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Popular Delusions and the Madness of Crowds

by | Feb 2, 2023 | Market Outlook, Stocks

Momentum went positive on January 6. And if you followed that signal and just bought the S&P 500, and you’d be up 7% right now. 

Buy a broke stock trading at 10 times sales in Chargepoint (CHPT) and you’d be up 46.5%. Do you think this will end well for the people holding the bag when the music stops in the near future? 

Momentum is an indicator of price and volume. But it’s also a measurement of sentiment – which can grow quite irrational, very quickly. 

The amphetamine-fueled moves of the market’s shorted stocks is very hard to navigate for many people. Maybe you want to take on that action – and that risk. And if you want to track short squeezes, you can use the signal that I give away for free each day. 

But if you’re trying to make money, you can do it the old-fashioned way – by focusing on real companies that will be around in 10 years. This isn’t complex. It’s just a slower way to get rich in any environment.


Mr. Powell’s Wild Ride

The S&P 500 likes to take the path of least resistance. That was evident last year when momentum screamed higher in August. We pushed above 4,100 – and the next clear gap took us right to 4,300. 

That feels very similar to this time – seven months ago. We moved into this FOMO environment of utter delusion. Markets cheered the prospect of no recession, a soft landing, and looser financial conditions. 

And then… we had five straight months of tighter economic conditions. It hit this market like a brick to the head, and we cratered from 4,300 to 3,500. 

Now, I’m not predicting this will happen again, but I will state that any tightening of financial conditions (which Powell hinted could happen in the Future Continuous tense) would send this market into a reversal. 

My point is that this market is running once again on madness, liquidity, and a very short-term memory that what goes up will come down when we move into overheated territory. 

For the purposes of our sanity, I want to focus on the stuff that matters in any economy: Quality of earnings, quality of leadership, and quality of long-term businesses that can navigate any surprises in the future.

I focus on value and momentum – the two things that can’t be arbitraged away in a market. But even as a momentum trader (even as I’m trading names like Carvana), I recognize that these irrational moves are largely based on algo-trading, short squeezes, and FOMO. 

These delusions petter out. These things eventually crater. And when momentum goes negative again, don’t be surprised to see Charge Point plunge by 30% to 40% in a week. 

It’s like planning for rain in April. It always arrives. 

On value, however, I have to cut out the noise. I have to think about the future… 18 months, 24 months, even 10 years down the road. 

This chaotic market can’t and won’t last. The delusion fades over time, and we move onto some other bizarre story that we think will change our fortunes. But value is the key to real, sustainable wealth. 

I don’t care what the inner trader tells you.

Carl Icahn. Stanley Druckenmiller. Warren Buffett. Bill Ackman. 

What do they have in common? 

They’re all famous INVESTORS. 

Can you name a famous trader? I mean, a really famous one who has stood time-tested that could be in a league with Warren Buffett?

No offense to traders, but I’m going to put my money in real companies… and I’ll watch my money grow, compound, and serve me much better in the future. That’s putting the “wealth” in Tactical Wealth Investor.


How We Target Long-Term Names

Now, I want you to understand that this market might be chaotic. But it’s still a very good time to look for real companies that make real things that play into the long-term trends. I stress the importance of energy, agriculture, food, housing, and mining. 

When you combine strong balance sheets, strong management, and defensive, time-tested strategies from great financial academics like Ben Graham and Joseph Piotoski, you find value and cyclical names that the YOLO crowd won’t touch because they want to gamble instead of actually invest. 

So, you end up with a name like Skywest (SKYW), a stock I mentioned here at Hub a month ago. Since then, shares are up 31%. 

And that’s a real business, with real profits, real leadership, and unique upside. 

Yesterday, I recommended a similar company in the banking sector that few people even know exists. It’s a small community bank operator. 

Here’s the thing… Carvana will eventually go bankrupt because it’s a junk stock. But this company, which operates in a necessary industry, with a strong balance sheet and plays into a great long-term consolidation trend, will likely jump as much as 75% to 80% in the next two to three years. 

Rather than trying to play the madness, you can own these names and look for big returns if this company is bought by a larger rival. 

And given that community bank consolidation has been a trend for 35 years – with 3% to 5% of banks swallowed in deals each year – this stock is an absolute no-brainer. Get this stock at a Charter Member of my Tactical Wealth Investor right here. 

To your wealth, 

Garrett signature


Garrett Baldwin

P.S. Please let me know if you have any feedback, questions about today’s issue or anything else. Just email us at hubfeedback@wealthpress.com.

*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk. 

Market Momentum is Green

Fed Chair Jerome Powell looked defeated as the risk-trade just shot through the key support levels. We now have a clear path toward 4,300 after the Fed effectively lost control of financial conditions in this economy. Powell can’t fight liquidity in this system right now. But look for the Fed to try to make a point in the next 24 hours with its SOMA report.

WRITTEN BY<br>Garrett Baldwin

Garrett Baldwin

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