Investors are a worrying bunch.
We often lie awake at night with negative thoughts – wondering, “What if… sh*t hits the fan?”
Positive musings are fewer and farther between. When was the last time you sat up wondering, at 2am, “What if… a golden opportunity falls into my lap?”
All the successful investors I know somehow strike a healthy balance between fear and opportunity. Our goal is to keep one eye glued to potential landmines ahead… and one eye open wide to lucrative opportunities, potentially unfolding before us.
Either one, alone, isn’t enough.
As Rodney put it on Monday, “You should know what you’ll do with a lot of cash.”
If you don’t have cash in hand, ready for when that golden opportunity lands in your lap – or, if you can’t recognize a golden opportunity in the first place – you’ll never make the big bucks.
Making the task of finding low-risk, high-reward opportunities even more challenging is the fact that some present themselves at inopportune times – specifically, during times of crisis.
Case in point… when oil prices doubled, as the stock market was crashing.
2006 will be forever remembered as the year U.S. home prices peaked.
2007 as the year stocks peaked.
And 2008 as the year Bear Stearns and Lehman Brothers went bankrupt… and nearly every financial asset in the world puked its brains out.
Somehow, the extraordinary rise and fall of the global crude oil market – between 2006 and 2008 – played second (or fourth) fiddle to the housing crisis, the stock market collapse, and the evisceration of Wall Street and Main Street alike.
Few ordinary folks I know talk about the 2007-08 oil market today. Even fewer took advantage of it, as it was happening.
But get this…
Even though the S&P 500 peaked in October 2007, crude oil prices and energy-sector stocks didn’t peak until July 2008 – a full nine months later.
In fact, between July 2007 and July 2008, the energy sector was the only major U.S. sector still holding on to a positive return. Shares of the SPDR Energy Sector ETF (XLE) were up 14% in that time, while on the other end of the spectrum, the consumer discretionary sector had already lost 32%… and the financial sector down 48%!
No doubt, shifting into energy-sector investments as the market was topping in 2007 and 2008 was a great way to mitigate losses that were accruing in every other sector.
Even better, still, were bullish plays on the price of crude oil itself.
Between January 2007 and July 2008, shares of the most popular “oil ETF” on the market today – the United States Oil Fund LP (NYSE: USO) – climbed an unimaginable 180%!
Even catching half of that move, you could have doubled your money in about a year – all while the rest of the financial world was coming crash down around you!
Therein lies the problem, I suppose…
When markets are crashing, most investors just want to survive. There’s little bandwidth left to consider new investment opportunities when you’re gripped with fear and only worried about losing your shirt.
That’s why we’re encouraging you to make a plan, and commit to one of Dent Research’s proven systematic strategies, before things get hairy.
Making big money on bullish oil plays was the last thing on investors’ minds in 2007 and 2008.
But my data-driven (and therefore emotionless) Cycle 9 Alert algorithm objectively delivered a slew of profitable buy signals…
- On an energy-sector ETF, between April and July 2007, for a 17% profit
- On an oil exploration stock, between April and July 2007, for a 40% profit
- On another driller’s stock, between June and September, for an 18% profit
- On a foreign oil driller, between November 2007 and February 2008, for a 36% profit
- On an oil and gas equipment supplier, between March and June 2008, for a 26% profit
And most lucrative of them all was a consecutive string of “buy” signals my algorithm triggered on the United States Oil Fund LP (USO) – between August and November 2007 (+41%)… between November 2007 and March 2008 (+5%)… and between March 2008 and late-June 2008 (+30%).
The first point is… there were a large number of extremely profitable opportunities in the energy sector in 2007 and 2007, despite the fact that the rest of the financial world was being brought to its knees.
The second point is… it required a good deal of opportunistic, forward-thinking, and a proven risk-management strategy, to capture those sector-specific profits.
And it’s likely to work just the same the next time stocks crash.
It may or may not be the energy sector that shines in the topping stage of this current bull market, as it did in 2007-08. Commodity prices and energy stocks are, indeed, notorious for peaking last – or at least very late – in a boom-to-bust cycle.
And right now, my systematic Cycle 9 Alert strategy is red-hot with “buy” signals all across the energy sector. In fact, I recommended a unique “double-barrel” energy trade just yesterday.
But it is, of course, still open to speculation whether or not stocks are in the process of topping out… whether oil will nearly double, as it did during the last top… whether U.S. Treasury bonds will rocket higher, as North Korea’s “rocket man” unsettles the world… or whether the markets will continue to hum along, in “goldilocks land,” leaving all this worrying and wondering for not.
The bottom line is – and always has been – this: Investing is a game of uncertainty.
The best you can do is consider a number of “What If…” scenarios… make a plan for what you’ll do if and/or when they occur… and, perhaps most importantly, commit to a systematic strategy that objectively moves you in and out of the market’s best opportunities at any given time… with as little emotion and fear as possible.
I like my plan, and I like my system. But it’s not the only way to approach the market.
Indeed, my friend and colleague Lance Gaitan is putting together a special event where he’ll explain another approach that will you not just preserve but also grow your portfolio amid volatile markets that result from such “What If…” scenarios.
Click here for details and to reserve your place for this special event.
Editor, Cycle 9 Alert
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