The Guide to Surviving This Crash
James Altucher
09/30/08 - 08:29 AM EDT
I have 21 stocks you can buy that will snap back huge. But more important, I have some advice.
What an awful day yesterday was. Nobody was happy. The standard arguments to justify these market prices no longer apply. Throughout history, the U.S. markets always made their way back to new highs. But it's easy to say now: "This time things are different." We have a universal run on the banks that everyone thought would get stemmed by the bailout.
My bank,
Wachovia(WB), was taken over by
Citigroup(C). Who could've guessed that that would happen even two weeks ago, when Wachovia was considered so stable that it was considering taking over
Morgan Stanley(MS). Thank God that didn't happen, I guess.
Listen, the worst can still happen. It's possible this is a national nightmare that doesn't end. Many older people are concerned about their retirement income. Many middle-aged people are pushing back their retirements. Many younger people are now confused about what sort of economy they are going to try to build their careers in.
My advice is a cliche, but I'll bring it down to more practical levels. The cliche is: It's more important now than ever to be positive. But there's a practical reason for this. Right now, there is opportunity. If we get through this in some form or other, there will never have been a greater opportunity in the past 20 years probably (or at least since 2002, which turns out in hindsight to have been the best time to start a business).
First off, let's buy some stocks. I've been buying. Specifically, I've been buying a wide range of stocks down 10% to 20% or more and down four or five days in a row or more. For every stock I buy, I've been shorting
SPDR S&P 500(SPY) against it.
I don't care what the stocks do. I'm limiting each position to no more than 1% of my portfolio (and I'm long 45 positions overall). But I have been trying to diversify by industry. Here's some of what I've been buying:
State Street(STT),
Capital One(COF),
Cleveland Cliffs(CLF),
Amazon(AMZN),
Research In Motion(RIMM),
Joy Global(JOYG),
Priceline(PCLN),
MasterCard(MA),
Stericycle(SRCL),
Starbucks(SBUX),
Lamar Advertising(LAMR),
Virgin Media(VMED),
Foster Wheeler(FWLT),
Qualcomm(QCOM),
Wynn(WYNN),
Patterson(PDCO) and
Electronic Arts(ERTS).
Even in a gap-up open today, I would buy these and hold until each stock has two up days in a row. It will happen, and most likely, the stocks will be significantly higher than where they are now at the end of that second up day in a row.
All of these companies have been destroyed beyond belief. All have great businesses and trade at relatively cheap levels over cash flows. And all could snap back huge if the market falls. If the market falls, I'm short SPY, and I think these stocks have been beaten down enough that they won't fall that much further than SPY.
Statistically, it's always good to buy stocks four days in a row that are down 10% or more. In the long run, you make a lot of money that way, and I think this time you'll make even more money. I'm talking my book because I think I'm going to make a lot of money here.
For people concerned about income, it's time to check out closed-end funds trading at a large discount to their net asset value. These things trade on the
NYSE and offer enormous dividends.
For instance,
Alpine Total Dynamic Dividend Fund(AOD) has a dividend of more than 25% and trades at a 30% discount to its net asset value. I own it. Another one is
Morgan Stanley Emerging Markets Domestic Debut Fund(EDD), with a 15% dividend.
These funds are down because big institutions have been selling them, and the they are fairly illiquid, which spells "opportunity" for you and me.
More plays: We're in a global economy. What affects the U.S. is affecting every other country. For better or worse.
iShares MSCI Brazil Index Fund(EWZ), the Brazilian ETF, was down 16% yesterday. That's a buy.
iShares MSCI United Kingdom Index Fund(EWU), the British ETF, was down 12%. That's a buy also.
Nervous? Short SPY against it to hedge. If SPY is up 4%, EWZ will be up 10%. And, again, I think the blood has already been sucked out of these countries, and I don't expect them to fall much further relative to SPY than they already have.
Finally, it's too easy to get sucked into the psychology of the world by staring at a screen filled with red numbers. My biggest regret of 2002 is that I didn't pull myself away from the stock screen and start a new business.
The geniuses who started businesses in 2002 made in some cases hundreds of millions of dollars.
MySpace and
Google(GOOG) are two businesses that were nothing or tiny before 2002 and began to flourish that year.
Every morning I wake up, get my waiter's pad and go to a local diner, read the paper and get my coffee. I don't leave until I've written down 10 new ideas. This morning, after I finish this column, I'm going to go and list 10 new ideas for businesses.
All 10 of them might be bad (although it's hard to top my dating site for smokers that I actually made in early 2006), but it doesn't matter. I'm writing them on a waiter's pad, so who cares? Get the mind flowing.
It's more important than ever that every day now you move forward in some way that advances your career, opportunities or business in some way. A week from now,
please send me an email and let me know how you are doing.
