Crisis Equals Opportunity: A Discussion on the Stock Market

[Zacks | Our Research. Your Success.] WeekendWisdom Tactics that Work in Good Markets and Bad [Andrew Rocco - Editor] Crisis Equals Opportunity: A Discussion on the Stock Market By: Andrew Rocco May 8, 2023 --------------------------------------------------------------- As modern-day investors, it can be easy for us to get caught up in the day-to-day fluctuations of the stock market. The advent of the 24-hour news cycle, up-to-the-second trading platforms, and low-commission trading (or commission free in many instances) can make your head spin and make matters worse in many instances. However, if there is one lesson stock market history has taught me, it’s that a short-term crisis often makes way for longer-term opportunities. Booms and Busts are Nothing New Long before Wall Street was even conceived of, history was littered with boom-and-bust periods. In fact, unless you’re hundreds of years old, the first instance happened long before you were born. During the Dutch Golden Age of the 1700s, tulip speculation ran wild. Even though there was little real-world value or use around tulips, the price soared to the equivalent of ten times the annual salary of a skilled artisan! The Extremes of the .com Craze Fast forward to 1999, and a similar phenomenon occurred with the burgeoning internet sector. Investors began to realize that the internet would change how we take in information. However, just like the Tulip Bubble before it, investors suffered from irrational exuberance. Though most internet stocks had yet to turn a profit, investors piled into any stock with a .com in the name and sent it into the stratosphere. One extreme example was Netscape. Netscape soared from $28 to nearly $75 a share on its first day of trading! Many other names went on to have price-to-earnings (P/E) ratios of over 300x earnings – numbers that would wake Warren Buffett up at night. 2008’s Global Financial Crisis The housing crisis of 2008 was yet another example of excesses in one direction leading to excesses in the opposite direction. Large banks’ excessive risk taking and over-lending aimed at low-income home buyers led to a speculative bubble. You guessed it! Like the dot com craze and Tulip Mania before it, this didn’t end well. First, rampant real estate speculation led to unsustainable prices. Then, the devastating crash came which sparked the demise of large banks such as Lehman Brothers and Bear Stearns. Learn from the Market’s Past to Understand the Future You may be wondering why I am taking you down this seemingly random walk down memory lane. One of the primary reasons why crisis equates to opportunity in the stock market is the occurrence of “black swan” events. Black swan events are rare and unexpected events that significantly impact the market and can cause a rapid decline in stock prices. The events I walked you through above are all examples of black swan events. However, black swan events can be a product of things outside of the economy that ultimately impact the economy (think the 9/11 terrorist attacks or the COVID-19 pandemic). While these events are often devastating to the world and investors caught on the wrong side of the trade, they also pave the way for opportunities for those who have dry powder (cash on hand) and are prepared to take advantage of them. Like a weed sprouting its way through a cracked driveway, ultimately markets “heal”. Continued . . . [5 Stocks Set to Double: Sunday Deadline]( There's still time to get in on our just-released 5 Stocks Set to Double Special Report. Each pick is the single favorite of a Zacks expert with the best chance to gain +100% and more in the months ahead. Previous editions have racked up gains of +143.0%, +175.9%, +498.3%, and even +673.0%.¹ Deadline to download the new report is midnight Sunday, May 7. [See Stocks Now »]( Uncertainty is a Feature, Not a Bug If there is one lesson that I have learned in my years of investing in the stock market, it is this: we cannot predict the future. We can only interpret the present to the best of our ability. Furthermore, we need to remember that we cannot change the world or the market, but we can change our psychology and adapt to the environment we are in. Charlie Bilello, a Chief Market Strategist for Creative Planning said it best: “Uncertainty is a feature of equities, not a bug. Bearing that risk is the price of admission for the long-term investor, without risk there would be no reward.” In other words, I want you not to try to avoid risk all together but rather embrace it and learn to navigate it! The Power of Long-Term Thinking What if I asked you to predict whether the S&P 500 will be higher or lower over the next minute? You would probably flip a coin or simply guess. However, if I stretched out the time frame to a year or three years, you would probably have a better grasp of where things are going. If you want to become a successful investor, you must understand that Wall Street is subject to short-term uncertainty and volatility at any given point. Conversely, if you stretch your time frame out to the long term, you will likely find that producing positive results is much more attainable. Did you know that Amazon founder Jeff Bezos credits much of his success to long-term thinking? When he was at the helm of the e-commerce giant, he focused his energy years ahead, while Wall Street focused on quarterly results. To produce different results, you must think differently from the crowd. A Probabilistic Mindset Will Take You a Long Way Of course, there is more to becoming a profitable investor than just stretching out your time frame. A probabilistic mindset is essential if you want to cash in on crisis opportunities in the stock market. I want you to recognize that even the most well-researched investments can fail. But guess what? You don’t have to be right on every trade to succeed. Rather than trying to predict the future, focus on innovative, profitable, high-quality companies with a long runway. So take the probabilistic approach. Avoid overly optimistic or pessimistic predictions about the future and make informed decisions based on the best available information. Size up the Zacks Rank of the stock, earnings estimates, and the industry group. Though you won’t be right on every trade, you will build yourself a portfolio of stocks that are likely to outperform in the long run. 5 Stocks Poised to Outperform, Starting Now After the post-Covid market boom and the painfully bearish conditions of 2023, we’re now looking at some exciting opportunities for investors to target significant gains. A handful of the most promising are included in our just-released report, [5 Stocks Set to Double]( and you’re invited to download a free copy. Each pick in the report was handpicked by a Zacks expert as the single stock they believe has the highest probability of gaining +100% or more over the coming months. They include: Stock #1: a global electrical products distributor soaring as new technologies expand; Stock #2: an online advertising platform leveraging AI and gaining serious market share; Stock #3: a cybersecurity firm flush with cash even after acquiring several competitors; Stock #4: an undervalued energy company with forecasts calling for incredible earnings growth; Stock #5: a unique e-commerce company with strong sales trends, and a history of positive earnings surprises. The earlier you get into these stocks, the more profit you stand to gain. Previous editions of this report have given readers a chance at spectacular returns like +143.0% on Boston Beer Co., +498.3% on Weight Watchers, and +673% on Tesla.¹ To help you take advantage of even more high probability investments, you are also invited to look into our unique arrangement called Zacks Investor Collection. It gives you access to the picks and commentary from all our long-term portfolios in real time for the next 30 days. Plus, it includes Zacks Premium research so you can find winning stocks, ETFs and mutual funds on your own. Last year alone, they closed 42 double and triple-digit wins – despite those bearish conditions. Recent winners surged as much as +188%, +221%, and even +348%.¹ I encourage you to take advantage now. The opportunity to download the just-released 5 Stocks Set to Double report ends Sunday, May 7. [Get started now with Zacks Investor Collection and 5 Stocks Set to Double »]( Thanks and good trading, [Andrew Rocco - signature] Andrew Rocco Andrew invites you to [download Zacks 5 Stocks to Double before this weekend's deadline](. Andrew Rocco serves as a Stock Strategist and writer for Zacks Investment Research. 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