says this extreme positive sentiment will lead to an inevitable "Melt Down" later this year. And when that time comes, you have to be ready to sell. But in the meantime, he's seeing something else... the beginning of one last rally as the Melt Up comes to a head.
Today's Masters Series is adapted from the December 8, 2020 issue of Steve's free DailyWealth e-letter and a new special report from his True Wealth Systems advisory. In it, he explains why you must be willing to get out of the market when the Melt Down arrives... reveals what COVID-19 meant for the Melt Up... and details the "boom within a boom" that he believes is starting now...
Keep This Lesson in Mind as the 'Final Surge' Takes Off
Andy Kessler and Fred Kittler turned down $1 billion in a single week in 1999.
As it turns out, they made the right decision...
Andy and Fred were Wall Street hotshots. They'd each spent more than a decade in high finance. And they joined forces to start a hedge fund – Velocity Capital Management – in 1996.
Their long history in the market prepared them for the great 1990s Melt Up. And since they focused on tech stocks, their fund was a roaring success. But it's what they did after that success that was most important.
Today, with the Melt Up in place and the potential Melt Down in the future, we need to understand this lesson. It's the key to protecting our investment gains...
Back in the dot-com era, it didn't take long for Velocity Capital Management to start producing huge returns. The fund made gains of 100% in 1998 alone. But that was just the beginning...
In 1999, the fund made investors 377%... in just one year. That's an incredible return, even given the tech-boom backdrop.
These big returns caught the interest of major investors. But just as those investors were getting excited to put money to work, Andy and Fred were getting cautious on the markets.
By 1999, they'd become uneasy about how much money was flowing into tech stocks. Stocks were shooting up hundreds of percent in a matter of weeks... And their fund was in on the fun.
The Melt Up had been in full force for a couple years already. So, after taking advantage of it from 1996 through 1999, the two decided to start trimming their positions. Then, they took it a step further...
In the summer of 1999, the pair of investment managers did the unthinkable... They turned down a total of $1 billion worth of investment dollars, from two separate investors, in a single week.
When it comes to managing money, you want to generate great returns, of course. But what you really want to do is raise more money. Turning down an amount that would roughly double your fund size is almost unheard of.
Andy and Fred didn't just turn down the money, though. They started giving money back to clients as well. And they completely wound down the fund by 2001.
As we know now, that was a brilliant call. It was exactly the right thing to do for their investors. Not only did Andy and Fred take full advantage of the Melt Up... but they got investors out near the peak, too.
Clearly, these two nailed the 1990s Melt Up. And we can learn a lot from their success.
Our goal today is to do what they did... ride the Melt Up as long as we can – and get out when the time is right.
That's easier said than done, though... In the thick of a Melt Up, it feels more and more foolish to pull out of the market. Stocks continue to hit new highs. And it seems like all news is good news.
You'll think to yourself, "Why bet against that? It seems foolish." But when the time comes, we've got to be willing to sell.
Today is not the day. The trend is up, and the Melt Up is on. But we have to be ready for the red that will eventually follow.
Andy and Fred returned cash to investors at the height of the dot-com-era Melt Up. They made sure their returns weren't wiped out in the eventual Melt Down.
I'll be watching the markets closely in the coming months. And I'll be following an exit plan to cut my losses short. That means following my stops... first and foremost.
But in the meantime, I plan to stay on board as long as possible. That's because what's happening today is incredible...
It was just over a year ago that COVID-19 first swept our nation. Within a few short weeks, we went from life as usual to extreme fear... a total shutdown of the U.S. economy... a stock market crash... more than 30 million lost jobs... and an economic recession.
You had probably read about pandemics in history class. Now you've lived through one. And if you're anything like me, you're ready to put it in the past.
That's not so easy, though. We'll likely feel the ramifications of COVID-19 for years to come, in many different ways.
We're certainly still seeing it in the markets today – though not the way you would have expected...
The pandemic should have been an insurmountable blow to the Melt Up I'd been predicting in U.S. stocks. A market crash and the worst economic collapse since the Great Depression isn't the typical recipe that kicks off a market mania. But remember, this has been one of the craziest years of our lifetimes.
So instead of the obvious, we saw the unthinkable happen... COVID-19 actually ignited an even more extreme Melt Up than I imagined possible.
Few investors saw this as a possibility. But it became a reality as the government and Federal Reserve jumped into action, ready to save the economy by any means necessary.
That pulled us back from the precipice. Then, an army of new traders entered the stock market. These folks were bored, stuck at home, and flush with cash, thanks to multiple stimulus checks.
The economy came roaring back as well. And the end result of everything has been a powerful Melt Up in U.S. stocks. Now, even that is coming to a head.
That's because the Melt Up is entering a new stage... what I call the "Final Surge."
This is the last rally before a major Melt Down. But don't let that worry you. Because while the Final Surge happens just before disaster, it's also where we'll make our biggest gains.
Essentially, the Final Surge is a "boom within a boom"...
It's the last six to nine months of a Melt Up... when rationality truly goes out the window and millions of Americans make their final rush into the markets.
This is a moment when greed, speculation, and euphoria rule the day. And it can send stocks soaring higher than you might believe possible.
That might sound crazy. But it's true. The Final Surge is where the biggest Melt Up gains come from. Take a look at this chart...
As you can see, the full 1990s Melt Up led to 200% gains in 18 months for the Nasdaq. But look at what happened in late 1999... That's when things really got going.
That was the Final Surge of the dot-com-era Melt Up. And it led to 88% gains in just five months. Take a look...
That, my friend, is the Final Surge. It's the final boom of a Melt Up. It happens fast. But it's when you can make the biggest gains possible.
There's no question that the Melt Up is in place right now. And I believe we've entered the Final Surge, too.
Good investing,
Steve Sjuggerud
Editor's note: Steve believes the "Final Surge" of the Melt Up is here... and those who take steps to prepare today could potentially make outsized gains in the coming months.
He recently went on air to reveal exactly what you should do as the market mania reaches its peak... including the sectors he believes will really take off. He even gave away two free recommendations that could soar hundreds of percent in the coming months.
For a limited time, you can catch up on everything you might've missed with a free replay. If you have any money in the markets, we urge you to watch Steve's message right here.