To Survive a Market Mania, Prepare, Don't Predict

Doc's Note: In Aesop's fable of the Tortoise and the Hare, it was the Hare's overconfidence that lost him the race...

In today's markets, people are confident – albeit a bit jumpy. They're buying and selling entire sectors when just one stock reports average earnings...

Which means it's probably time to consult with my favorite "tortoise investor"... colleague and editor of Extreme Value, Dan Ferris. Why? Because he studies the markets, he lives and breathes stocks like a hermit, a turtle... in the Northwest.

I first met Dan when I was doing my diligence before leaving ophthalmology and medicine to join Stansberry Research about 10 years ago. I flew out to Medford, Oregon and met him for dinner at a local pub where it turned out he'd played guitar on many a weekend night for fun.

The next morning, I went to his house and was struck by the piles of dog-eared books... papers and notes, piled and semi-organized. It seemed clear he loved his work. In his garage, more books were stacked – so many that they blocked the parking and even the entrance to the house.

I wanted him to clue me into his normal day. So, I observed his routine like a war correspondent...

Take his lunch break, for example. He split and fried two hot dogs in a pan. A few quick bites later, and voila, he was done. For Dan, any time away from thinking and reading about investing was a waste...

The problem is that Dan takes his analysis and thoughts about the markets very, very seriously. So much so that he only recommends a stock when it's trading at a great value in the market... He once went nine months without recommending a single new position in his newsletter.

The point is, Dan waits and watches and only recommends when he sees value. He's diligent and honest.

And in today's environment, this is the kind of researcher you want on your side. I don't normally do this, but I was so inspired by Dan's latest issue that I wanted to share a portion of it with you today. And of course, I encourage you to heed his words and wisdom, and consider signing up for Extreme Value today to read the entire issue...

His message is as important as any message about investing I've read in decades. Let me share...


Last month, I heralded the arrival of a bona fide mania in the stock market.

I told you how marketing guru Scott Galloway's spot-on analysis of Amazon (AMZN) and its profitless imitators was like a freshly inked signature on papers divorcing investors from reality.

Since last month's report, our first on the mania, the Dow Jones Industrial Average is up nearly 1.5%, the S&P 500 is up nearly 2%, and the Nasdaq is up around 3%. If the mania continues, the big indexes could rise double digits in a single month (though only suckers will bet on it). If the mania ends early, these numbers will soon sport minus signs.

As the mania unfolds, we'll cover stocks you can buy (not many), hold, sell, avoid (most), and sell short.

[Doc's note: I love Dan's calm while the mania builds around us.]

I promise you, a mania and its aftermath is just about the toughest ordeal an investor will endure.

The sense of complacency that builds on the way up leaves you prone to getting blindsided, and taking big losses when the end comes. Instead of recognizing heightened risk, most investors do the opposite. They come to believe "this time is different" – the four most dangerous words in finance.

Human nature works against you the whole way up in the manic phase and the whole way down in the crash phase. To get it right, you must immerse yourself in the history of past manias and crashes. You don't need mere information. You need to bathe your mind in the soaring euphoria of the manias and the searing drama of the crashes.

We're only human. We must engage our emotions to appreciate just how many times investors have gotten this wrong – so you can get it right...

What you learn about manias and crashes in Extreme Value over the next several months will leave you more confident and wealthy over the long term, and you'll have more fun than you've ever had as an investor.

No one really knows when a crash will arrive, but the history of financial markets suggests prudent long-term, value-minded investors should prepare for it. Prepare, don't predict.

If I seem excited at the prospect of few and dwindling opportunities to buy stocks followed by a once-a-decade market crash... you're right. I am excited. I've waited for this moment my entire career. I've never been more prepared for it, nor more able to prepare you.

Remember, I recommended subscribers sell short Lehman Brothers in the 2008 crisis. I recommended raising cash in May 2011, just before stocks took a 20% dive, bottoming that October. I published two new long stock recommendations in 2015, the worst year for the stock market since 2008.

All those experiences are helping me do the same thing today: I'm excited at the prospect of successfully guiding you through Hell for the fourth time in a decade.

Good investing,

Dan Ferris

Doc's P.S. Dan's keen eye on the market has led him to pinpoint six signs of ALL investor manias. He's seen all six recently and will show you what they are, how to avoid them, and how to survive no matter where the mania drives the market.

If you don't read his latest Extreme Value issue, you are essentially guaranteed to fall victim to at least one of these six pitfalls.

This is one of the best newsletter issues I've read in years. And even better, Dan also highlights an opportunity to add to your "mania-prep tool kit." Click here to find out how to survive investor mania.