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2 ways to buy even if you’re scared out of your mind

Mar 16, 2023

Good morning! 👋

SVB’s fallout continues to roil markets and, not surprisingly, all the major indices are down in early going.

Take a deep breath.

We’ve seen this movie before and know exactly what to do.

Here’s my playbook.

Why oil prices are dropping, not popping

WTI and Brent Crude have dropped to $66.27 and $72.40 a barrel, respectively.

Many investors are asking why, even though global supplies are in short order and production is down.

The answer, surprisingly enough, has nothing to do with “demand destruction” like many in the press would have you believe. Everything comes down to liquidity, especially now.

The SVB-induced banking crisis is spreading beyond our shores as liquidity fears rise, so traders are simply deleveraging their portfolios—including oil. Potential dollar-related fears and computerization make the problem worse and increase the volatility.

Most people will make the mistake of overthinking the situation.

Keep it stupid simple.

Prices will fall if buyers walk away.

It’s ECON 101.

OBA Implication: Global demand is actually rising over time; most investors are trapped thinking about a moment in time when they should be thinking about resources over time which is why they cannot see what’s happening. China all by itself, for example, may account for 700,000+ (roughly 30%) of the anticipated daily “add” of the 2 million more barrels a day that the world will need this year.

Recession or not, that’s something you can use to your advantage. And if you’d like a few thoughts on how to best do that and which stocks could pay off handsomely as a result, I’m here. Upgrade to Paid

It’s déjà vu all over again

“Counterparty risk remains an unknown, particularly in Europe.”

That’s what I told CNBC’s ABU Dhabi anchors Hadley Gamble and Dan Murphy during an interview late Sunday evening as the SVB Crisis intensified.

The situation reminds me of early on in the Global Financial Crisis when yours truly told an astounded Stuart Varney on national TV that the brewing banking crisis wasn’t just a small, localized $300 million problem but, instead, would be a global multi-trillion challenge.

Investing Implication: Stocks will come under pressure... but, as was the case back then and in every other financial crisis on record, the best companies will survive.

Choices like Apple that were part of the tech wreck over the past 12 months will miraculously be regarded as “safe havens” in the coming weeks. Mark my words that’ll become the mantra.

Meanwhile, Reuters reports that “shares in Swiss bank UBS (UBSG.S) fell 6.8%. French banks BNP Paribas (BNPP.PA) and Societe Generale (SOGN.PA) were both down by over 11%. Spanish bank Banco de Sabadell (SABE.MC) was last down 9% and Germany’s Commerzbank (CBKG.DE) fell nearly 10%, while Deutsche Bank (DBKGn.DE) shares were down 8.4%.” Not surprisingly, Italy’s UniCredit and Intesa Sanpaolo are also under pressure last I looked.

Putskies and a few well-placed ‘flies could work really well over the next few sessions.

The Fed isn’t the world’s only clueless central bank

I don’t know whether to laugh or cry.

The European Central Bank just raised rates by another 50 basis points despite market turmoil. (Read)

EU officials are stressing that the “situation in Europe is different” because there is less deposit concentration and European banks are well capitalized.

Famous last words. 🤦‍♂️

A pairs trade might work nicely over the next few months… long JPM and short dang near anybody else on the European banking bench.

The Fed will raise rates, too—and as I’ve noted recently during several media appearances, I think 50 basis points or ½ a percentage point is still on the table, regardless of what the Fed futures probabilities imply.

I hope I’m wrong, BTW.

How to buy even if you’re scared outta your mind

Many people are terrified of what’s happening in the markets right now. And I get why they’d feel that way.

Funny enough, now could be a generational buying opportunity.

Not all at once, though.

Here’s an easy way to take emotions out of the equation using two of my favourite tactics, Dollar Cost Averaging (DCA) and it’s lesser-known cousin, Value Cost Averaging (VCA).

Here’s the skinny.

DCA and VCA can help you maximize profit potential and decrease risk before you buy. Not after the fact, which is how most investors think about this stuff and why they very predictably get into trouble.

Dollar Cost Averaging (DCA) is super simple. You invest a fixed amount of money over a given time interval… weekly, monthly, or quarterly, for example.

Imagine you want to invest $1,000 into Apple but are leery there may be more selling ahead. So you elect to Dollar Cost Average (DCA) into the position as I’ve recommended. You could divide that into 4 parts and invest $250 a month equally over the next four months.

Doing so removes fear from the equation and replaces it with discipline and certainty. It also helps you harness volatility. Time becomes your ally rather than the enemy, as is the case for investors who jump in “all at once.”

Value Cost Averaging (VCA) is a more aggressive twist on DCA. VCAers still make periodic investments over time, but the amount of money they put to work each month varies by the underlying value of the investment.

Imagine you still want to buy Apple, and you still have $1,000 to invest over the next 4 months. In this instance, you’d divide that into $250 chunks that are then invested based on Apple’s price. If prices have risen, you’ll invest less because the appreciation offsets the money you’d like to put to work. If prices have fallen, you’ll invest more.

There is no wrong way to use either strategy. Picking one or the other is simply a matter of preference and your personal risk tolerance (which I don’t know).

What’s more, there is also no reason why you cannot use both strategies at once. For example, I will often DCA into core holdings over time. But I will shift to VCA whenever there’s an especially big down day, at which point I’ll simply put in a few bucks “extra.”

The key and the reason I advocate both tactics, especially under current market conditions, is that DCA and VCA help you play offense at all times, even when you don’t want to! It doesn’t matter whether you’re talking $1,000, 1,000 shares, or even one share at a time.

If you’d like to read more, this article is a nice primer. (Read)

Better yet, I write about stuff like this in my premium research journal, One Bar Ahead®. You might enjoy that if you like reading the 5 with Fitz. Thousands of savvy investors are already on board, and I’d love the opportunity to earn your trust, goodwill, and business, too. 😊

What happens when AI becomes a teenager?

People are focused on AI because of the gee-whiz technology.

That’s a mistake.

The real investing opportunity is associated with the speed at which AI is developing because there are only a handful of companies worldwide that can maximize the trajectory.

Right now, AI has the cognitive level of a 9-year-old human child, according to recently administered “theory of mind” tests. Imagine what happens when it hits the teenage years—borrowing the car keys won’t be the half of it!!!!

NVDA has tacked on 68.1% this year alone.

I can see $300 a share without too much trouble.