When 'Mr. Market' Panics, Be Ready to Buy

You might have heard about "Mr. Market"...

This allegory comes from Warren Buffett's mentor, Benjamin Graham. In his seminal investing book The Intelligent Investor, Graham likened the stock market to an impetuous neighbor he calls "Mr. Market."

Every minute of every weekday, Mr. Market makes bids to buy the companies you own... and provides quotes to sell you thousands of businesses that you don't own.

But Mr. Market is capricious. And thanks to his shifting moods – as I'll show you today – you can make a lot of money by hunting for stocks in the bargain bin...

As Buffett – Benjamin Graham's star pupil – elaborated on "Mr. Market" in his 1987 letter to Berkshire Hathaway shareholders:

Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market's quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business... At other times he is depressed and can see nothing but trouble ahead for both the business and the world...

The more manic-depressive his behavior, the better for you.

Many people don't understand that the stock market isn't some code to be cracked or system to be beaten... It's really just common sense. Mr. Market is always there, ready to make you an offer.

Most of the time, his offers are reasonable and fair. But when he makes a stupid or irrational offer to buy or to sell, you should take him up on it. Otherwise, just ignore him... After all, you know full well he'll be back again the next day.

Ten years into a raging bull market, there just aren't many value companies lying around. The no-brainers are gone. Anything remotely close comes with "hair" on it.

Fortunately, I've never been afraid of a little hair. One of my favorite value setups is when a good company's shares fall for a reason that is not related to the underlying fundamentals of its business. Businesses can go on sale for any number of reasons.

I've covered a lot of those reasons over the years...

For instance, one-time solvable problems – like the temporary cost overruns that plagued a single project for HVAC contractor Limbach (LMB) – can be a source of temporary market opportunity. I recommended Limbach to our Stansberry Venture Value readers in December 2018. Within three months, shares had doubled, and we were able to lock in some gains.

Investors may also overreact to the macro trends they see taking place. For example, in September 2019, Mr. Market had a panic attack and decided that nobody would ever buy a house again using a human realtor...

As a result, the market cap of traditional realtor Realogy (RLGY) slid from $2 billion in early 2019 – about $13 per share – all the way into small-cap territory. We scooped up shares when they changed hands for just $6 and sold for a quick 70% profit just two months later.

We also like to take advantage of specific "delisting" scenarios. To be clear, I wouldn't recommend delisting situations to most other investors or speculators... but our team happens to have extensive experience with these situations. I'm talking about cases when an otherwise solid company delists from a national exchange while its accountants redo prior-period financial statements.

These radioactive situations always come with "forced selling," which drives down prices. Such was the case with Hanger (HNGR), which we introduced to our readers in December 2017, and Osiris (OSIR), which we covered in November 2018.

It often takes much less to give Mr. Market a good scare, though. And as you can see below, these kinds of value situations make for interesting, bowl-shaped charts. Take a look at what happened to the stocks I mentioned...

All of these stocks were Venture Value recommendations, except for Osiris. We didn't time these "bowl" shapes perfectly, but we still made fantastic gains... We sold LMB at a 43% gain, HNGR at 26%, and RLGY at 71%.

In short, when the market hands you a fantastic value, it's simple: You want to be ready to buy.

By buying at the bottom of the "value bowl," you're betting that Mr. Market will go back to paying what he used to pay for solid, established businesses... And that's a great bet to make.

Good investing,

Bryan Beach

Editor's note: Right now, our publisher Brett Aitken is sharing an urgent alert about an entirely different (and far more lucrative) tool in Bryan's Venture Value "toolbox"...

You see, one group of high-flying software stocks has outperformed every other sector over the past 15 years. Now, the COVID-19 pandemic has kicked this part of the market into overdrive... And Bryan predicts it's about to soar much higher. Get the full story here.

Further Reading

"These businesses can be immensely profitable," Bryan writes. Software companies have absolutely crushed the return from the overall market over the past 15 years. But this small subsector has outclassed even the high-flying tech leaders... Read more here: The Secret to Triple-Digit Gains in Software Stocks.

Every once in a while, investors can use common sense to defy the market and make multiple times their money. It takes guts and it involves risk, but if you know what you're looking for, you can make outsized gains... Get the full story here: A 'Common Sense' Secret Worth Up to 1,000%.

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This company is dominating China's major e-commerce market. And it's trading at a deep discount to its U.S. peer today...

Market Notes


Today, we're checking back in on an e-commerce winner...

Regular readers know that more folks are shopping online because of the COVID-19 pandemic. That means e-commerce businesses like Shopify (SHOP) and MercadoLibre (MELI) are in higher demand. Today's company helps customers buy their pet supplies without setting foot in a store...

Chewy (CHWY) is a $45 billion online platform for pet supplies – everything from toys to food to prescriptions. It has more than 2,000 brands, and, according to the company, it strives to be "the most trusted and convenient online destination for pet parents." In the latest quarter, Chewy posted record net sales of $1.78 billion – up 45% year over year. And active customers grew almost 40% to 17.8 million over the same period.

CHWY shares are up more than 240% over the past year, recently hitting a new all-time high. And as the pandemic continues to boost online shopping, that trend should continue...