The first thing you learned about investing is that the best shareholders buy low and sell high. While, in theory, that sounds good, most investors can’t execute that strategy in practice because when stocks are low, they’re falling. And when there’s a stock market crash, investors tend to freak out and sell. That’s exactly what’s happening now as investors fear the Russo-Ukraine crisis.
Rookie mistake.
The best thing you can do during a stock market crash is jump into the mix, buy the dips, hold through the volatility and wait for the inevitable rebound. Stocks have a 100-plus year upward bias. Over time, they go up. And they do so because they are tied to the strength of the U.S. economy, which has proven to be an unstoppable, ever-growing machine.
If there ever comes a time when shares don’t rebound from a stock market crash, we will all have much bigger problems to worry about than the markets…
But that time is not now. Now is the time to do what you learned on Day 1 of investing: buy low and sell high.
Russo-Ukraine Crisis Induces Stock Market Crash
And right now, as Russia invades Ukraine, we’re seeing a big-time stock market crash. As inflation fears loom and energy prices begin to soar, investors are abandoning their stock holdings to seek fixed-income assets.
The S&P 500 just entered correction territory for the first time since the Covid-19 pandemic emerged. And the Nasdaq Composite and Russell 2000 are both flirting with bear market territory.
Everywhere you look, it’s a bloodbath.
But history shows that this carnage creates opportunities.
History Indicates a Rebound
Yesterday, we did some research for our Innovation Investor subscribers on the historical significance of the S&P 500 entering correction territory. The index just did that two days ago.
The exploration largely concludes, perhaps obviously, that buying stocks after the S&P 500 enters correction territory is a great investment strategy for anyone looking to invest for 12 to 36 months.
Through 25 such corrections since 1950, the average 12-month forward return from the entrance into correction territory is about 5%. The average three-year return is about 27%. Excluding recessionary periods, the average 12-month and three-year yields are 10% and 32%, respectively.
We believe this research strongly supports the notion that history is repeating itself today.
As you can see, corrections weren’t normally bottoms. Stocks usually continue to fall after a correction — but only for a few months. Excluding recessionary periods, stocks were higher 80% of the time 12 months after the S&P 500 entered correction territory. The only non-recessionary declines came in 1956, 1987 and 1990.
In 1956 and 1990, the economy eventually spiraled into a recession on the next correction. In both instances, this happened within a year. In the 1987 occurrence, you had the Flash Crash, making that a very unique correction.
In other words, unless the U.S. economy drops into a recession, history shows that stocks will be substantially higher within 12 months.
Our fundamental analysis suggests that the U.S. economy won’t fall into a recession in 2022. And therefore, we firmly believe that stocks will trade choppy over the next few months — before roaring higher by more than 10% in the second half of 2022.
Buy Stock Market Crash Dips
I’ve made my investing career on the back of buying dips during a stock market crash. And specifically, I’ve made a career out of buying near-term dips in long-term winners.
I’ve picked 21 different stocks and cryptos that have soared 10X or more over the past few years. And of that selection, most were “buy the dip” calls.
This is what I do. I buy dips.
And right now I’m seeing what I believe is the greatest “buy the dip” opportunity I’ve ever seen.
This call doesn’t apply to all stocks — only a certain type that I think are due for enormous returns over the next 12 months.
I’m talking 100%, 200% or even 300%-plus return potential within the next year alone.
To find out what type of stocks I’m talking about, see more here.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.