Today is Good Friday, April 7, and the U.S. stock market is closed. With the lull in market action, now’s an opportune time to answer a few select reader letters. The article below is a condensed transcript of my video presentation.

I find it valuable to occasionally take a step back from the market’s daily noise and reflect on the long view. The questions and comments that I receive via email help me in this regard.

Letters to the editor play a dual role in publishing. They help share knowledge and they serve a corrective function. Let’s dive into my inbox and see what readers are asking.

Wall St. Lays an Egg…

The failures in March of Silicon Valley Bank, Silvergate Capital, and Signature Bank, as well as the cryptocurrency crash (e.g., the FTX scandal), have all raised concerns about speculative excesses in financial markets. Which brings me to this email from a reader:

“What can the crash of 1929 teach us today?” — Tom K.

I’m not expecting a stock market crash of that magnitude, anytime soon. But for perspective, let’s take a quick look at the fateful year of 1929, its consequences, and a few of its lessons.

The Great Depression began in 1929 when, in a period of 10 weeks, stocks on the New York Stock Exchange lost 50% of their value. As stocks continued to fall during the early 1930s, businesses went bankrupt, people lost their jobs and homes, and unemployment rose to nearly 25%.

The first day of the prolonged stock market crash was October 24, 1929, aka “Black Thursday.” Five days later, on October 29, another crash occurred known as “Black Tuesday.”

Variety, a newspaper covering Hollywood and the entertainment industry, ran this famous headline on October 30, 1929: Wall St. Lays An Egg. “Laying an egg” is slang, now somewhat outdated, for failing badly.

Leading up to the 1929 crash was unbridled investor euphoria. Bernard Baruch, financial advisor to President Franklin Roosevelt, described the atmosphere immediately before the crash of 1929:

“Taxi drivers told you what to buy. The shoeshine boy could give you a summary of the day’s financial news as he worked with rag and polish. An old beggar who regularly patrolled the street in front of my office now gave me tips and, I suppose, spent the money I and others gave him in the market. My cook had a brokerage account and followed the ticker closely. Her paper profits were quickly blown away in the gale of 1929.”

Baruch was the investment guru of his day. He sold his stocks just before Black Thursday. He made a fortune. He once said: “I made my money by selling too soon.”

There’s panic buying when a market is soaring (i.e., Fear of Missing Out) and there’s panic selling when a market crashes. Bernard Baruch knew this and acted accordingly. He died a wealthy man.

A time-tested hedge…

“You state that you’re bullish over the long term, but you also expect volatility and perhaps a sell-off over the near term. How can I protect my portfolio?” — Bill H.

Under current market conditions, at least 15% of your portfolio should be devoted to hedges. As part of your hedges sleeve, about 5% – 10% should be in precious metals, such as gold.

The price of gold has been on a tear this year and it probably has further to run. I prefer gold mining stocks to physical bullion or funds.

If you own gold mining stocks and the price of gold goes up, the notion of “operating leverage” comes into effect. A bump in gold prices will likely exert an exponentially huge boost on a gold producer’s top line revenue. And because the producer doesn’t have to put a whole lot of additional labor or capital into digging out increasingly valuable gold, its earnings per share should go up and take the stock’s price with it.

A strategy to “accelerate” income…

“I’ve often heard of an options trading strategy known as covered calls. How do they work and are they suitable for conservative investors?” — James M.

A covered call refers to a trade in which the investor selling call options owns an equivalent amount of the underlying security. To execute a covered call, an investor holding a long position in an asset then writes (i.e., sells) call options on that same asset to generate an income stream.

With a covered call, the investor’s long position in the asset is the “cover” because it means the seller can give up the shares if the buyer of the call option chooses to exercise. This trading strategy is suitable for risk-averse investors looking to boost income.

For a skilled way to implement the covered call strategy, consider our premium trading service, Rapier’s Income Accelerator, helmed by our income expert Robert Rapier.

Robert Rapier’s trades are income-generating machines, in bull or bear markets. Robert can show you how to squeeze up to 18x more income out of dividend stocks, with just a few minutes of “work” each week. Click here for details.

John Persinos is the editorial director of Investing Daily. You can reach him at: mailbag@investingdaily.com.

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