Wall Street likes to complicate things.
It gives them a reason to separate clients from their money.
They make investing in stocks sound like rocket science.
And most of the people who are giving advice are fresh out of college!
In fact, Warren Buffett has said:
“Wall Street is the only place where people ride to in a Rolls-Royce to get advice from those who take the subway.”
He’s not kidding.
I once had a brokerage job for a very short while on Wall Street.
And yes, I took the subway to the brokerage firm at 4 World Trade Center.
I dialed for dollars, read off a script and yes…
I even talked to clients who could’ve owned Rolls-Royces.
The sad thing was that the people I called thought I knew more than they did.
They sent me money to invest in speculative stocks.
I left after a few weeks.
I couldn’t stomach doing it any longer.
I’m glad I wasn’t able to convince too many people.
I later learned that making money is not that hard.
You don’t need to buy speculative stocks or trade options.
Instead, making money in the stock market boils down to a few things…
When the stock price trades below the value of the business, it’s time to buy.
And when the stock price trades above the value of the business, you should look to sell.
That’s the secret sauce — figuring out an estimate of the business.
It takes a lot of research and experience.
But once I have an estimate of the worth of the business…
I then let Mr. Market dictate my next move.
The chart below sums it up…
The reason why the stock price (the black line) is all over the place is because of Mr. Market.
You see, when Mr. Market starts doing the Snoopy dance, and the world looks great…
He bids up the stock price.
There were too many examples of that last year.
Interest rates were low, inflation was nonexistent and money was practically free.
So, Mr. Market drove up the stock prices of companies like…
- Energy Vault Holdings (NYSE: NRGV).
- Fisker Inc. (NYSE: FSR).
- And Tattooed Chef Inc. (Nasdaq: TTCF).
… All the way to the stratosphere.
By my estimation, the underlying value of those businesses (the orange line) was zero.
They weren’t making money and were burning through cash.
But eventually, the stock price follows the underlying worth of the business.
That’s why the stocks listed above are now down 75% on average.
Grab the Sweets
For businesses that are profitable and making money, you just need to wait.
Because when Mr. Market becomes depressed, he plunges stock prices lower.
And many times, it’s way below the underlying worth of the business.
It’s those times that we want to be buyers.
It’s like taking candy from a baby — the profits happen really quick.
We added Marvell Technology Inc. (Nasdaq: MRVL) to the Alpha Investor portfolio in February 2019.
The stock price was under a cloud because of an accounting scandal.
I penciled out the worth of the business and saw that the stock was trading at a bargain.
So, I recommended it to the portfolio.
Since we added Marvell, we’re ahead by more than 175%.
And right now, Mr. Market is giving us a chance with another amazing company.
I believe it has one of the strongest monopolies in the world.
I’ll share all the details in the next issue of Alpha Investor.
So, keep an eye on your inbox, Alpha Investors!
And if you haven’t started using the Alpha Investor approach yet, find out how to join us here.
Founder, Real Talk