The Potential Buys of a Lifetime — Prepare for the Market Bounce Back

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COVID-19 Stock Market Recovery - The Market Bounce Back

Today’s Profit Watch asks you to begin your days for the rest of the year channelling the spirit of Jim Rogers and Sam Zell.

These two American entrepreneurs are getting on in years now.

But I’m sure they’re licking their lips at today’s market like they did 50 years ago.

Both are self-made billionaires that mostly did it by buying distressed assets and betting on a rebound.

You need two things: courage and cash. Perhaps we should add a third: patience.

Sam Zell, for one, made his first million or two in property…

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A note from the billionaire playbook

But he really put himself in the fun house after the US real estate collapse of 1974. He stepped in and bought everything he could afford.

It took time for the US economy to find its feet again, but it sure did eventually.

Profit Watch talked a little about Zell’s memoir last year. One part springs to mind this morning.

Zell is infamous for the move he pulled in 1974.

Even today they still call him the Grave Dancer — a phrase he coined back then to describe what he was doing.

But Zell couldn’t pull the same move after 2008, or at least to the same extent. Why was that?

It was the Fed. The central bank in 2008 backstopped property and debt from going as rank as it would have in a free market.

2020 looks to be like that on steroids. The Fed is stepping in to prop up as much as it can, and we’ve got no guarantee they won’t do more.

Generally, this is applauded for ‘protecting’ investors and creditors.

However, capitalism’s defining feature is creative destruction too.

The more we tame the destruction, the more we potentially stifle the creativity.

The list of distinguished firms and entrepreneurs born in recession is long and illustrious.

But the Fed can’t bail out everybody…

Look to the ugly for the truly distressed

So pockets of distress are going to show up all over the place.

This is our chance to consider taking a leaf from the playbook of Zell and Rogers.

We then turn to the sectors that look the most ugly: oil, tourism, airlines, hotels, retail.

A good chunk of these companies are verging on bankruptcy.

Believe it or not, Jim Rogers once said this was his favourite type of stock.

That’s because the price gets so smashed down, practically the only way for it go is up — as long as the company survives.

That’s where you really need to do your homework and have the courage of your convictions.

But it’s possible. One of Jim Rogers’ famous buys at his old hedge fund was the defence firm Lockheed Martin.

It too, at the time, was nearly bankrupt.

Jim reasoned it was unthinkable that the US government would allow a US defence firm to die and leave the country vulnerable.

So the government started awarding it military contracts (they’ve kept going ever since).

Lockheed stock soared thousands of percent.

The key, of course, is to identify a stock or sector that can rise back in a powerful way once the disruption is past.

The most obvious sector to this line of thinking is real estate.

But we need to be a little more patient on that front.

The discounts haven’t really appeared yet. But I’m sure they will. My oh my, they will.

That’s why now’s the time to be doing your homework on stocks in distress.

I mentioned yesterday that I’m avoiding buying stocks now in the housing chain like mortgage brokers, builders, and insurers.

But I’m chafing at the bit to learn all I can about them. Then it’s just a matter of being prepared to pull the trigger when the time is right. It’s not yet, in my opinion.

But these are the buys that could set you up for a lifetime in the next housing upswing.

Don’t delude yourself into thinking real estate will be allowed to fall completely to its knees.

We’re already seeing rent relief, mortgage holidays, land tax exceptions, printing money, monstrous government debt billed to future generations — you name it.

All of it is designed to keep the basic structure of the economy in place while waiting for the return to normal.

What is that basic structure?

The basic structure of the economy won’t change

Mostly shoving the general population into large debt to the banks via the absurd cost of housing (land) and using idiotic and dangerous credit creation to finance it.

Then we all slave away to pay if off.

It’s a nice system for those that can rort it legally for their own benefit.

Do your homework now for the market bounce back coming, probably in about 12–18 months. It will get uglier for a while longer.

But should the market get really bad, the printing press and government bailouts will just keep getting bigger.

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch

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