The Single Best Answer for Investing's Eternal Questions

U.S. stocks keep churning higher... You don't have to be right... A reminder about the rest of the world... The single best answer for investing's eternal questions... Another chance to get your financial house in order...

The call ran long...

As we start to inch deeper into 2021, many of our editors and analysts took part in a scheduled 90-minute conference call yesterday to discuss what's on their investing minds.

These are semi-frequent group discussions... And they've become more important than ever as we're still working mostly away from the office. For me (Corey McLaughlin), it's always fascinating to listen to these calls with a "neutral," third-party perspective...

By that, we mean your always-learning-new-things Digest editor's opinion is far from the most important take when it comes to the markets. Bullish or bearish... we may have thoughts in the Digest, and if we feel they're critical to share, don't get me wrong, we will...

But when we sit down at the computer each weekday morning and think about what we would want if our roles were reversed, the main idea is to share with you what our talented stable of editors and analysts – and all of their experiences – are bringing to the table.

Today, when it comes to the stock market, that's a healthy dose of concern... Our call, which we reported on briefly in yesterday's Digest, ran a little long in part because of this.

You'll hear much more about the ideas shared during the discussion from our editors like Dr. Steve Sjuggerud, Dr. David "Doc" Eifrig, and everyone else in their newsletters in the coming weeks. But we wanted to get to some of the details today, starting with this statement, which you've heard before...

Stocks have never been more 'expensive'...

A quick search for the word "valuations" on the member section of our website brings up a lot of recent results... That's a great reflection of where we are in the markets today.

Even the most bullishly-inclined among our editors agree that stock prices in general, across the board, are trading at eye-popping numbers compared to the underlying value of their companies.

As we wrote back in the December 16, 2020 Digest, the stocks that make up the benchmark S&P 500 Index were on track to record their highest price-to-earnings (P/E) ratio in decades. The P/E ratio was up from 20.6 at the start of 2020 to 30.3 last month.

This is a common measure of how much you're paying for a stock for the amount of earnings you receive in return from owning it. And it showed that stocks across the board had gotten about 50% more "expensive" in 2020 and are trading for 30 times earnings.

New Year's Day didn't change anything...

Today, the S&P 500's P/E ratio remains near 30, its highest level since the dot-com bubble. Whenever investors hear that phrase, it understandably gets a lot of attention...

Today, in addition to being Inauguration Day, of course, brought another round of new all-time intraday highs for the S&P 500 and tech-heavy Nasdaq Composite Index. And those highs were in part boosted by strong earnings results from a number of big-name companies, like Netflix (NFLX)...

But it's a story we've seen before...

Record-high valuations, primarily because of the Federal Reserve throwing unimaginable amounts of money into the system and keeping interest rates at record lows... are fueling folks who seek any kind of meaningful return into buying stocks.

We've now experienced 10 months of trending higher in the face of various risks, mainly a once-in-a-century global pandemic. It's a "Melt Up." As Steve wrote in his True Wealth Systems newsletter just last week...

This is exactly what you'd expect during a Melt Up like we're experiencing today. Investors buy into the incredible rally, no matter the price. This drives valuations through the roof.

At the same time and very importantly, Steve reminded his subscribers that record-high valuations alone are not a reason to say that the "Melt Down" is imminent, as in tomorrow or the next day...

Stocks went higher and higher during the dot-com bubble, even at expensive levels, before it all came crashing down. But there's no getting around it... Late-1990s prices should grab your attention and certainly do represent an early warning sign.

Extreme Value analyst Mike Barrett wrote to you about this in the Digest just last week. We urge you to read that essay if you haven't already. In part, he said...

In short, with the stock market sporting rarely seen valuations and sentiment again hitting optimistic extremes, it's time to prepare for the next big swing in investor psychology...

At some point, the pendulum will rocket back toward extreme fear.

So what's an investor to do?

More specifically, what's a long-term investor to do? We know that includes many Digest readers.

Well, you could try to time the market to the exact day, or even just the week. But good luck with trying that... making the exact right trades at the exact right times... and still being able to sleep well at night.

Or as we've said in the past, you can get "most of it right," be calculated, and take advantage of the trend up (and make money) while not being oblivious to the ultimate Melt Down that will come (and cause you to potentially lose money).

That's why Steve and his team have been warning about preparing for that Melt Down lately... And on our call yesterday, we heard a great option from one of them. It came from Brett Eversole, Steve's lead analyst, who reminded us about the rest of the world.

You see, until this point in the Digest, we've been talking only about U.S. stocks. It's easy to get wrapped up in the idea that they're the only ones that exist, given where we're writing from.

But they're not. Brett reminded us of this fact while sharing his idea, which included two main points...

As an investor, you don't ever have to be 'all in' or 'all out'...

In other words, you don't have to be right... And you can be wrong.

This isn't the first thing that usually comes to mind for most people, especially those of us who are focused on getting it right, or perhaps "squeezing every bit of toothpaste" out of the Melt Up tube, as our Director of Research Austin Root colorfully put it yesterday.

But it's a piece of invaluable advice, especially if you're frozen or indecisive on a particular investment decision... like the fear that U.S. stocks are ridiculously expensive and going to sell off massively sometime soon. However, at the same time, maybe you are also hesitant to sell "too early" and miss out on additional gains.

It reminds us of something that Gold Stock Analyst editor John Doody likes to say, which we shared last spring amid a lot of uncertainty about the market. As we noted in the May 28, 2020 Digest – "How to Guarantee You'll Get It 'Half Right'" – John said during the inaugural edition of our "Alliance Town Hall" video series...

Do half. Buy half of what you would intend to spend or commit. That way, you'll be at least half-right. If it goes down, you can buy more. If it goes up, you're riding the half that you've already invested.

I think investors sometimes think they've got to spend it all right now. That's probably a mistake. Professional investors are going to add to winning positions and generally either pare losing positions or "average down."

The thought [behind "doing half"] is you have money in reserve if things either go right or wrong.

With this in mind, Brett went on to say yesterday that if you're concerned about the record-high valuations of U.S. stocks, why don't you consider other ones...

Take a look at emerging markets, for instance...

These stocks have been beating the pants off the S&P 500 lately, and they're still less "expensive" compared to U.S. stocks.

We're talking about companies from places like China, India, and Brazil, just to name a few. These are global economies that are on the rise, but not yet at the developed level of the U.S.

Steve and his team identified a buying opportunity in emerging-market stocks way back in September, when they detailed that these developing markets would benefit from a weaker U.S. dollar. And of course, that has been a big story of late. As they wrote in True Wealth Systems that month...

A falling dollar takes a huge weight off these markets. That's because emerging market companies often hold a lot of debt in U.S. dollars.

That can make for tough times when the dollar is getting stronger. These businesses get paid in local currency, after all. If that currency is falling and the dollar is rising, it makes paying debts with local money more difficult.

The opposite happens when the dollar declines. It's almost as if these companies see portions of their debt evaporate. And it makes the underlying business much stronger... and more valuable.

Steve and his team shared what history has shown when the U.S. dollar enters a long-term bear market... something that doesn't happen often. The last time was in the late 1980s...

In February 1985, the U.S. dollar peaked and ultimately bottomed in 1991. Emerging markets performed fantastically during much of the decline. The iShares MSCI Emerging Markets Fund (EEM) rallied more than 150% from 1987 to its peak in 1990.

Today, the dollar has been in a bear market since its March 20 peak... It has lost roughly 11% of its value as measured by the U.S. Dollar Index over the last nine-plus months.

Meanwhile, EEM has rallied more than 75% over that span and has an average P/E ratio of about 20, compared with a roughly 60% return for the S&P 500 and a P/E ratio near 30.

OK, so let's say that owning emerging-market stocks makes sense to you today. How exactly do you add non-U.S. exposure to your portfolio? Sure, you could go out and buy shares of EET... which I'm not recommending that you do just by writing this sentence.

Why not?

Because you must consider other important questions, like... Are stocks like this still a "buy" right now? And how much should you allocate to them if they are? Should you buy them now or wait for the next pullback? And which ones do you really want to own?

You must always consider additional details and scenarios. Anyone who tells you otherwise isn't being completely honest.

Brett introduced the idea of looking at emerging-market stocks in the context of 'reallocating' a portfolio...

That isn't the most exciting phrase you'll ever hear... But experienced investors will tell you that it can be more important than identifying any one particular hot stock or even timing the market.

You've heard us – and many of our editors – trumpet the ideas of proper asset allocation, position sizing, and risk management. But frankly (and unfortunately), we know most people interested in making and keeping money simply don't take these ideas seriously.

It's hard, even if you filter your information and research through a single lens like Stansberry Research. Take today's investing dilemma, for example... U.S. stocks are expensive, but they keep going higher.

You don't want to miss out on more gains, but you don't want to take a double-digit hit either... So you find a good alternative, like emerging-market stocks. But beyond that, how much money do you allocate to them, even if you believe that they're a better value than buying U.S. stocks today?

That can be a complicated question to answer... And a lot depends on your goals for your portfolio (assuming you have defined them) and how much risk you're willing to take (assuming you can calculate a number to potentially lose that equals your emotional tolerance).

These are tall tasks, and they can sound intimidating or unattainable... But they're critical and doable things to enjoy long-term investing success. Our founder Porter Stansberry put it well in an essay that we republished around this time last year...

For some reason, it seems that most people don't take good investment decisions (asset allocation, position sizing, and risk management) seriously...

Likewise, it seems like some law of human nature dictates that most people will only buy investments that are extremely risky and volatile. Subscribers tend to completely ignore our best advice, which is to build a portfolio around a firm foundation of super-high-quality, low-volatility stocks.

I'd estimate about 90% of your actual investment results are dictated by your allocation decisions – how much capital you put into each position – not which particular stocks you buy.

So here's where we want to bring today's Digest full circle...

I can assure you that you'll hear more of the thoughts from that longer-than-usual conference call with our editors in their various publications in the coming weeks and months.

But if you want to "piece it all together" – meaning the best of our research, stock picks, macro analysis, everything – no matter what day or week we're talking about, whether it's a smart time to consider emerging markets or anything else, we have a better solution for you...

What if you want what our colleague Dan Ferris likes to call "true diversification" and take asset classes like gold, silver, and even bitcoin into consideration in addition to U.S. and foreign stocks?

Many new subscribers probably don't know this, but four years ago, we set out to answer the No. 1 complaint we get...

Folks told us over and over that we publish too much stuff and they don't know whose advice to follow.

The solution is an "all weather" approach, a set of actionable model portfolios (based on your goals) designed by a real professional like Austin that takes pieces from all our publications and pares them into properly sized positions in a fully allocated portfolio.

In 2020, these portfolios did exceptionally well... Our "capital" portfolio showed gains of 35%... the income-focused one earned 8%... and the "total" portfolio returned 20%. They all beat their respective benchmarks by sizeable margins.

We can't say it much better than Porter did, back when we launched this suite of products...

If you don't take a whole-portfolio approach... if you inevitably put too much capital in the wrong stocks, and not enough in the right ones... what are you going to do about it?

You have two choices...

You can satisfy one well-known definition of insanity and keep repeating the same experiment while expecting different (better) results.

Or – option No. 2 – you can finally begin to invest like a pro. You can finally begin to capitalize on the research you've already bought. You can allocate appropriately. You can follow your stop-loss discipline. You can finally "get there."

If you haven't gotten 'there' yet, consider the next few weeks another chance...

We urge investors to get their financial house in order at the start of every year... And years like 2020 should show everybody why. You want to make sure you have the basics covered and understand the details of any of your investments after that.

Today, the Melt Up backdrop tells most investors that there might not be a proven alternative to U.S. stocks to make a meaningful return today, but there are... And there are warning signs that a Melt Down could be ahead, but not exactly tomorrow or the next day.

The solution is to prepare now. And we're here to tell you that you can let us do most of the work for you. That way, you can spend time doing other things instead of driving yourself needlessly crazy, or obsessing over your portfolio to the point where you're checking it multiple times a day to make sure everything is OK.

If that sounds like you, we have just the medicine. Steve, Doc, and Austin are getting ready to talk about precisely the best way to answer the eternal questions of investing... What should you buy? When should you buy it – and sell it? And how much should you spend?

Next week, they plan to share all the details about the ideas we've talked about today, plus their candid thoughts on where the market could go in 2021... their No. 1 stock picks for the year... and what you can do today to get the most out of all of our research.

Be sure to join them on Tuesday, January 26 at 8 p.m. Eastern time to hear the full discussion... RSVP right here to make sure you don't miss anything.

Billionaire Frank Giustra: What It Takes to 'Make It'

Here's an underreported effect of the pandemic... Applications to start new businesses have surged as newbie entrepreneurs look to earn money on their own in a tight labor market.

With this in mind, our colleague Daniela Cambone had a big question for Frank Giustra, a self-made billionaire and global philanthropist who left his mark as a mining financier and Lionsgate Entertainment founder... What does it take to "make it"?

In the first part of this exclusive interview, Giustra shares his successes and failures – and reflects on key moments that led to his wealth and important life lessons he learned along the way...

Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.

New 52-week highs (as of 1/19/21): Analog Devices (ADI), ARK Fintech Innovation Fund (ARKF), Asana (ASAN), Booz Allen Hamilton (BAH), ProShares Ultra Nasdaq Biotechnology Fund (BIB), Cresco Labs (CRLBF), Commvault Systems (CVLT), ProShares Ultra MSCI Emerging Markets Fund (EET), Fidelity Select Medical Technology and Devices Portfolio (FSMEX), Futu Holdings (FUTU), iShares China Large-Cap Fund (FXI), GrowGeneration (GRWG), Intuit (INTU), KraneShares MSCI All China Health Care Index Fund (KURE), KraneShares CSI China Internet Fund (KWEB), Maxar Technologies (MAXR), ETFMG Alternative Harvest Fund (MJ), Intellia Therapeutics (NTLA), OptimizeRx (OPRX), Qualcomm (QCOM), Sea Limited (SE), Travelers (TRV), ProShares Ultra Semiconductors Fund (USD), and ProShares Ultra FTSE China 50 Fund (XPP).

In today's mailbag, feedback for Dan Ferris and thoughts about Modern Monetary Theory ("MMT"). Do you have a comment or question? As always, send us an e-mail at feedback@stansberryresearch.com.

"Hey Dan, in an effort to always maintain intellectual integrity, one of the tasks I have set myself this semester while I am on sabbatical is to read up on MMT and try to understand the theory. Right now, I am reading Stephanie Kelton's book 'The Deficit Myth.'

"It's coming at an interesting time, as last semester I taught a course on cryptocurrencies for which we read a lot about the history of money at the beginning of the course for context. We started with Menger's 'On the Origins of Money,' in which he argues that money is an organic feature arising out of people trading and is not something created by government. MMT basically argues the opposite.

"It seems to me that there needs to be a distinction made between what we call money vs. currency, but I am putting that off for now.

"I am honestly trying to read with an open mind, but I am only a few chapters in and so far, I keep thinking this must be satire. I will report back when I finish the book, but just needed to vent a bit." – Paid-up subscriber Michael O.

All the best,

Corey McLaughlin
Naples, Florida
January 20, 2021