The coming market opportunity
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If you have read my recent posts then you will know that for the past few weeks I have been shouting from the proverbial rooftops of what I believe to be the inevitable, impending market correction that we now all face. Through rain or shine I have been sharing with those willing to listen and even those who have no interest in listening, how the stock market is significantly over-valued and therefore poised for a crash.
Therefore, and at the risk of repeating myself and losing both of my avid followers on social media, I have reiterated my point with consistent and determined frequency to the point that even I am now becoming tired from the sound of my own voice.
However, I am glad to say that my efforts have not been in vain and the message has been received loud and clear, at least by some investors. They have recognised the significant financial benefits of being prepared and armed ahead of any market fall, and they understand the opportunity cost of being blind to the facts that now present themselves so clearly in front of them.
I would like to think that it was my message that finally got through but actually I found out that it wasn’t. The people that have reached out to me in recent weeks worried about their share portfolios apparently already knew what I had told them. They all expected a market fall, they all realised that the market was over-valued and most importantly they all wanted to know what to do about it. All that I did was appear quite fortuitously at the precise moment that they needed a little guidance.
I did ponder this conundrum for a while but now is not the time to debate why it is so seemingly difficult for most private investors to find the answer to what appears to be a very simple question – How do I protect my portfolio from the next market crash? Now, I would argue, is the time to find answers, such that we can have the post mortem-enquiry later on once the problem at hand is fixed.
My message did nonetheless resonate and stir something up that people were already wary of, a market fall. Therefore, I don’t want to speak for a fourth successive week about why the market might fall so I won’t speak about the technology focussed Nasdaq which has lost heavily in recent weeks but is still probably 20% above fair value. Nor shall I talk about the fact that there is a dead cat bounce which is now enticing unassuming investors to buy at absolutely the wrong time, and neither shall I speak about the irrefutable fact that continued monetary policy tightening will mean economic contraction for businesses.
And even when pushed to do so I refuse to divulge any more about how Italy is on the brink of bankrupting Europe within the next 24 months, and shall bring with it a collapse in the diabolical euro project. No, I don’t want to speak about any of these things and so I shan’t.
That’s because if I haven’t convinced you already that you should be taking immediate preventative action to protect your share portfolio and that your beloved ‘buy and hold’ strategy is simply an abbreviated shorthand for ‘I have no idea about which way the stock market is going and so I’ll just do what I’ve always done’ then another article on the same topic, won’t change your opinion.
The coming opportunity
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So instead I’m going to talk to you about something else which is equally as important as the crash and that’s the opportunity which will follow it. You see, whilst it is very difficult to predict the precise turning point of a market correction (up or down) it is very easy to recognise the simple fact that the market moves in cycles. In fact, speak to any physicist and they will tell you that most things in life have cycles, investments included – it’s what they call ‘wave theory’.
This means that the market will fall in a pre-determined pattern and at the end of that pattern there will be an opportunity – a huge opportunity. An opportunity to generate more wealth and profit than you could have probably dreamed of. I’m not exaggerating unless you happen to have outrageous Jurassic Park type dreams (I unfortunately don’t).
The rebound happens after every market crash but it doesn’t stay for long which is why you should prepare yourself now. Think of the last major crash in 2008 and you will understand what I mean.
Cast your mind back to that time when you could buy shares in Royal Bank of Scotland at 8p or in Lloyds Bank shares at about 20p. Do you remember that time? And what about the hundreds of other companies, that stretched right across from the biggest of the blue-chips to the tiniest of the small-cap companies? That’s right, they doubled, tripled, quadrupled and even more besides. And this, ladies and gentlemen, is exactly my point.
In the wave cycle it’s the first phase of the recovery – and remember that there are five in total, five down and five up. It’s the immediate bull phase of the recovery that’s the most important phase that you can’t afford to miss if you want to be a serious player in the market. It’s where all the money is made for the savvy professional investors and it’s where the retail investors are usually left sleeping.
Imagine it like a car accelerating. Most of the acceleration is in those first few seconds, that’s where the car is building up its speed, and it’s the same with your share portfolio. I know very successful traders who only trade this first phase of the cycle. They spend their time and effort on this one moment and perfect it. It means that they may only invest in a single six-month period in maybe a whole decade and yet they make more money than most investors will make in that whole 10-year period. Crazy, I know, but entirely possible, indeed I would say probable if you have access to the right information.
I know investors who bought £100,000 or more in banking shares at the peak of the crash and they made millions, enough to fund their retirement with no concerns. And then they bailed out – they just jumped ship and invested their money into other asset classes like bonds or property. And those very people are now back in cash waiting and preparing to do it all over again.
When the market falls, the emotion of fear becomes irrational. It is a self-fulfilling, self-perpetuating cancerous motion that sends normally very sane people into a frenzy of mass-selling which drives prices down further than their true net asset value. It means that this creates unbridled opportunities for sophisticated scavengers on the hunt for low priced stock.
Well, you now have an opportunity to turn from prey to predator if you so wish.
If you have taken preventative action in recent weeks to hedge or insure your portfolio then congratulations, you are in the 10% of investors who are doing the right thing. Don’t worry about the 90% (history shows us repeatedly that 90% of investors will lose money when the market falls and only 10% won’t – so rest assured that you are not on the wrong side of the trade even if you are not in the majority).
The Yin and the Yang
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However, your work is not yet complete. Your next task is to not let the massive buying opportunity to pass you by. There is no point in protecting the downside if you have no idea of how to take advantage of the upside. They both go side by side, like the Yin and the Yang. It is incomplete without them both.
You can of course have one without the other and it’s certainly better to have one than none at all but if you can have it all, then why shouldn’t you. If you don’t somebody else will.
And if you don’t have both sides then you risk undoing all of your hard work in creating the hedge in the first place. I saw this phenomenon with many of my own execution only clients who made a great call in cashing in their investments the day before the decision on the Brexit referendum but then stayed in cash for too long. They had a perfectly timed exit strategy but no strategy to re-enter. That cost them dearly as they watched the market rebound whilst they were stuck in cash.
As a result, they ended up doing much more harm to their portfolio than those who had no exit strategy, because, as we know, the market recovered almost immediately. To time something like the result of a Brexit referendum probably comes down to more luck than judgement because not only do you have to predict the market direction you have to also predict the result of a political vote, not an easy task.
But with a market crash you have much more time and far fewer variables. You don’t have a day to jump back in but probably at least a few months. You will begin to see the first signs of the recovery but don’t rely on the media to tell you when that it is. The financial media will be late by about six months, just in the same way that it was late to tell you about this recent market correction and will surely be late again in telling you about the real market crash which I am predicting will take place within the next 12 months.
There are countless other times where I have seen cases of perfectly hedged portfolios which have simply been held for too long – the hedge is there for a market fall, it’s not supposed to be there forever. This means that you need to know when to un-hedge your risk – when it’s time to let it fly and for it all to hang loose. You need to know when that is.
The good news is this. As always with this column, I don’t like to just predict the market direction (although to date I trust you will agree with me that my predictions have been fairly accurate) because singing my own praises, however justified I may feel them to be, won’t get my very far (just ask my ex-wife). But I do want to come to you with solutions. After all, as a professional investment manager that’s what I get paid to do.
The DIP strategy
There is no point in telling you about what you should be doing if you don’t know how to do it, so I’m going to show you a strategy which I think can work for you. I developed a system which I call the ‘Dividend Income Plus’, (The DIP) and such is its power I even charge £10,000 to teach private investors one-day courses teaching this system. Sound like a lot? That’s because you don’t know what it is yet.
If I said to you that it has helped me increase the average return on portfolios on average by as much as 50% a £10,000 investment could indeed turn out to be an absolute bargain.
But before you go into a frenzy you can relax. I’m not charging you a penny for this. I obviously can’t show you the whole system but I will share you with enough of it for you to be able to fill in the gaps. It’s a strategy that I have used over many years and it will help you formulate your own plan to know when to buy back into the market.
And in case you are wondering, no it’s not risky. In fact, its power comes from the fact that it is anything but risky. Over years of testing and back-testing I found a system which incorporates both income and capital growth using blue-chip FTSE 350 shares.
It’s not the only system in the world but I’m proud to say that it is all mine. I’m also proud to say that it works. That doesn’t mean you should go out and implement it and then sue me if it doesn’t. I’m not here to guarantee results. I’m here to awaken you to the fact that there are strategies and opportunities which are open to everybody.
So if you are interested message my team at info@londonstonesecurities.co.uk and ask for the free one hour webinar recording on ‘The DIP’.
By the way as I write this I’m about 30,000 feet in the air. There’s not much below me right now other than white cloud but in a few minutes, I will have a fantastic aerial view of what’s below. And that’s how you should see your investment portfolio. Forget about focussing on individual stock tips or specific companies, and start considering the bigger picture. Stock selection always gets trumped by portfolio composition and strategy always beats single share ideas.
Stay focussed investors. The next 6-months is going to be a life changing event for you and your loved ones if the market does what I expect it to, but be prepared and get ready. As they say if you fail to plan, you plan to fail.
Ranjeet Singh
CEO London Stone Securities
www.londonstonesecurities.co.uk
Financial “journalism” at it’s worst.