I’m not as young as I used to be—and sometimes, my back reminds me, asserts Mike Larson, editor of Safe Money Report.
I first hurt it several years ago when moving into a new house, and every year or two, I seem to re-aggravate the injury. It’s usually because I push myself too hard with exercise, lifting things, or higher-risk leisure activities like softball.
Ironically, many traders also suffered a painful episode this week. The mad dash into all kinds of overheated, overpriced investments—including high-risk, unprofitable, unproven “SPACs”—reversed sharply. So did the rallies in many other stocks with even the slightest, most tenuous connection to whiz-bang technology sub-sectors like electric vehicles or artificial intelligence.
What’s behind the move? What should you do in response? How can you avoid stumbles like these—while still stacking respectable, reliable, significant profits elsewhere? Let’s dive in.
It’s no secret that red-hot stocks in red-hot sectors owned by red-hot fund managers have racked up red-hot gains over the past several months. But the problem with chasing these kinds of names too aggressively is that they can just as easily give significant chunks of them up in the blink of an eye.
One example: Shares of the ultra-hyped Special Purpose Acquisition Company Churchill Capital Corp IV (CCIV) cratered more than 38% Tuesday. Its stock price had previously surged from around $10 to more than $64 amid hopes it would acquire the EV darling Lucid Motors, which wants to compete aggressively with Tesla (TSLA).
But the $11.7 billion deal came at a disappointing price, causing CCIV to plummet. Many other similar names dropped sharply, largely because so much hot money has poured into the sector.
Consider this: More than 400 SPACs have come public since the start of 2020, raising a whopping $130 billion. That means we’ve had more deals raising more money in the last 14 months than in all the years combined since the modern SPAC industry emerged in the early 1990s.
Even sports stars like former New York Yankees third baseman Alex Rodriguez and current Golden State Warriors point guard Steph Curry, as well as other celebrities like the musician Ciara, have jumped on the bandwagon. They’re serving as SPAC founders, investors, board members...you name it! But now, we’re seeing the sector stumble sharply.
I don’t know if this week’s smacking over the head is the beginning of something worse. And thanks to phenomenal run ups until this week, many of these incredibly aggressive stocks still have enormous, accumulated gains.
But the crunch we’ve seen is just like the flare ups I’ve experienced with my back. They serve to remind us that we can’t take things too far, or get too aggressive, without exposing ourselves to painful consequences.
My advice? Stick with safe money stocks and safe money strategies for the lion’s share of your portfolio. They might not rack up double-digit percentage gains in a day or two. But they also won’t collapse by just as much in the blink of an eye.
And juicy profits are still there for the taking!
Be sure to keep focusing on stocks and ETFs that sport higher yields, and other attractive attributes in this still-uncertain market environment.
Safe Money Report focuses on these kinds of stocks, which include names in the consumer staples, food and beverage, retail, and healthcare sectors. Visit Safe Money Report here.
