Three 'False Financial Idols' to Avoid Today

Nothing is guaranteed in the markets. But if you own businesses that create value for shareholders – and pay a reasonable price for them – you'll do well over time.

The problems start when investors stray from this simple path.

The markets are filled with false financial idols. You'll find new ones all the time... They drive real investment dollars, and they seem like a sure path to profits. But they will lure you away from what works.

In my Income Intelligence newsletter, we've been specifically rejecting the broader market consensus in recent years. That's how we'll keep ourselves safe.

Three of these financial false idols are especially dangerous to worship today. They're some of the market's favorite investment strategies...

The first false idol is to invest in the most beloved stocks on the market.

If a stock has legions of fans and a can't-miss opportunity to take over the world... we don't want it.

Now, don't mistake us for deep-value investors who haven't made money for nearly a decade...

There are companies that will change the world and grow right through this recession and the next. Sometimes you can even buy them at reasonable prices.

Here's the problem, though... Over the past two years, investors have clamored to put their money into stocks. That drives up a popular company's valuations because new investors will keep trying to get into the stock no matter the price.

If you can spot those opportunities ahead of the crowd, it can be a great way to invest. We do it all the time. But when the crowd stops clamoring for its beloved stocks, those premium valuations will fall. And right now, it's time to avoid those highly loved investments.

The second false idol is focusing on growth stocks.

Instead, my team and I have been trawling the waters for companies in decline... or at least ones that investors expect to decline.

When investors expect little, they can't be disappointed.

In November, we added shares of Organon (OGN) – a pharmaceutical firm with expectations for declining sales for years – to our Income Intelligence portfolio. Based on those projections, the stock traded at a price-to-earnings ratio of 5.

Since then, Organon reported better-than-expected earnings in mid-February. And shares soared even as the market has fallen. Take a look...

"No growth" is the way to go, at least for new positions you add today.

Finally, avoid the latest Wall Street hype machine... "ESG."

ESG stands for "Environmental, Social, and Governance." It's supposed to be a measure of corporate ethics. This trend is driving hundreds of billions of investment dollars... sparking millions in consultant salaries... and wriggling into the brains of every C-suite executive in the world...

And it's all built on nonsense.

Look, we wish with all our hearts that investors and corporations could make the world a better place. It won't work.

That's not because investors are powerless or businesses don't care. It's because the underlying issue is too complicated to fix with money.

Rather than merely work for profit-minded shareholders, companies are trying to appeal to broader social goods. It's admirable. But as New York Times and former Bloomberg columnist Peter Coy wrote earlier this year, "When companies take into account the interests of a broader set of stakeholders, morality may be gained but clarity is lost."

For example, one key target of ESG investors has been oil companies. But in the wake of Putin's invasion, domestic oil production has become a path by which we defend democracy. Oil went from pariah to global good in a single week.

Or consider this... Amazon (AMZN) often comes under fire for poor working conditions in its warehouses. But it also helps struggling consumers by lowering prices on necessities like diapers.

Or what if Amazon replaces those tough warehouse jobs with robots? Socially, is that an improvement, or a mass layoff?

Everyone on Wall Street is scrambling all over themselves to sell answers to an unanswerable question: What is good?

It's possible that ESG will last for a while. But we wouldn't be surprised if it joins a long list of failed Wall Street fads, favoring investors who paid less money for better (though less ESG-compatible) stocks.

These three financial idols are important to avoid today. They're precisely the type of investments I'm tilting away from in 2022.

We haven't given up on growth in my newsletters... But when we can find a safe return, we need to take it. Companies outside these loved areas will give you the opportunity to do better with less risk.

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig

Editor's note: Want a fresh perspective on the markets? Then get ready for our biggest event of the year... We're excited to announce that our 2022 Stansberry Conference will be in person at the luxurious Encore Boston Harbor Resort this October. You'll get a chance to talk with like-minded investors... see our all-star lineup of special guest speakers... and hear what your favorite Stansberry editors are thinking, with actionable recommendations and more.

Tickets are already selling fast... Plus, early tickets come with a free $1,000-value gift – for a limited time. Find out how to get yours right here.

Further Reading

Investing in underrated stocks that are trading for cheap can help you rake in gains. But it's crucial to understand the difference between a great find and a value trap... Read more here: When a Value Trap Turns Into a Value Play.

"Investing is all about pattern recognition," Whitney Tilson writes. And knowing what a pattern indicates is critical to separating stocks on the brink of a rebound from losers... Learn more here: How to Tell Whether a Stock Is a Turnaround or Is Headed for the Trash Heap.

DailyWealth Premium

Investing in fad stocks can ruin your portfolio. But owning businesses as they turn around will help you earn solid gains. And this business fits the bill...

Market Notes


Today, we're looking at one thriving corner of the market...

Inflation and the possibility of a recession have weighed on stocks. All sorts of companies – from tech leaders to retailers – are struggling. But one bright spot lately is the energy sector. That's because the success of energy companies is more tied to commodity prices than the economy. And with prices at all-time highs, oil giants are reaping the benefits...

ExxonMobil (XOM) is one of the world's largest oil and gas companies. It handles everything from production and transportation, to refining and selling. Worldwide, ExxonMobil sells more than 5.4 million barrels of petroleum products per day. And with the price of oil through the roof today, those barrels are worth more – which is great for the company's bottom line... In the most recent quarter, ExxonMobil's earnings more than doubled from the year earlier, coming in at $5.5 billion.

As you can see, XOM shares have been on a tear. They are up roughly 65% over the past year and recently hit a new multiyear high. With the oil market showing no signs of cooling, we can expect this uptrend to continue...