For the majority of investors today, how you handle the Melt Down could be the most important event of your financial life...
In recent days, I shared why a Melt Down is inevitable. And more specifically, why I believe it'll begin sometime this year.
You might not agree with me. But you should at least consider the possibility. If not, you could end up handling it all wrong.
Today, I'll share why too many investors will make that mistake... and how you can avoid it.
If you are 55 years old and you handle the Melt Down the wrong way, you might lose half of the money you have invested.
That might cause you to work an additional 10 years before retirement... all because of a few bad decisions made in 2021.
So... don't be that guy.
Look, here are the basics: An investment "bubble" has kicked in recently. And it will certainly end. Unfortunately, most folks who just started "playing" in the markets this year will lose money. A good portion of them will lose a lot of money.
Here's how it will go...
- New investors will make a good amount of money on the way up. They will gain confidence.
- With that confidence, they will add even more money to their accounts, as they will believe they know how to succeed.
- Then the market will turn against them... and they will start to lose money.
- At first, they will see it as a golden opportunity to invest even more money, because assets are "on sale."
- Ultimately, they will lose even more money on the way down than they made on the way up.
It will take tremendous personal and emotional strength to avoid that path... to not end up like everyone else.
Your instincts will tell you to buy more. But your instincts will be wrong. In fact, you will need to do the opposite – you will need to sell, just when you feel like you want to buy.
Importantly, you will need a plan – set in advance – for how you will get out with most of your gains still intact. If you don't have that plan in advance, then you will sink with the ship. And even then, having the plan doesn't guarantee that you will follow it.
If you want to keep most of your money, you will need to follow the plan.
That's because – unlike the fall we saw in March last year – a true Melt Down doesn't end quickly...
"As the market goes down, will people rotate out of speculative stocks into less speculative ones?" one of my colleagues asked me recently.
"No, they won't," I replied. These market newcomers will ultimately give up after big losses. They will throw in the towel. They will pull what little money they have left out of the markets – and vow to never return.
At least, that's the way it went in the 1999 to 2000 Nasdaq Melt Up... which ended in an 80% fall in the Nasdaq between the March 2000 peak and the bottom in 2003.
The exodus you see during a Melt Down doesn't happen overnight. People are stubborn. It takes a while. Therefore, the Melt Down could take a while. And it could be severe. This slow exodus gives you time to exit your positions before most everyone else.
But you still have to act – and sell – when the time comes.
Your goal from here should be to participate in all of the upside potential that is left in the Melt Up... and then get out with most of your gains when the Melt Down arrives.
It's easier said than done. But you now know why the Melt Down will inflict maximum damage on anyone who isn't ready for it.
Make sure you don't fall into the trap.
Good investing,
Steve
P.S. I have to warn you... selling will feel impossible at the end of the Melt Up. It will go against every instinct you have. So I'm sharing the best solution I know – a strategy that can remove all emotion for you, so you can figure out the exact moment to sell your stocks. I urge you to check out my recent interview for the details... Find it here before it goes offline.
Further Reading
"The Melt Up will end sometime this year," Steve writes. With folks from all walks of life flooding into the market, market euphoria is near an all-time high. And that means the Melt Down is inevitable... Read more here: Why I'm Certain the Melt Down Is Looming.
"It's too easy to fall in love with your stocks in times like these," Steve says. And if you're not careful, that can lead to major losses when the Melt Down arrives. So now is the time to make sure you have a strategy to protect your gains... Get the full story here: What to Do When You Hit a Stop.
The Melt Up won't last forever. And when it ends, people who are comfortable with short selling could make big gains in the downturn. It's much easier to do than you might think...
A MASSIVE RALLY SHOWS THINGS ARE 'LESS BAD' FOR THIS RESTAURANT
Today, we're taking a look at one of our favorite investing themes...
Longtime readers are familiar with Steve's "bad to less bad" strategy. After a company's shares have taken a nosedive, even a little good news can lead to big gains for investors. And that's what we're seeing with today's company...
Texas Roadhouse (TXRH) is a family-friendly chain restaurant that's best known for its hand-cut steaks. It has more than 611 locations in the U.S. alone. The company took a hit due to COVID-19 restaurant restrictions, and its 2020 revenue decreased as a result. But as the country slowly reopens, things are looking up for Texas Roadhouse... By the end of the most recent quarter, 82% of the company's restaurants had reopened their dining rooms.
As you can see, TXRH shares are up more than 220% since bottoming with the rest of the market last year... And they recently hit an all-time high. This just goes to show that massive gains are possible as things get "less bad"...
