The Financial Seat Belt for Turbulent Markets

RFK Jr. is now an ape... Turbulence over Myanmar... Cigarettes, candles, and faucets... The market-turbulence bible... Imagine more risk... Financial seat belts... Buy small, buy value... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] RFK Jr. is now an ape... Turbulence over Myanmar... Cigarettes, candles, and faucets... The market-turbulence bible... Imagine more risk... Financial seat belts... Buy small, buy value... --------------------------------------------------------------- Before this week's main course, enjoy this meme-stock update hors d'oeuvre... [Last week]( I (Dan Ferris) reported the return of the meme stocks after their original booster, financial analyst Keith Gill, returned to social media as "Roaring Kitty." It's the story of individual investors trying to make big, fast money by hanging on to egregiously overvalued, struggling businesses in deteriorating industries... Stephen King couldn't dream up a financial horror show this weird, and I thought it couldn't get any weirder. But I was wrong... Presidential candidate Robert F. Kennedy Jr. has joined the party... In a post on social media platform X on Tuesday, Kennedy said he invested $24,000 in Roaring Kitty's favorite meme stock, GameStop (GME), out of his proceeds from suing Monsanto for "knowingly poisoning our soil and causing cancer." Kennedy's announcement even included the meme-stock hashtags #ApesNotLeaving and #ApesTogetherStrong. What's really going on here is not that Kennedy wants to own GameStop shares. He wants the "apes" to see him as the candidate on their side... a fellow David against the corporate Goliaths. If Kennedy cared one bit about these people, he wouldn't join them. He'd beg them not to fry their likely paltry net worths buying the hottest-burning matches in the market. This is pandering so blatant it's hard to believe anybody would ever fall for it. But everybody loves to hear someone famous say, "I'm on your side." Don't bother writing in to tell me I'm wrong and that RFK Jr. is a great man and a wonderful candidate. If elected, he'll possess a power no human being should have, further sickening his likely already poisoned soul even more... just like any other presidential aspirant. It was ever thus. Ho hum. Anyway, meme stocks are garbage... and interest in them is a sign of feverish speculation by gamblers, not thoughtful capital allocation by long-term investors. Markets routinely accommodate the most financially suicidal folks. But it just so happens this episode is accompanied by one of the most egregiously expensive markets in history. It will not end well. Folks buying the S&P 500 Index will lose half their money at some point in the next few years. And the apes holding meme stocks will lose 99% of it. With meme stocks now attracting the worst among us, let's think about the volatility that accompanies all the wildest speculative episodes. Today's main course is turbulence. We've all had a bumpy flight or two, but sometimes turbulence turns deadly... Nobody knows that better than the folks aboard Singapore Airlines flight 321. The Boeing 777-300ER left London Monday night bound for Singapore. It never arrived. Ten hours into the 13-hour flight, the plane hit violent turbulence. Flight-tracking data indicates the plane rose 400 feet then fell the same amount in about one minute. The Wall Street Journal described 54-year-old passenger Andrew Davies' experience aboard the flight... Pillows, plates and cups were thrown in the air... Oxygen masks dropped down. When the plane became stable again – in what seemed to him to be a few seconds – he said he saw a woman with a deep gash on her head, covered in blood. Flight crew members also appeared bloody and injured, hobbling around trying to help passengers. In a nearby seat, an elderly passenger appeared pale and unconscious. Davies said he helped pull the man out of his seat. Crew members performed CPR for around 20 minutes, but couldn't revive him. They covered him in an airline blanket. The plane diverted to Bangkok's Suvarnabhumi Airport, where it landed Tuesday afternoon. Of 229 passengers and crew on board, 104 needed medical treatment after the flight. At least 87 people went to the hospital, with nearly 60 still there on Wednesday, including more than 20 in intensive care. And one passenger suffered a fatal heart attack. You don't need to be 37,000 feet above Myanmar to experience turbulence... Turbulence is one of two basic ways fluids like air and water move... The first is laminar motion, which is smooth and orderly. The second is turbulent motion, which is irregular and chaotic. If you've ever watched a plume of smoke from a cigarette or a candle, you've seen its motion start out laminar, moving straight up in a narrow stream, then suddenly becoming turbulent. You can see the same transition when you turn your kitchen faucet on. At first it is orderly, but the more you open the tap, the more turbulent it becomes. Turbulence is all around us, in the most unexpected places. In more than 40 years of studying turbulence, mathematician Benoit Mandelbrot found turbulence in data on South African gold, uranium, and diamond mine valuations, as well as in oilfield reserves, storms, and earthquakes. And in the penultimate chapter of his must-read 2004 book, The (Mis)behavior of Markets, Mandelbrot lists his "Ten Heresies of Finance" (which I've mentioned before), the first one of which asserts that "markets are turbulent." Don't ask him why that's true. He doesn't know. As he writes... Until the study of finance advances, for the how and why we will each have to look to our own imaginations. The turbulence of markets means that, as Mandelbrot's second heresy states, "Markets are very, very risky – more risky than the standard theories imagine." Some of his other heresies state that markets behave the same "in all places and ages," that "market 'timing' matters greatly," that "bubbles are inevitable," and, to my chagrin, that "in financial markets, the idea of 'value' has limited value." It paints a picture that reflects a very difficult environment in which to operate. All of what Mandelbrot found supports my core mantra of "prepare, don't predict"... If markets are riskier than most folks imagine, you'd better be able to imagine them going haywire and make sure you own some assets that can maintain or even grow in value despite (or, ideally, because of) the turbulence. When turbulence strikes, you're not helpless... Consider the following data from the National Transportation Safety Board... which identifies 163 serious turbulence-related injuries on U.S. airlines from 2009 to 2022. Some 129 of those victims were crew members, who represent the distinct minority of people on board a typical aircraft. The likely reason? They spend more of their time on their feet, while passengers spend most of their flights wearing their seat belts. That's the single most effective measure against turbulence in the air. As investors, we can also buckle our financial seat belts. And while air passengers have just one type of seat belt available, investors have many options. The most obvious and frequently used method among Stansberry Research editors is the stop loss... the point where you decide in advance that you'll sell. This could be a given share price or percentage below your entry point (a hard stop) or a percentage below its peak since you bought in (a trailing stop). Stops remove emotions from decision making and help you cut your losses before they become large and catastrophic. You accept a tolerable level of injury with each small loss to prevent yourself from market turbulence becoming financially deadly. You preserve capital and live to fight another day. It's not sexy, but it works. Another way to wear your financial seat belt is through your criteria for choosing stocks. When Corey McLaughlin and I interview stock-picking professionals on the weekly Stansberry Investor Hour podcast, virtually all of them prioritize limiting downside over maximizing returns. If you limit losses, the gains will take care of themselves. One of the best ways to limit downside is to buy high-quality businesses and not pay too much for them. High quality means they'll keep growing and generating enough profits to maintain and grow the business's intrinsic value over time. Not paying too much means you've invested at a price that will allow the business's stellar performance to benefit you. (If you pay way too much, a great business performance can't save you from losing money.) The best way to understand the notion of quality is to study great tech businesses like Apple, Amazon, and Alphabet... great insurers like Berkshire Hathaway, Chubb, and W.R. Berkley... great oil companies like ExxonMobil, Chevron, and Occidental Petroleum... great software companies like Microsoft and Canada-based Constellation Software... and many other great companies in other industries. We do a great job at Stansberry of emphasizing and explaining high-quality businesses. Subscribers shouldn't have to go too far to find an example. There's no better way to understand not paying too much than reading Chapter 20 of value-investing guru Ben Graham's classic 1949 book, The Intelligent Investor. The chapter is titled "The 'Margin of Safety' as the Central Concept of Investing." I keep a reminder on my phone to reread this chapter once a month. In the chapter, Graham writes: The margin of safety idea becomes much more evident when we apply it to the field of undervalued or bargain securities. We have here, by definition, a favorable difference between price on the one hand and indicated or appraised value on the other. That difference is the safety margin. It is available for absorbing the effect of miscalculations or worse than average luck. In other words, if you think a business is worth about $100 per share, paying $80 per share will give you a 20% margin of safety. If you're 20% wrong in your calculations, you'll achieve an acceptable result as long as the business continues to perform well enough. If you read the Friday Digest regularly, you might be thinking, "How do you find stocks with a margin of safety during the biggest mega bubble in all recorded history?!" It's not easy... I've said the market is egregiously overvalued many times in the past three years. I usually cite the S&P 500's cyclically adjusted price-to-earnings ratio (near 35 today) as among the most expensive moments in the U.S. stock market since February 1871. I've described how, historically, the few similar moments in history led to steep, protracted bear markets, often followed by even more protracted sideways markets in which stocks fail to eclipse their previous highs for decades in some cases. Still, while the current conditions make stock picking harder, at any given moment, there are plenty of great opportunities to buy undervalued stocks. Believe it or not, that includes right now. It takes a lot of work to find them. And many of them are way too small and illiquid to report to a large audience, since subscribers could quickly push the price higher if they piled in. But I can point you to a couple of great sources of these ideas... Of course, one of them is the Stansberry Investor Hour podcast, where we interview all kinds of different investment professionals, some of whom focus on finding deeply undervalued securities... which usually means lots of small and microcap stocks. We recently interviewed Chris DeMuth of New Canaan, Connecticut-based Rangeley Capital, which focuses on event-driven investment opportunities. That means all the securities he buys come with some type of catalyst, usually in the near future, that will likely unlock substantial shareholder value. It's a great conversation, and Chris named a few of his favorite stock ideas right now. We also talked with Chris about the disconnect between big-cap and small-cap stocks. Small caps have failed to participate in the market rally of the past few years. The small-cap Russell 2000 Index last made an all-time high in November 2021 and still trades 16% below that mark, while the S&P 500 big-cap index makes new all-time highs. That's disappointing, but it also suggests there are more bargains among small caps than among large caps. Our interview with Chris will go live on Tuesday [on our website]( and you can sign up now to receive free e-mail updates when we post each new episode. And for the current episode, [available free right now]( we interviewed our friend and colleague Bryan Beach. Bryan recommends a lot of small-cap stocks in his Stansberry Venture Value newsletter. Bryan's model portfolio is filled with great value stocks, many of which are too small for Mike Barrett and me to cover in Extreme Value. So if you want to find great ideas with a margin of safety – to make solid gains but also wear your safety belt – you might avoid large-cap stocks in favor of the smaller companies that folks have been ignoring over the past few years. If it looks like I'm trying to talk you into becoming a small-cap value investor... that's partially true... Whether you're buying large-, mid-, or small-cap stocks, it's a great idea to become a more value-oriented investor right now. That's the conclusion of research analyst Que Nguyen of Research Affiliates in her February 1 article, "Active Value Investing: Avoiding Value Traps." Based on her analysis, Nguyen figures you can make an extra 2.4% to 5.2% per year by using various methods of picking value stocks. I also believe a value-oriented strategy will exhibit less turbulence and earn better returns over the next few years. Nguyen also discusses adding momentum to the mix and avoiding low-quality "value traps"... cheap stocks that are doomed to stay cheap or get even cheaper. Identifying high-quality value names is what you'll see me do in Extreme Value. And in The Ferris Report, I've added at least five different funds with various combinations of high-quality stocks chosen by value-focused methods to our model portfolio, including the one I recommend in the current issue, published today. (My subscribers and Alliance members can read it [here]( Egregiously overvalued markets where everyone seems confident and bullish are generally followed by more turbulent conditions. Right now, then, you should expect great turbulence. Stop losses can help prevent market turbulence from becoming financially deadly. Picking stocks with a margin of safety – value stocks – can do the same and will likely outperform other strategies over the next few years. Buckle up. --------------------------------------------------------------- Recommended Links: [TODAY: The Return of the Gold Standard?]( As controversial House Bill 1955 moves through the Senate, multiple states are preparing for a return to gold after 53 years... which is why two top experts just stepped forward to cover the surprising implications for your money and the markets – regardless of what Congress decides. Don't put any more money in the market until you hear the fascinating gold story playing out [right now](. --------------------------------------------------------------- [Biden's Next Surprise]( President Joe Biden just signed a new law approving billions of dollars for one small but growing industry, and investors like Bill Gates and Peter Thiel are all over it. [This expert just went public with all the details, including which stocks to jump on immediately](. --------------------------------------------------------------- New 52-week highs (as of 5/23/24): Alpha Architect 1-3 Month Box Fund (BOXX), Dell Technologies (DELL), Eli Lilly (LLY), Sprouts Farmers Market (SFM), VanEck Semiconductor Fund (SMH), and ProShares Ultra Semiconductors (USD). A quick housekeeping note. Our offices and the U.S. markets will be closed Monday for the Memorial Day holiday. After this weekend's Masters Series, we'll pick things up with our regular fare on Tuesday. In today's mailbag, one observation about inflation, which Digest editor Corey McLaughlin wrote about [in yesterday's edition](... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "Received new bill for house insurance in South Carolina. Up from $3,600 to $4,700 on a dwelling priced at $550,000 replacement cost (no flood insurance). 2,080 square feet. Yikes!" – Subscriber Mark H. Good investing, Dan Ferris Eagle Point, Oregon May 24, 2024 --------------------------------------------------------------- Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open stock positions across all Stansberry Research portfolios Investment Buy Date Return Publication Analyst MSFT Microsoft 11/11/10 1,386.0% Retirement Millionaire Doc MSFT Microsoft 02/10/12 1,359.6% Stansberry's Investment Advisory Porter ADP Automatic Data Processing 10/09/08 910.7% Extreme Value Ferris WRB W.R. Berkley 03/16/12 718.6% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 619.6% Retirement Millionaire Doc HSY Hershey 12/07/07 496.9% Stansberry's Investment Advisory Porter AFG American Financial 10/12/12 448.8% Stansberry's Investment Advisory Porter TT Trane Technologies 04/12/18 431.4% Retirement Millionaire Doc NVO Novo Nordisk 12/05/19 389.6% Stansberry's Investment Advisory Gula TTD The Trade Desk 10/17/19 361.7% Stansberry Innovations Report Engel Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio. --------------------------------------------------------------- Top 10 Totals 5 Stansberry's Investment Advisory Porter/Gula 3 Retirement Millionaire Doc 1 Extreme Value Ferris 1 Stansberry Innovations Report Engel --------------------------------------------------------------- Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio Investment Buy Date Return Publication Analyst wstETH Wrapped Staked Ethereum 12/07/18 2,291.8% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 1,706.8% Crypto Capital Wade ONE/USD Harmony 12/16/19 1,257.5% Crypto Capital Wade MATIC/USD Polygon 02/25/21 820.3% Crypto Capital Wade AGI/USD Delysium AI 01/16/24 445.7% Crypto Capital Wade Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio. --------------------------------------------------------------- Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios Investment Symbol Duration Gain Publication Analyst Nvidia^* NVDA 5.96 years 1,466% Venture Tech. Lashmet Microsoft^ MSFT 12.74 years 1,185% Retirement Millionaire Doc Inovio Pharma.^ INO 1.01 years 1,139% Venture Tech. Lashmet Seabridge Gold^ SA 4.20 years 995% Sjug Conf. Sjuggerud Nvidia^* NVDA 4.12 years 777% Venture Tech. Lashmet Intellia Therapeutics NTLA 1.95 years 775% Amer. Moonshots Root Rite Aid 8.5% bond 4.97 years 773% True Income Williams PNC Warrants PNC-WS 6.16 years 706% True Wealth Systems Sjuggerud Maxar Technologies^ MAXR 1.90 years 691% Venture Tech. Lashmet Silvergate Capital SI 1.95 years 681% Amer. Moonshots Root ^ These gains occurred with a partial position in the respective stocks. * The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. --------------------------------------------------------------- Stansberry Research Crypto Hall of Fame Top 5 highest-returning closed positions in the Crypto Capital model portfolio Investment Symbol Duration Gain Publication Analyst Band Protocol BAND/USD 0.31 years 1,169% Crypto Capital Wade Terra LUNA/USD 0.41 years 1,166% Crypto Capital Wade Polymesh POLYX/USD 3.84 years 1,157% Crypto Capital Wade Frontier FRONT/USD 0.09 years 979% Crypto Capital Wade Binance Coin BNB/USD 1.78 years 963% Crypto Capital Wade You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. You’re receiving this e-mail at {EMAIL}. Stansberry Research welcomes comments or suggestions at feedback@stansberryresearch.com. This address is for feedback only. 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