Be prepared, it may be difficult….

For three years we have suggested that the stock market should have faced normal downsides of between twenty to twenty five percent to cure the overvaluation excesses that the market has been carrying. After reasonable corrections, the market would have rallied again, but during the corrective periods it would offer the opportunities for investors to invest when stocks are undervalued. These are regular and beneficial market cycles. We have never suggested shorting stocks but rather taking some money off the table and searching for undervalued stocks of which there are always plenty available.

But the banks and brokerages cannot afford to face normal bear markets which bring harsh declines in their profitability….which in the past led to the necessity of “bailouts” to the US banks and brokers.  So grossly overpriced stock recommendations are foisted on the public and investment funds that often must invest at excessively high prices. It later leads to disasters! Don’t believe me? Examine the S&P 500 charts in the years 2000 and 2008 and note the 40% declines that followed. Note the similar chart pattern today. Near zero interest rates have permitted the stock market to sustain overvalued levels for a prolonged period. 

Today, some of the valuation type gauges are at “warning levels.” For example, U.S. stocks are now at a dollar value of over 150% of Gross Domestic Profit, the S&P 500 index is at a 24 P/E ratio using GAAP (real earnings!), officers and directors (insiders) are selling their personally owned shares at some of the highest rates in history; When these valuations occurred previously, they were followed by the brutal bear markets that commenced in 2001 and 2008. Pay attention please!

Also, Central banks buying common stocks through the futures markets have supported the market as well. However, it has created a situation where too many shares were purchased at price levels that are selling far above reasonable valuations. Stocks will return to proper valuations as they always do and that will carry many stocks down sharply. Payback for overvalued prices will come as it always does. It will be very unpleasant as the brokerage industry will suffer even further damage.

 Pathetic performances of too many brokerage analysts’ recommendation have pummeled the industry. Over the years, we have found that average individuals involved in businesses and  different phases of the economy can make better stock choices and offer far better advice than the vast majority of brokerage house so called expert analysts. Moreover enormous amounts of informative and quality research can be found in many investment services and on the internet. Most of it is free as well.

There are so many stocks that are incredibly undervalued and offer the opportunity for significant capital gains; unfortunately the brokerage industry has the habit of strongly recommending what is “popular not what is undervalued “and recommending companies that they have corporate finance relationships with. It has always been that way….but now it’s worse.

Since 2013, many Gold mining stocks and Silver stocks have made and been making their long term price bottoms. Yet some so called experts on gold and mining stocks have publicly advised investors to wait for even cheaper buying opportunities. That advice has proven to be ludicrous! Despite the fact that some mining stocks were and still are so undervalued based upon their reserves and resources, these experts kept telling their investors to wait for another decline(s). But intelligent patient value oriented investors took advantage of the “sale” on mining stocks and were able to buy them with both hands.

                                                                       Napoleon’s advice!

Napoleon Bonaparte advised to “never interfere with an enemy when he is making a mistake.” In our view, many investors were not our enemies but foolish in selling their personally held shares of mining companies while they were incredibly undervalued. Some of us were able to take advantage and pick up the stocks while they were given away. Their mistakes, our profits!

Since 2014, we highlighted exceptionally gold mining stocks Richmont Mines, Claude Resources and Niogold at their multi-year price bottoms. Already, Richmont has moved up over 500%, Claude Resources has moved up over 700% and was taken over. NIogold moved up over 100% as it was merged into Oban Mining. Thank you Napoleon!