Never let a good crisis go to waste...
For decades, that has been a mantra of politicians looking to make sweeping changes.
Citizens want protection the most when times are frightening. So, for example, it becomes easier to pass a law that would be more difficult to pass under normal circumstances.
Striking while the iron is hot is often the best way to get things done.
The same goes for investing...
Fear takes over when a crisis hits. But seizing that chance to act can lead to massive long-term rewards.
That's the opportunity we have right now. Last month's banking crisis created a rare panic in the markets. But it's not all that bad...
History shows stocks could jump 26% over the next year. And that's reason enough not to let the current crisis go to waste.
Let me explain...
The banking crisis might have been quick. But it still caused widespread disruptions in the financial system.
The most obvious is that lending standards have tightened. That makes sense – banks are worried that their depositors will run for the exits. As a result, the cost to borrow money has increased.
We can see our financial system's stress levels through the Bloomberg U.S. Financial Conditions Index. It combines the conditions in equity, bond, and money markets to gauge the cost of credit. The lower the reading, the tighter financial conditions become (and the greater the strain on the system).
When the banking crisis was at its worst last month, this measure hit its lowest level since the pandemic-induced crash of 2020. Take a look...
Financial conditions in March were tighter than at any time in 2022. And we've only seen worse levels of financial stress three other times since 2010.
But as investors, we shouldn't let this crisis go to waste. History proves it.
You see, each time this index fell below the March 2023 low turned out to be a good time to buy stocks. Take a look...
Stock returns have been strong since 2010. Even accounting for the current bear market, the typical gain is 10.3% a year. But you could have crushed that return if you bought when financial conditions were tight...
Similar situations led to 5.8% gains in three months, 17.1% gains in six months, and 26.3% gains over the following year. That's massive outperformance.
Even better, all of those periods led to big profits. Every six-month period led to double-digit gains... And every one-year period led to 26%-plus upside. So the track record is impressive and consistent.
Of course, taking advantage of a crisis is easier said than done. The best time to act is usually the hardest. That's true today as well.
History is clear. Tough economic times ahead are near certain... But if you can take a long-term view, now is a great time to buy stocks.
Not just one, but several "market bottom" indicators are trending in a good direction for stocks. And if these signals continue, you should get ready to follow a timeless piece of investment advice: Be greedy when others are fearful... Get the full story here.
"Buying something just because it's down does not necessarily pay off," Dr. David Eifrig writes. You can make a lot of money on contrarian trades – but it isn't as easy as jumping into every unpopular bet. Three steps can help you strategically go against the crowd... Read more here.