Yesterday, we drew a sharp line between what costs you money in the stock market, and what makes you money.
First things first: a prestige brand is no guarantee of share price performance. With many ‘market darling’ type stocks — think jeweller Tiffany & Co [NYSE:TIF], or the evocatively-named sunglass maker Luxottica Group SpA [BIT:LUX] — you get less than you pay for.
Part of your purchase price funds that warm, fuzzy feeling you get when you brag about your fashionable shares. The value of that feeling erodes over time, and eventually the share price performance fizzles out. Yesterday’s chart shows that phenomenon in action.
Sadly, many investors blunder along without recognising that rule of the game. Most people only buy what’s popular — the kind of stocks they’ll be proud to talk about at cocktail parties.
We don’t fall for that trap. And if you join us out where the real money is made, you could reap huge rewards…
Free Reports:
‘Hold your nose and buy.’ That’s the path to real wealth through investing.
We realise that sounds ridiculous. It sounded dumb the first time we heard it — when our old boss on the London trading floor pitched an edgy trade idea.
The wily old cat was bullish on Newell Rubbermaid Inc [NYSE:NWL]. If there’s a less fashionable stock on earth, we’re yet to find it.
Newell was founded in 1903 as a manufacturer of metal curtain rods. Since then, it has diversified into cleaning products and pens. Deeply boring stuff.
But there’s good money in boring businesses. And at times when the market refuses to show you a clear trend, ‘defensive’ businesses like Newell can outperform.
Our old boss knew all that. He also knew that every Wall Street analyst hated the stock. Most of these Ivy League types thought Newell should have gone under in 2008. In that sense, the stock stank. The ‘sell’ calls were practically unanimous.
Newell just had to get through the crisis and get a little less ‘hated’…and investors would reap the benefits.
‘Sometimes,’ he said, ‘you just have to hold your nose and buy.’
At the time, we were sceptical…but check out what Newell Rubbermaid shares returned over the following year. This chart shows a 50% capital gain, paying out four dividends along the way. Not bad for a stinky stock.
‘Hold your nose and buy’ describes what you need to feel, down in your bones, at the moment you buy to give yourself the best chance of making big profits.
It has to feel scary — even stupid — if it’s going to have a chance of meaningfully boosting your portfolio.
In trades like these, you’ll often be out on your ‘Pat Malone’. It takes guts to be the only person willing to buy a stock. But the Newell Rubbermaid experience showed me that, the more people hate an investment, the more closely you should look at it.
So — what’s hated right now? Where might you consider holding your nose and buying?
As an Aussie investor, you have plenty to choose from…
Right now, some of the world’s most hated stocks are in the energy and resource sectors.
Oil has crashed. Iron ore is plumbing multi-year lows. The market has obliterated gold stocks, and most precious metals are as hated as it gets.
We’re not telling you to rush out and buy everything in these sectors today. It’s usually smarter to wait for an uptrend before you ‘back the truck up’ to buy.
What we are telling you is the secret to making large gains, time after time, through investing.
You want to buy what ‘stinks’. You want to ‘hold your nose’, step in and own hated shares.
This is much easier said than done. Picking the moment of maximum ‘hate’ is one of the toughest tasks in investing. Market mavens can spend a lifetime studying stocks and still get it wrong.
But our career in the markets has taught us that — surprisingly — the more uncomfortable you are, the better.
Owners of dirty, low-status businesses understand this. There’s no glamour in junkyards, waste management and payday lending — just humble people getting rich slowly, minus the fanfare.
You don’t get huge winners from buying what other investors already love. If everyone already loves a stock, then where is the potential for it to it to get more love?
You want to buy what the market hates…and right now, many commodity-linked stocks are hated. That tells me they could deliver monster gains when their uptrends return.
If you’re looking for ‘hated’ — and you should be — this is where to look.
Cheers,
Tim Dohrmann,
Editor, Money Morning
The post Buy These Hated Stocks for the Biggest Profits appeared first on Stock Market News, Finance and Investments | Money Morning Australia.
