“Genius” Neighbors, My Dog Riley and Mr. Market
Each morning, I walk my dog Riley around my neighborhood.
It’s my quiet time. I can tune in to nature and spend time thinking.
That’s why I avoid stop-and-chats.
If I pass someone on the sidewalk, I’ll only nod and say hello.
I’m in my zone, and I want to stay there — until I get to my office.
Prior to April, that was a challenge for me.
Riley, after a long walk.
Every few blocks, one of my neighbors would stop me and want to chat.
But they didn’t want to talk about the weather.
Instead, they wanted to tell me about their latest trades that made them a lot of money…
Jimmy cornered me to say how much he made on some crypto.
Mike would conveniently water his garden every time I passed his house.
He was loaded up with growth stocks that were more story than substance.
And he loved telling me how obvious it was that Zoom should continue higher.
Harry took great pleasure in showing off his Tesla Model X Plaid.
It runs for about $200,000. And he likes to call his “The Ark.”
That’s the name of the high-flying exchange-traded fund run by Cathie Wood.
It was up 157% in 2020. And Harry was making a boatload on his investment back then.
But all of that has changed since April…
Over the past few weeks, I haven’t seen much of Jimmy, Mike or Harry.
Suddenly, they don’t have as much to talk about — which doesn’t surprise me.
I’ve been around financial markets for the past 40 years.
And I’ve observed that everyone’s a genius in a bull market.
But when stock prices soar way above the underlying worth of the business by a country mile … look out below.
In 2020 and 2021, Mr. Market was euphoric and bid up stocks to insane prices.
Now that he’s in panic mode, stock prices are being marked down by 80% to 90%.
You see, Mr. Market is very emotional.
Most of the time, he gets it right.
But when he panics, stock prices plunge.
He offers them at dirt-cheap prices.
That’s why I never let Mr. Market tell me the worth of a business.
Because the stock price tells you nothing about the business.
You don’t need Mr. Market’s flashing, moment-by-moment price quotes.
Because if you know something about the business, you can come up with your own valuation…
Here’s an example so we can be on the same page.
Your house, condo or co-op doesn’t display a ticker that says what it’s worth.
And you probably already have a pretty good idea of what it’s worth.
That’s because you know its current condition and a lot about your neighborhood.
You know about the crime in your area, school districts, public services … things like that.
And you could look up recent sales of similar homes in your area.
Taking all these things into consideration, you can come up with a pretty good estimate.
You can then compare that to any offers you receive.
If an offer is double what you think your home is worth, you’d want to call your lawyer and get this deal done ASAP.
But if you get a lowball offer, you’d tell the prospect to take a hike.
It’s pretty simple … you let the worth of your home tell you the price, not the other way around.
So why do investors go into a tizzy when Mr. Market marks down stock prices?
It’s because they have no idea what the business is worth.
They think Mr. Market knows something they don’t — that his valuation must be correct.
But that’s not always the case…
Mr. Market often gets it wrong!
He constantly offers stock prices for way less than what the business is worth.
And that’s exactly when you should be buying — not selling.
If a company makes money and has great management, it’s going to be worth more over the long term, right?
You’d want to hold onto those shares with both hands — not sell them at fire-sale prices.
So, when he offers you a lowball price for a great business, you should be a buyer.
Right now, Mr. Market is offering bargains.
But investors are hiding under their beds. And I don’t want you to be one of them…
In fact, I recently shared my latest recommendation with Alpha Investor members.
It’s still trading below its buy-up-to price today. And there are 11 other stocks in the model portfolio trading at fire-sale prices, too.
If you’re an Alpha Investor, you can check out our portfolio to add to your positions.
And even if you’re not a member yet, you still have the opportunity to buy shares of these companies while they still trade for a bargain!
Founder, Alpha Investor