Investment Roundtable: Meeting of the Minds
As the editorial director of Investing Daily, I’m privileged to work with some of the best minds in the investment world. With the tumultuous, pandemic-stricken year winding down, now’s a good time for me to pull together highlights of my recent interviews with these experts.
Below is a “roundtable” synopsis of what our top strategists have been telling their readers. My questions are in bold.
- Jim Pearce, chief investment strategist, Personal Finance and Mayhem Trader.
Which sectors and asset classes appear the most vulnerable to you right now?
If we get a big stock market correction in the near term then all asset classes will most likely suffer. However, some sectors of the stock market are more overvalued than others. Most at risk are some of the mega-cap tech stocks that have seen their share prices explode in value over the past six months.
The energy sector has taken a beating this year due to decreased demand for gasoline while the coronavirus pandemic forces many people to work from home instead of commuting into the office.
For that reason, the global inventory of oil and natural gas has increased during the past year despite a drop in production. That means the economic picture for the energy sector won’t improve until well after the coronavirus pandemic has run its course.
- Robert Rapier, chief investment strategist, Utility Forecaster.
You’ve often warned investors against trying to time the market. Why does market timing usually end in tears?
Because people clip their returns on both ends. They only sell after a correction has begun, and they only buy back after the market starts to rally.
This year, we have witnessed two major market moves, neither of which were predictable beforehand. The first was the deep March dive that turned out to be the fastest correction on record.
If you were attempting to time the market, when would you have sold your stocks? Yes, there were concerns leading up to the correction about the potential impact of COVID-19 on the economy, but it’s always unpredictable when the impact will start, how severe it will be, and how long it will last.
- Scott Chan, lead analyst, Real World Investing and The Complete Investor.
Coronavirus cases are surging, in a “third wave” of infections in Europe and the U.S. Do market sell-offs await ahead, because of the continuing pandemic?
There are reasons to feel uneasy as an investor today. The coronavirus already showed that it’s not afraid of warm weather, and now as we head into flu season, the outbreak is accelerating.
Besides the human toll, more lockdowns may be necessary, which could push us into a double-dip recession. Talks in Washington for a new stimulus package are on hold until a new presidential administration takes office in 2021.
So yes, we will experience some rough waters in weeks ahead. However, I don’t think there will be another crash like we had earlier this year. The decline will be more like a correction.
- Amber Hestla, chief investment strategist, Income Trader, Profit Amplifier, Maximum Income, and Precision Pot Trader.
Bond yields are extremely low. What’s the bond market trying to tell investors right now?
Bonds are telling us that the Federal Reserve is in charge for now. That will change. The change will be sudden and when that shift occurs, the stock market will collapse. So, for now, we pretend the Fed is omnipotent and it can continue extending the bull market.
The Fed has gone well past normal stimulus, but anything the Fed decides to do is sustainable. The Fed has unlimited resources and can buy every bond in the world if it chooses to.
That process could even be implemented in minutes noting that all bonds quoted in Bloomberg and not issued by countries or companies subject to U.S. sanctions would be bought at the price determined by a pricing service.
- Nathan Slaughter, chief investment strategist, Takeover Trader and High-Yield Investing.
You’ve often discussed “hidden high yield stocks.” What do you mean by that?
For hidden high yielders, the true payout is much higher because they pay supplemental dividends that go unreported each quarter. But this isn’t some secret way of transferring cash to a select group of well-connected insiders.
These extra payments are dished out openly and uniformly to all shareholders. They’re considered “special dividends.” As such, these distributions aren’t reflected in the yields you see quoted on popular financial websites.
Trust me, the cash is just as green and spends just the same as any other dividend. And these special payments typically come in much bigger denominations, often 10-to-20 times larger than the firm’s regular quarterly dividend.
- Jimmy Butts, chief investment strategist, Maximum Profit.
You adhere to “prospect theory.” Explain what that means.
In investing, there’s a human tendency to behave irrationally when it comes to taking profits and losses. According to Economics Nobel Prize winner Daniel Kahneman, this is known as prospect theory.
One of the hardest things to do is keep your emotions from clouding your judgment. Once you allow emotions to get the better of you, you lose your confidence, self-doubt creeps in and you begin second-guessing yourself with every investment or move you make.
A lot of factors are disrupting the status quo, including a norm-shattering election and a lethal global pandemic. Investors need to stay calm and stick to the fundamentals.
- Jim Fink, chief investment strategist, Options for Income, Velocity Trader, and Jim Fink’s Inner Circle.
You’ve often touted the appeal of “mid-cap” stocks. What do you like about them?
The reason that mid-cap stocks have performed so well is that they are in the “sweet spot” of investment performance, as well as the growth phase of their individual business lives.
The Greek philosopher Aristotle wrote that the key to happiness was the “happy medium” between two extremes. In the case of the stock market, the two extremes are stability and growth potential.
Large caps have the most stability but the least growth potential; small caps have the most growth potential but the least stability. Mid-caps have both stability and growth potential…the happy medium.
- Stephen Leeb, chief investment strategist, The Complete Investor and Real World Investing.
You’re an expert on commodities. Can you pinpoint the best opportunity in this asset class for 2021?
In the end, the pandemic will likely accelerate the timeline for commodity scarcities. The pandemic has drastically cut into growth. But that’s for now. Growth will pick up again, both in the East (where it’s already starting) and in the West, which virus or no virus can’t afford to slip ever further behind.
The resumption of growth means the current sharp slowdown in demand for commodities is short term. But for supplies it’s a different story. Revving up global commodity production will take a lot longer.
In fact, production may never return to former levels. That demand/supply imbalance is one reason to expect commodity prices to rise. I’m especially keen on copper, which is an essential commodity with a multitude of uses.
Editor’s Note: As my colleague Dr. Stephen Leeb just explained, copper is a crucial commodity. Indeed, the ”red metal” serves as a barometer of overall economic growth.
The practical uses of copper are all around you. Copper is vital for building construction, power generation and transmission, electronics, industrial machinery, and transportation vehicles. Copper wiring and plumbing are mainstays of heating and cooling systems, appliances, and telecommunications links.
As the world economy resumes growth and infrastructure spending explodes, so will demand for copper. For our favorite investment play on copper, click here now.