When the market falls sharply and swiftly like it did earlier this year, smart investors know to take advantage of it.
Investing legend Warren Buffett once said, "Be fearful when others are greedy and be greedy when others are fearful."
Fear is still rampant in the markets today. That makes this the perfect time to invest... And the biggest gains may come from a place you may not expect.
But to take full advantage of it, you must first understand that the numbers most investors use to gauge a company's potential are deeply flawed...
The current system is broken. Traditional accounting standards often hide or obscure the details that are most crucial to your investing success. And that means most investors are simply flying blind.
Let me show you what I mean...
As you can see, folks who greedily bought the so-called FAANG stocks at their March lows have been rewarded handsomely...
On average, these tech titans are up 68% in just four months. Those are incredible returns, and we may never see trillion-dollar companies soar that much – that fast – again in our lifetimes.
But for every Amazon and Facebook out there, another group of beaten-down stocks will rally even harder and faster... some by 300%, 500%, or even 1,000%. Take a look...
These aren't household names. At the start of their runs, they were all considered microcap stocks – companies with market caps less than $1 billion. And that's a good thing... Because of their size, Wall Street analysts don't even cover most of the companies on this list.
With such little coverage, you'll never hear about these companies on CNBC or on the front page of the Wall Street Journal. Nobody is willing to do the work to determine whether they're good investments.
That gives individual investors a huge advantage over money managers. But you still have to get past one big obstacle...
It's why my team and I have developed a form of forensic analysis called "Uniform Accounting." This allows us to look inside any company – from a $50 million biotech firm to a $1 trillion iPhone maker – and see financial realities that individual investors and Wall Street are missing entirely.
Gradually, we found that Uniform Accounting allowed us to not only identify which stocks were headed for bankruptcy, but which stocks were doing much better than the public realized... and were on the verge of rising 500% or more.
My forensic analysis led me to a biotech company called Jazz Pharmaceuticals (JAZZ)...
In this case, we found zero evidence of fraud. Instead, we discovered that the company's earnings were more than two times higher than what the public believed to be true.
Management wasn't breaking the law or doing anything unsavory. It was just following generally accepted accounting principles ("GAAP"), which sometimes lead to massive distortions.
You can't know whether a company is worth buying if you don't know the company's real performance.
You can't know what a company is worth if you don't know its true earnings and cash flows.
You can't know when the market will realize it is wrong if you don't know how wrong market valuations are.
And without those true valuations, you can't see the inflections in fundamentals that will make the market change its mind.
When it comes down to it, you simply can't be a great investor while using traditional accounting standards.
In this case, for example, GAAP made Jazz Pharmaceuticals, a $320 million company at the time, miscategorize $23 million in interest expenses.
This can have a huge effect on a company's share price... because it's essentially reporting the wrong operating earnings number to Wall Street.
In the case of Jazz Pharmaceuticals, if you'd known about its accounting mistakes and had seen that it was doing better than the public believed... you could have bought the stock and made a 1,386% gain.
Don't expect the U.S. Securities and Exchange Commission to find these mistakes for you. It simply doesn't have the time or the resources to examine the tens of millions of pages of financial statements released by the thousands of microcap companies out there.
The good news is, in the kind of market we're seeing today – where everyone is confused and nobody knows which stocks will emerge as the long-term winners – knowing how to see a company's true earnings can give you a massive edge... especially in the world of microcaps.
Companies earning hundreds of percent more than what they're publicly reporting will always go up over the long run – even if the broad market is crashing. If you can take advantage of these distortions, you can make a lot of money in the markets.
Editor's note: Joel just appeared on camera to explain why this is the biggest moneymaking opportunity of the next decade. As he discussed, microcaps are the one corner of the market where individual investors have a major advantage over Wall Street. Right now, he has identified seven microcap stocks with legitimate 1,000% upside... Check out his recent interview right here.
By traditional accounting standards, Berkshire Hathaway seemed to have a surprisingly rocky year in 2018. But the real value of the company hadn't changed at all. That's why legends like Buffett don't base their investment decisions solely on GAAP metrics... Get the full story here: Warren Buffett's Billion-Dollar Tech Bet.
This specific metric can show you investment trends in the broader market. And it's a great way to gauge the strength of a major rally. But you have to know which numbers are the right ones to look at... Read more here: The Difference Between a Bull Market and a BULL Market.
Today’s company shows us why diversification can be so important…
When the world changes, people’s preferences and needs often change with it. We’ve seen that dramatically during the COVID-19 lockdowns, which have punished many companies while rewarding others. The most diversified companies, though, always have some products and services that folks need. Take a look at this industrial-gas business…
Linde (LIN) is a $120 billion supplier of industrial gases and related equipment. Its gases are valuable to chemical refiners, electronics manufacturers, and various other industrial companies. But it’s also a leading provider of oxygen for hospitals and home care – just what many coronavirus patients need today. The company’s Lincare subsidiary has more than 2,000 clinicians who can help COVID-19 patients breathe at home… freeing up space in hospitals.
LIN shares have roughly doubled over the past five years, and they just hit a new all-time high. When a company sells enough different products, it’s well-positioned to succeed no matter what the world brings…