Why Crisis Can Also Mean Opportunity for Investors

The Chinese word for crisis is the combination of the words for danger and opportunity. That has certainly been true since March of 2020 when Covid-19 invaded the world. The danger back then was quite obvious. Government-enforced shutdowns of most businesses ensured losses for many of them with no way to know how long they would last. Media outlets like CNBC were playing Bill Ackman's hell is coming video clip multiple times a day as the major indexes plunged by huge amounts. Most Americans were stuck at home as two-weeks to slow the spread morphed into months of masking with little progress in curbing viral infections. 401(k)s became 201(k)s, margin calls were triggered. Traders focused more on stress-relieving rather than goal achieving. Contrary to conventional wisdom ... people believed that this time is different and stocks, which were already dirt cheap, were doomed to fall further. Legendary investors like John Templeton and Warren Buffett had always preached about buying when there is blood in the streets. Sir John Templeton made a fortune during the darker days of World War II by indiscriminately buying shares of every New York Stock Exchange issue that traded at $2 or under. Mr. Buffett often had purchased shares of companies during very trying times or on particularly bad company specific news. Buffett, who through Berkshire Hathaway , was sitting on about $140 billion in cash, became a net seller of stock in March of 2020. He kept up his net sales right through the end of September 2021 when Berkshires cash hoard hit almost $150 billion. In a live interview with Becky Quick in April of 2020, as people waited to find out, which bargains he had scooped up, Warren told her, I just couldn't find anything worth buying. Boy was he wrong on that. Since the March 23, 2020 final bottom, the broad market began one of its best rallies. Putting his $140 billion to work when panic was in the air could have easily netted $200 billion to $500 billion in gains for Berkshire Hathaway's shareholders vs. holding onto cash which was paying almost nothing. As noted above the upturn continued well past the end of 2020. As of Monday, the DJIA was at an all-time record high. Despite continued virus-related problems 2021 proved to be a huge winner. All three major indexes posted excellent returns. Better still, while they did well many smaller-cap, less blue-chip names, gained a whole lot more than safer-looking large-caps. During panic selling most people dump non-dividend paying and riskier-appearing stocks first. There are hundreds of examples of top-notch companies which saw their share prices plunge by 50% - 90%. The law of asymmetric returns is immutable. Media talking heads love to tell people that once a stock is down 50% it needs to double to break even. They rarely mention that buying after a 50% drop will deliver 100% gains just by reverting back to the starting price. I was one of the few investing experts during that time showing you great buying opportunities every single day while most others were warning investors to stay away. The year 2021 proved to be one of my very best years ever, as stocks purchased at huge discounts to fair values in 2020 continued rebounding. In rising markets the ability to get leverage via naked put writing allows for much greater gains than in retirement accounts. All four ways to make money are available in margin accounts with option writing approval. Cash accounts can still benefit from the first three techniques shown above. After receiving my Dec. 2021 statements I put together the results of my six accounts (two margin accounts, two Traditional IRAs and two Roth IRAs, for last year. I'm not willing to share my exact dollar gains, but the percentage gains below are entirely accurate. They are total returns including dividends and option premiums. All are adjusted for net money flow throughout 2021. Notably, I owned no large-cap tech stocks at all. No Apple , no Microsoft , no Nvidia , No Tesla , which were called big winners last year. In a world where matching the S&P 500 is considered an achievement, even my unlevered IRAs handily topped all three major indexes. 2021 was a life-changing year for me in terms of financial security. Once earned, those extra dollars can compound forever by drawing dividends, covered call premiums and through appreciation. Avoiding shares of those crazy never made money companies, while concentrating on true value proved to be a great strategy that was easy to live with. Subscribers are invited to message me through the website. I'm always willing to share some time with those hoping to hone their investment skills. (AAPL, MSFT and NVDA are holdings in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells these stocks? Learn more now.)

Why Crisis Can Also Mean Opportunity for Investors

Let's look back on the past two years, and how bad calls by some 'experts' turned into missed chances to make big money.

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