Four Insights From an Investing Legend on What's Happening in the Markets

One of the great benefits from a career in investing at some of the highest levels for 25-plus years is the opportunity to have grown up with and met many great investors... One of those investors – with whom I used to frequently speak more than 20 years ago – is Philippe Laffont of famed […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily Weekend] Four Insights From an Investing Legend on What's Happening in the Markets By Enrique Abeyta --------------------------------------------------------------- [Why some stocks are SOARING right now]( Inflation just caused the worst one-day market drop since 2020. Prices are rising for just about everything from airfare to housing and gas. But inflation could drive some stocks to the moon. The man who predicted the 2020 crash has compiled the top 5 stocks to buy now. [Click here to learn more](. --------------------------------------------------------------- One of the great benefits from a career in investing at some of the highest levels for 25-plus years is the opportunity to have grown up with and met many great investors... One of those investors – with whom I used to frequently speak more than 20 years ago – is Philippe Laffont of famed hedge fund Coatue Management. After working at legendary hedge fund Tiger Management, Philippe founded and launched Coatue in 1999 – starting with $45 million under management. From there, he has grown it into an empire... with recent estimates of more than $70 billion in assets across both public and private investments. Philippe and I used to speak back during the Tech Bubble of 2001 and mostly on the short side. At the time, I was mostly focused on telecom and media stocks while he was more focused on technology stocks... but we had a steady dialogue. As part of some recent marketing, Philippe and his team put together a fantastic presentation outlining their recent actions as well as some insights on what is happening and what to do next. We aren't at liberty to share the full presentation... But in today's essay, we'll share some great insights. Let's get started... - The fund is currently almost all cash This gets to a point we have made several times in my trading publications over the past few months. With a thoughtful long-term investment strategy and discipline, it's almost inevitable that you can succeed... But you need to stay alive. If you find yourself preoccupied with the market – changing your personal finances as a result of your stock market returns and finding that it's affecting your personal life – scale down and move to the sidelines. Only take on as much risk as you can afford. And not just financially, but also psychologically... You need to put yourself in a position mentally to win. In a true bear market, pretty much everything goes down. If you're going to trade, be nimble and take profits quickly and/or look at short opportunities. If you're investing for your long-term portfolios, ignore the noise. Either way, don't let the market take over your life. Even with 8%-plus inflation, you likely will sleep better sitting on cash! - Big counter-trend rallies can happen Interestingly enough, we haven't seen major rallies so far in 2022. The largest trough-to-peak rally in the tech-heavy Nasdaq Composite Index was 15%... but during the sell-off as the dot-com bubble burst, we saw much steeper rallies. Take a look... The Nasdaq was down a massive 78% across this period – compared with being down more than 30% in 2022 – but had rallies of 32%, 41%, and 45%. These were incredible opportunities for traders... but they needed to be disciplined to execute. Note that these moves also took several months, so they were very tradeable. What's interesting is that the current sell-off hasn't had one of these major counter-trend rallies. Regardless of whether you think we are in a correction or a full-on, severe bear market – one of these is coming... --------------------------------------------------------------- Recommended Link: ['I'm tired of being poor']( His father was an alcoholic, his mother a political refugee. But Enrique Abeyta turned childhood poverty into Wall Street millions in a story that is sure to inspire you... [And his unique system for making money in bear markets is unlike anything you've ever seen](. --------------------------------------------------------------- - The first part of the bear market is price... Is the next part earnings? This next chart from Coatue covering the dot-com crisis shows the Nasdaq's valuation and earnings estimates. During the first stage of the multiple falling – from the peak in March 2000 to January 2001 – the multiple on the Nasdaq went from almost 60 times to 27 times. Then we saw earnings estimates fall almost 60% from the peak and finally bottom out in late 2001. That's near when the Nasdaq bottomed around 1,400, although the actual bottom wasn't until a year later at 1,120, or 13% lower. This comes back to the big question – and what we have been talking about all year – what happens to earnings? At this point, the stock market clearly thinks that earnings estimates are going lower... and we don't disagree, given the headwinds of inflation. If, however, they aren't going much lower – maybe a drop of 10% to 15% – then the majority of the damage is done to the stock market. If they're going to reprise the 2001 to 2003 period, then we have much more downside ahead. We still believe earnings are unlikely to fall that much... but time will tell. This is the single variable to watch. And that brings us to our last insight from Coatue... - If earnings collapse, there will be (almost) no place to hide The below table from Coatue shows the stock market downturn back then in three different phases, with the stock performance of different industry groups. As you can see, for the first 15 months of the downturn, it was really only tech stocks that went down. In fact, large parts of the stock market went up... and some were up substantially. In the last phase – when earnings collapsed – then everything collapsed. Only consumer staples held on, although the cumulative performance of health care and financials wasn't so bad. This gets back to our point: Earnings. Watch what happens to the earnings for the S&P 500 Index and the Nasdaq... and this will ultimately dictate what happens to stocks from here. And yet, investors are already in full-blown panic mode – pulling billions out of the markets... If you're worried about a larger crash or years-long recession taking hold, tired of losing money in your sleep to record inflation, or having flashbacks of 2008... I get it. It's natural to feel scared, and that's OK. But what's not OK is throwing in the towel and letting those fears paralyze you into making mistakes that will cripple your portfolio. Unfortunately, investors across America are making the type of mistakes that will haunt them for years to come. Whether it's standing on the sidelines and letting your savings get slashed, buying the wrong stocks on the wrong dip, or selling your entire portfolio for a loss and admitting defeat... these are all huge, avoidable mistakes. But if you're still relying on the investing comfort zone you've been using for years, it will only guarantee that you get left behind when the economy inevitably recovers. In fact, there's one way to boost your income and beat the markets... and it uses a strategy that the vast majority of investors don't know about. I just put together a brand-new presentation with all the details – [watch it right here](. Regards, Enrique Abeyta June 18, 2022 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2022 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 601 Lexington Ave., 20th Floor, New York, NY 10022 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](