If you look at the headlines you see that almost every major index is setting a new record. This is great news for the economy. Unlike most people, I don’t think that new records indicate that a crash is coming. The same folks who talked all that crash talk a year ago realized that they were wrong as the market continued to rally. This blog post is about how I think you can fine opportunities in this present market despite the current values.
Buy what’s winning: Netflix (NFLX)
One of the things the investment club has done well is buy more of what has been working for us. Most people want to do the opposite. Most people sell what has won and put that money back into things that are losing hoping to recapture their gains. This could work but the odds are better that what is going up will continue to go up, even for things that you can’t even see.
We did this with our Netflix, Amazon and our Visa. This goes hand in hand with stocks that were once losing but are now winning, even if they aren’t back to where they fell from. Twitter is doing some great things and while it fell far from its $40 IPO price it is trading for $10 above where it bottomed. If you bought TWTR at $13 you saw an almost 80% return.
Buy what’s losing but that should be winning: Under Armour (UA)
This part of the blog is about my boo, Under Armour. Under Armour is such a strong stock. I just think that its rise to fame was a little before its time. I don’t know how or why the stock market does this but sometimes the enthusiasm for what can be will run up a stock price only for it to plummet down to reality. The key is that Under Armour is STILL the company that people though it was. Sometimes greatness just takes time. The thing about high PE companies is that they tend to fall to again rise back again later. This is exactly what I see with Under Armour and the 18% return over the last month lets me know that I am right.
We still have a long way to go but if you are smart enough to average into some shares of Under Armour it could work out well for you. Don’t go all in, buy a thousand here and a thousand there. This allows you to win either way. Either you buy more shares a month later at a lower cost or you buy more as the stock continues to rise. Average into what is losing but should be winning.
Buy what everyone hates: Chipotle (CMG)
A long time ago Chipotle was a $700 stock, you couldn’t get in the door at lunch time and the sky was the limit. There was literally nothing that could hold back Chipotle stock. Well, shift happens. We all know about the scandal and the bad press. Chipotle proceeded to be cut in half. Now the stock trades at $300.
To me, this is a once in a lifetime opportunity to buy a great brand for pennies on the dollar. The snowball version of Warren Buffet would be licking his chops at this bargain. See, you don’t have to buy stock to make money tomorrow or next month. Sometimes you have to buy and hold forever. Patience is the name of the game when it comes to value investing. Another thing is that you don’t have to go all in on CMG. Its cool to throw money there as just a piece of your strategy.
I love buying what other people hate because that is where the bargains are. I love it so much that I wait until bad press hits just to buy stuff everyone is slandering. On the contrary I hate buying what everyone loves because when everyone loves it that usually means the party is over (see bitcoin $20,000). You don’t have to take my advice on this one but it works.
Find value: Habit (HABT)
The other day I told someone to invest in what they know, love and use. This is because if you use it and love it you know about it, you track it and you become an educated investor not a mere speculator. With Habit, this is another company coming off IPO woes. Habit IPOd at $40 and proceeded to drop like a rock to about $10. This is when the pros hop in and win.
If you have been watching Habit, they have been growing like crazy, opening a ton of locations in strategic places and expanding their presence. A lot of the times IPO promoters hype of stocks so they can sell them on the open market and cash out early investors. When this happens folks lose a lot of money. I think its dishonest and reflects poorly on a company that should have IPOd at a more reasonable price and let the market carry it up (see ROKU) but alas, here we are.
$10 is a great price to pick up HABT if you are holding for the long term. If you can see expansion and growth this likely means growth and expansion in the stock price and profits for ambitious and bold investors. Be ambitious and bold. The fear of losing money is what keeps most folks from making money.
Sell things that are valued well above their intrinsic values: Nvidia (NVDA)
The only thing worse that jumping in on a low and it going lower is buying what’s hot and getting slammed when it corrects itself. Some companies are all hype and no substance and ignorant investors chasing quick cash get slammed in the process. NVDA sells for $210 and is up 106% on the year. If you look at the chart it looks like it’s in bubble and overvalued territory. The company has a PE ratio of 52 when the industry average is 20-30. This scares me and it should scare you too. The odds are much greater that the stock gets hammered than it continues to defy the odds of gravity.
Most of investing is an odds game and those odds are based on the numbers. It’s great to look at companies like NVDA and fake stocks like bitcoin and crypto but when the valuations stop making sense, the savvy investor gets out of dodge.
Everything I write about here is based on things I have done. I have bought into the hype and lost, I have bought into the ugly and won and I have found that being a contrarian is the way. The choice is yours though. It’s your money. I am merely one voice hoping to help you make some money in this unique market. If you are interested in investing with our club, email firstname.lastname@example.org. We would love to bring you into the fold as we pursue generational wealth through teamwork.
Be great, invest well,