This year will go down in history as one of the rarest and most volatile stock market (both to the d...
Can This Year's World Series Matchup Teach Us Something About Investing and Trading? You Bet!
10/23/2020 10:00 am EST
I’ve never been much of a baseball guy. Football has always been my number one sport—both as a player back in high school and a fan in life, states Mike Larson of Safe Money Report.
But I find the matchup in this year’s World Series fascinating—and instructive for investors, too! Hear me out ...
On the one hand, you have the flashy, free-wheeling, big-spending Los Angeles Dodgers. A major-market team with big-money free agents hoping to buy its way to a championship. It would be the storied franchise’s first one since 1988.
On the other hand, you have the miserly, lower-key Tampa Bay Rays. A smaller-market team that plays in an outdated stadium with a rotating roster of less-pricey players. But its use of dispassionate, top-notch analytics and focus on player development have the franchise on the cusp of winning its first title since the inaugural 1998 season.
Some might call it a David vs. Goliath matchup. Or a tortoise vs. hare contest. Me? I can’t help but think of how it illustrates the benefits and logic of a “Safe Money” approach to investing.
Look, many investors and traders are naturally drawn to flashy, whiz-bang stocks and sectors that always get a ton of press. Think of names like Tesla (TSLA) or Salesforce.com (CRM), or even Zoom Video Communications (ZM).
What’s more exciting and alluring than battery-powered cars, cloud computing, and pandemic-era videoconferencing technology? Who cares how pricey the stocks are when everything is going their way, right? It’s like the Dodgers trading for superstar outfielder Mookie Betts, then extending him in deals that could cost a record $392 million over 13 years.
But paying through the nose for wildly popular stocks isn’t the only way to find investment success. And in many market environments, it’s not the best way, either.
Think about it. When the going gets tough—say, because of changes in investor sentiment, major technological shifts, emerging economic weakness, shifting interest rates, or any number of other catalysts—it’s usually the highest of high-flyers that get hit the hardest. If that’s all or most of what you own, your portfolio could go down in flames.
Think of all the breathless hype that accompanied the two major ride-sharing IPOs. Uber (UBER) and Lyft (LYFT) were touted as big winners in a gig economy, and investors bid their shares up sharply right out of the gate.
But UBER has gone nowhere for 17 months and counting. And after popping to almost $89 on opening day, LYFT has sunk all the way to around $25. The Covid-19 outbreak clearly played a part. But neither of these companies managed to turn an operating profit over a span of several YEARS in the pre-pandemic era.
Plus, when you pay top-dollar for ultra-high-price stocks that lack things like solid dividend payouts, you don’t have a cushion. A safety net underneath. Big gains can morph into outsized losses in a snap.
Look no further than a name like Nikola (NKLA). The Tesla-wannabe soared this spring amid an onslaught of hype and positive press. But it has lost almost half its value in just the last three months.
If you opt for a Safe Money approach, though, you can lower your risk substantially. High-quality, higher-rated, higher-yielding stocks with highly attractive valuations—especially, those operating in more defensive sectors—are just the ticket. Since the economic and credit cycles began to shift in 2018, they have served up great performance in addition to relative safety.
The same goes for out-of-favor, less-flashy, precious metals, and mining shares. Hardly anyone wanted these...ahem...“miner-market” assets back in 2018 and 2019. But boy have they paid off, just like some of the cheaper Rays players now contending for a World Series!
I’m going to be talking more about my approach at The MoneyShow October Virtual Expo later this month. Specifically, I’ll be joining Mike Turner, the president of Turner Capital Investments, for a session called “The Great Debate on Buy-And-Hold Vs. Market Timing.” It airs online Wednesday, Oct. 28 from 11:50 am to 12:30 pm Eastern Time.
You can view our debate—and all the other informative, hard-hitting sessions at this event—online for free. All you have to do is register in advance using this link. Or call the MoneyShow team at 800-970-4355 and tell them I sent you.
Now, go grab some peanuts or a hot dog and enjoy this year’s Series. Just be sure to mull over these investment lessons, too—even if it’s only during the commercials.
Safe Money Report focuses on these kinds of stocks, which include names in the consumer staples, food and beverage, retail, and health care sectors. Visit Safe Money Report here…
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