The Least Risky Way to Get Rich in Stocks

A 34% plunge followed by a roughly 25% surge... The moment for bearishness is over... Three paths you can take as an investor today... The least risky way to get rich in stocks... Still praying for an extended bear market... A long track record of excelling in times like these...

Editor's note: The markets and our Stansberry Research (virtual) offices will be closed tomorrow in observance of Good Friday. We'll resume our usual publishing schedule on Monday, April 13, after this weekend's Masters Series. We hope you enjoy the holiday weekend.

What the heck are you supposed to do now?

First, we endured the fastest plunge into a bear market in history. The benchmark S&P 500 Index fell 34% in just 23 trading days from its February 19 peak to its March 23 low.

Then, we experienced an equally face-ripping rally of roughly 25% over the next 13 trading days.

Despite this recent surge, a lot of our Stansberry Research editors remain skeptical that the good times will last much longer. We've detailed the potential for more downside in recent days here and here.

So where do we go from here? As an investor, what should you be doing with your money?

In today's Digest, I (Dan Ferris) will consider three ways of looking at these questions...

One of them is a fool's errand. Unfortunately, I'm afraid that's what too many folks do. But the other two will yield results somewhere between good and wonderfully life-changing.

Up to this point, I believe I've played my cards pretty well...

I was bearish for the last three years of an epic bull market. During that span, stocks... bonds... real estate... venture capital... and private equity all exhibited bubble-like characteristics at various times.

I was bearish when absolutely nobody else in the world wanted to be bearish.

I've talked about the coronavirus (COVID-19) on every episode of the Stansberry Investor Hour podcast starting January 30. (If you don't believe me, here is our archives page.)

I never called the top. I never predicted the start of a bear market. But I was bearish. That was the right thing to do before the market crashed... And that's exactly what I did.

Now, the right thing to do is to... stop being bearish.

That doesn't mean I believe the stock market has bottomed. Nobody knows if it will go lower or higher in the short term.

The moment for bearishness is over. But we're still in this weird, in-between place now where we've endured a big, fast drawdown followed by a blistering rally...

What should we do? How should we think about the market's next move?

As an investor, you can take three paths right now...

The first is a suite of foolish behaviors. But as I said earlier, unfortunately, it's also what happened to far too many investors over the past two months... and could keep happening.

The fool sold out when he was down 30% or so. Then, he saw the market surging as much as 10% in a single day... went "all in" on one or two risky names... and found himself down 20% the next day. This is the "getting cute" syndrome I warned about in the March 27 Digest.

Don't do that... You don't want to be one of the stock market's biggest fools.

Instead, take one or both of the following two paths...

First, if you've done nothing so far... if you've sold nothing and bought nothing since the virus bear market began... keep doing nothing. You'll likely do just fine over the long term.

Doing nothing is far superior to getting cute. After all, burying your stockpile of Benjamin Franklins under the old oak tree in your backyard is better than lighting them on fire.

But if you want to do something worthwhile with your money, you must take the second path... Learn how to spot great businesses trading at once-in-a-decade prices.

Then, put on a surgical mask... go rent a pickup truck... and load its bed with shares of these types of companies. After that, drive your truck full of shares home... bury them in the backyard next to the Ben Franklins... and forget you own them for a decade or two.

Trust me... you'll get rich whether you like it or not.

Nothing beats learning to buy great businesses and holding onto them for dear life...

As the bear market bumps along, alternately scaring the heck out of everyone one week, and making them think it's a great idea to get cute the next week, just keep holding on.

Now, if you think it's a good idea to let the market fall more before buying anything, I have two thoughts for you...

First, good luck knowing when the market has fallen far enough. You're essentially trying to call the bottom. And again, just like calling a top, it's a fool's errand in all times and places.

Second, tell me... which would you rather do?

Would you rather buy a new stock every month for the final three years of an epic bull market that goes to heights never seen before by man nor beast, then plunges into an epic bear market? Or would you rather buy a stock every month of a three-year bear market?

The answer is painfully, stupidly easy.

You'd much rather buy a new stock every month in a bear market. In fact, if you do that... it's virtually guaranteed that you'll make some of the best investments you've ever made.

That's where we are today...

Well, we can't be sure this is the start of an extended bear market that will fall to new lows. We don't know what the future holds... but a fella can hope and dream, can't he?

Yes, you heard me right...

I hope and pray that this is an extended bear market and that we haven't hit the bottom yet.

You see, bear markets don't last forever. They eventually end... And in most – if not all – cases, the ensuing rise in equity prices makes investors wish they had put every penny they had buried in their backyards into every discounted stock they could get their hands on.

I want this to be an extended bear market (a year or two will work) that goes down 50% or so because I want you, our dear Digest readers, to have the chance to make a lot of money in stocks. And frankly, you can't do that without buying great businesses in a bear market.

The lower equity prices go from here, the higher future equity returns will be...

If the market falls 50% and you buy all throughout the bear market, you'll make more money than if the market falls less than that... but not as much as if it fell more overall.

Of course, there's a problem with all this logic...

Humans aren't logical creatures. We're emotional. People get euphoric and buy at the top... and then they get scared and sell out for big losses at the bottom.

Once investors realize that their emotions are a problem, they generally try to fight them. Instead of doing that, though... they should learn to harness their emotions.

I've learned that my emotions are really valuable to me as an investor...

Many investors – especially other value investors – will tell you otherwise. They'll say that they're good at ignoring their emotions while making investments. That doesn't sound right. A human who is good at ignoring his emotions sounds like a psychopath to me...

But if you're an experienced investor, you know that the queasy feeling you get when a steep bear market is hitting your net worth is also a signal that there's big money to be made. It's Mother Nature's secret message to you that it's time to start getting greedy.

Having been fearful in earnest since May 2017, I'm now seething with greed...

That's true, even though the market is more than 20% off its March 23 bottom.

Like I said, I'm praying the market turns back around and heads for new lows. But even if it doesn't, plenty of excellent businesses trade at reasonable – or even cheap – prices today.

There's no way to predict what the market will do. If it returns to new highs, at least I'll have made a new recommendation or two for my Extreme Value subscribers. (I just made my first one in a special update earlier this week. Subscribers can read it right here.)

That's my worst-case scenario if the market doesn't make new lows. But assuming it does, I'll keep on taking advantage. I don't know everything, but I know how to do this...

During the last bear market in 2008 and 2009, I made several long recommendations...

My recommendation of payroll processor Automatic Data Processing (ADP) remains on the list of our top 10 open recommendations in company history. It was No. 1 on that list at the bottom of each Digest for a long time, but the stock has sold off since February.

I recommended buying ADP in October 2008, one month after investment bank Lehman Brothers went bankrupt and just days before then-U.S. Treasury Secretary Hank Paulson forced all the banks to take a massive bailout so they wouldn't wind up like Lehman.

It was a terrifying moment. Almost nobody wanted to buy stocks back then... but I did.

No combination of skills will make you more money in the stock market with less risk than learning to identify great businesses... having the conviction to buy them during a bear market... and then continuing to hold them for the long term.

I'm really biased toward searching out and recommending great businesses because I have a lot of experience doing it... I started writing about great businesses back in 2004 and 2005, when I referred to many of them as "World Dominators" in Extreme Value.

It was long before anybody else at Stansberry Research cared about World Dominators. Folks around the water cooler laughed at the moniker. But now, buying great businesses for the long term is all anybody wants to talk about... So maybe it's finally bearing some fruit.

Extreme Value subscribers did well buying great businesses during the last bear market...

They made 406% on household-products company Prestige Brands – now Prestige Consumer Healthcare (PBH)... 248% on royalty holder International Royalty... 174% on tobacco giant Altria (MO)... 133% on chipmaker Intel (INTC)... 113% on tobacco giant Philip Morris (PM)... and 71% in six months on health care company IMS Health.

Despite the recent drawdown, they're still up roughly 480% with Automatic Data Processing. And almost 12 years later, it's still a massive cash-gushing business... one that likely will have less competition coming out of the downturn we're now living through.

If you can't buy great businesses in a bear market, get out of stocks and use your energy elsewhere...

There's absolutely no better way to guarantee epic returns than buying great businesses at good prices throughout a bear market... And there's absolutely no better way to do much better than average if you don't.

I'll get off my soapbox for now.

But remember how passionate I was that stocks were overvalued for the past few years? That's how passionate I expect to be about select stocks making fantastic long-term investments for as long as I can find them priced for excellent returns.

I'm excited for another chance to help my Extreme Value subscribers realize the types of triple-digit gains we saw starting in the bear market of 2008 and 2009. It all starts now.

So if you'd like to join me for the ride, I encourage you to check out this special offer. Right now, you can sign up for Extreme Value at 20% off the regular price. Get started right here.

One final thought before you enjoy the three-day holiday weekend...

I want to reiterate that I have no idea where the market will go from here. No one knows.

But I hope it goes down.

I hope it creates the once-in-a-decade – or even once-in-a-lifetime – bargains that are absolutely essential for anyone who wants to make a fortune in the stock market.

Let me be clear... I get no pleasure from watching other folks suffer. If I could choose going back to being bearish during an ever-marching-higher-into-eternity bull market in exchange for not one more death from COVID-19, I'd choose to walk down that path in a heartbeat.

But only God makes those decisions. You and I have to deal with whatever he dishes out. And when he dishes out a global pandemic that creates a bunch of great bargains, the best way to honor the gift is to take advantage of it and say a little prayer of thanks...

Dear God,

Thanks a bunch. I'll make new "buy" recommendations for as long as the bargains last.

Your pal,

Dan

So as I sign off for the extended weekend, remember this...

Stay safe. Wash your hands. Buy shares of great businesses. Bury them in your backyard. Hold on for dear life. And pray the virus ends, but that the bear market has only just begun.

New 52-week highs (as of 4/8/20): Digital Realty Trust (DLR) and Polymetal International (POLY.L).

In today's mailbag, opinions on the U.S. response to the pandemic, including a passionate plea to "ask more questions" of our leaders. Do you have a question or comment? As always, send it to feedback@stansberryresearch.com.

"Not only are stocks and employment rates down, but people paying rent is down. Private homeowners, as well as businesses. While the 6-month payments waiver may help some payers, it will hurt and/or bankrupt many landlords. This in turn will negatively impact the lenders, who will not be receiving mortgage payments. As repossessions mount, further wealth transfer will occur, and the gap will widen even more.

"Add to that a shutdown of the food supply-chain as farm workers, truckers, and others in the chain are home instead of working... The damage caused by the panic response to the virus could be orders of magnitude worse than the virus itself.

"We should have just taken it on the chin (acknowledging that we are mortal, which given the general response appears to be quite a surprise to the masses), focused on strengthening ourselves, developed herd immunity, mourned our losses, and not created massive collateral damage including an economic collapse and a likely strong push for socialism and other government interference.

"My $0.02 worth. Thanks for all the research!" – Paid-up subscriber Michael D.

"By what standard? That's the question to which I would request a direct response from any of our politicians who are ordering the shutdown of our society. By what standard are they assessing if these draconian measures are even worth the absolute chaos that they are causing?

"What's the plan? When is it enough? How do we get back to a functioning economy again? At what point do these executive orders get lifted? What data are they using to come to their decisions? Instead, they talk about rising cases and additional hospitalizations and additional deaths. None of them have any standard to measure these things against.

"There's still absolutely no polling of the general population. We still have no idea how many people have actually contracted COVID-19. We have no idea how many people are now immune to it. Because we have no idea about these broader numbers, we have no idea what the true risk is for our society or the individuals in it.

"How deadly is it really? What's the co-morbidity rate? No idea!!!

"After nearly a month of closing New Jersey schools, our state governor has only issued more executive orders to further shut down the state. No one has even asked questions about them. Why is he allowed to make these decisions by himself? Has he addressed any of the above concerns? Why hasn't our legislature chimed in? No checks and balances here!

"Everyone is so busy freaking out and looking to their politicians for answers. People, look to the scientists... Lift the controls that the CDC and FDA have. We could have known so much more by now had we let free and brilliant scientists do what they love to do; make the quick testing kits, create the tests for antibodies, start human trials for vaccines once safety is established.

"We have known about this virus for over 4 months, and our FDA didn't even allow a certain type of protective mask (KN95) until recently. And still, people yet wonder why we have trouble sourcing protective gear. CDC and FDA regulations and safety standards have done exactly what they were not intended to do. We now have people piecing together bandanas just to try and help. Nurses have resorted to wearing bedsheets to try and protect themselves and the others on their caseload.

"To the masses that look to government for help... we already have the help we need with each other. There are so many creative and generous people in this world that just want to help. But they can't because it is illegal!

"Just make sure you keep asking questions of those who are ruling you. The Consent Of The Governed! Ask for their justification. Hold their feet to the fire. Make sure these decisions are science-based and not based on fear. There is so much that we still don't know but could have if we had the freedom ahead of time. What else can be done? What other options would still help?

"I don't hear enough questions being asked.

"P.S. Was gonna post this on my blank Facebook wall (or whatever you call it), but didn't want to feel compelled to get into a comments war. Thanks for at the very least providing an outlet for me to vent." – Paid-up subscriber Bret R.

Good investing,

Dan Ferris
Vancouver, Washington
April 9, 2020