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4 simple bear market tactics for long-term investors

Dec 22, 2022

Good morning!

That didn’t last long… the markets are firmly to the downside on rising recession concerns.

Here’s my playbook.

Cost cutting can only drive valuations up so much

I continue to recommend that investors steer clear of Amazon after suggesting to One Bar Ahead® readers on January 6, 2022 that it’s time to go. Shares have dropped from $163.08 back then to $86.77 now.

MyPOV is that AMZN will choke on problems of its own making, and millions of unsuspecting investors betting on a recovery risk a buzzcut they’re not counting on. The company simply isn’t the same post-Bezos.

I am no longer a lone voice in the wilderness. CNBC reports that Needham’s Laura Martin cut AMZN ‘23 estimates noting that “cost-cutting has limits to driving valuation upside.” (Read)

Yep.

FTX's dirty laundry could shatter some big names

Alameda Research co-CEO Caroline Ellison and FTX co-founder Gary Wang have both plead guilty to federal charges in the Southern District of New York while also apparently cooperating with authorities.

Now comes the fireworks. Ellison and Wang are in a position to know exactly who knew what when. More importantly, they knew who invested at every step in the process. And, even more importantly than that, exactly how billions of dollars of cryptocurrency were manipulated and when.

There are some big-name investors who have some ‘splaining to do—including big, powerful, well-known investment firms like NEA, IVP, ICONIQ Capital, Third Point Ventures, Tiger Global, Altimeter Capital Management, Lux Capital, Mayfield, Insight Partners, Sequoia Capital, SoftBank, Lightspeed Venture Partners, Ribbit Capital, Temasek Holdings, BlackRock, and Thoma Bravo, as reported by the New York Times late November. (Read)

MyPOV: This may be the last chance to get out of Bitcoin and Ethereum, which are at $16,760.20 and $1,210, respectively, as I type this morning. There’s no doubt digital currency will play a key role in our future, but the bloodletting that may happen first could be far worse than anything yet. If you’ve got the chops needed to stay in the game knowing that the FTX legal cases will blow the doors off alleged manipulation once and for all, my hat’s off to you.

Business owners demand tax refund, citing crime and drug use

This is a super-critical and totally underreported news story with material investing implications.

More than 100 businesses and property owners are demanding tax refunds for 2022 for dealing with what they’ve termed rampant drug use, theft, and brazen extortion in San Fran’s Tenderloin District. They believe the neighborhood is on the verge of imminent collapse. (Read)

The big takeaway is one political types can’t see. Citizens are openly questioning what they’re getting for their money, and that spells disaster for city coffers.

I see two opportunities emerging: 1) to buy law enforcement-related stocks because there WILL have to be additional policing; and 2) shorting or avoiding municipal debt in crime-ridden cities. Robotics and surveillance companies come to mind almost immediately, for example.

Time to do some research!

4 Simple bear market tactics any investor can use (and still sleep at night)

It’s a common problem. Like many investors, you’d like to take advantage of the lower prices on offer, particularly when it comes to the world’s best companies right now. But, also like many investors, you’re scared to hit the “buy” button.

Believe it or not, bear market tactics can be pretty simple. Here are four simple ways long-term investors can capitalize on chaos:

Slow down your buying. People think investing is “all in or all out.” That’s not true, especially during bear markets.
Use tactics like Dollar Cost Averaging and its lesser-known cousin, Value Cost Averaging, to control risk before you buy and magnify profit potential after you do.
Place LowBall Orders to snap up bargains when you find ‘em at prices you’ve decided to pay in advance… to the penny.
Hedge using inverse funds that can appreciate as the broader markets take a header. I prepared a 5-Minute Guide to Hedging earlier this year. It’s free to OBA subscribers, but you can also buy it here if it’s helpful. Folks who’ve bought it tell me they’re thrilled by what they learned, many for the first time in their investing lives!

Why you’ll want to: Data from Crestmont Research shows that the rolling 20-year average annual total returns for the S&P 500 between 1919 and 2021 have never been negative. Put another way, if you purchased an S&P 500 index fund at any point between 1900 and 2002, then held for 20 years, you made money.

Here’s the kicker. Just two of the 103 end-years Crestmont examined produced an average annual total return, including dividends, of less than 5%. That compares to 40+ years where the average annual total return was 10% or higher!

Buying low may be scary and unsettling, but that doesn’t change the fact that doing so can boost your profit potential over time. Especially if you latch on to stocks that can do considerably better than the index itself (and yes, they’re out there right now) Upgrade to paid

How you can benefit from KMX's fender bender

CarMax just had a fender bender. The company reported an 86% drop in quarterly profits and net income per share of $0.24 compared to analysts’ expectations of $0.70 per share. Revenue plunged to $6.51 million for the quarter, below the $7.29 million analysts expected. Management cited rising rates, inflationary pressures, low consumer confidence, and more as reasons. (Read)

For once, this could work in YOUR favour. Here’s why. Used-vehicle sales used to be a major driver—pun intended—when it came to the CPI. Practically speaking, CarMax was buying inventory like we buy groceries… at higher and higher prices. But now consumers are strapped, wallets are tight, and confidence is falling.

I have a sneaking suspicion that your friendly neighborhood salesperson will be more than willing to cut you a favourable deal just to get a Christmas commission check. Especially if you can pay cash.