Today, let’s talk about caution.
As our macro expert, Eric Fry, notes below “caution is certainly warranted, as stock market volatility will likely intensify over the next two or three months.”
So, what does this look like in practice?
That’s what Eric dives into in today’s Digest.
But as you’ll read below, caution doesn’t just mean paring back on positions and market exposure. Though it may seem contradictory, it also involves taking advantage of selloffs.
As part of this, in Eric’s essay below, he dives into the top “must own” sector that he’s watching today for buying opportunities. He’ll get into all those details below.
Enough introduction. I’ll let Eric take it from here.
Have a good weekend,
During This Dip, a 5G Offense May Be Your Best Defense
By Eric Fry
The chill of fall is in the air … a stock market fall.
Plunging share prices are always a chilling event for investors — but doubly so during the infamously treacherous months of September and October … and triply so as we approach what could be the most contentious and acrimonious presidential election in our nation’s history.
Caution is certainly warranted, as stock market volatility will likely intensify over the next two or three months.
But what does “caution” mean?
Obviously, that word means different things to different people. For some, caution means packing your own parachute before skydiving. For others, it means never skydiving at all.
Investment-wise, each individual’s definition of caution depends on considerations like risk tolerance, investment time horizon, level of financial security, etc.
But after sorting through these personal qualifiers, the basics of caution are not so different from investor to investor. Broadly speaking, exercising caution means:
Reducing your overall exposure to stocks and/or implementing stop-loss limits on most positions.
Maintaining some exposure to precious metals and/or looking to boost that exposure on weakness.
Taking advantage of stock market selloffs to boost exposure to a very short list of must-own sectors.
Tactic No. 1 and Tactic No. 3 may seem contradictory, as the first tactic suggests selling stocks while the second tactic suggests buying them.
That doesn’t sound cautious. It sounds downright confusing … and a bit silly.
But the difference between No. 1 and No. 3 is both a matter of timing and focus. Regarding timing, No. 1 suggests trimming positions on strength … before significant weakness develops. No. 3 suggests buying into weakness later if that happens.
No. 1 and No. 3 also differ in terms of focus. Almost every investor holds a few generic stocks or exchange-traded funds that basically track the overall market but add no particular sizzle to portfolio.
Most investors also hold a few “stale” or losing positions that have been taking up space for quite a while. If you hold stocks like these, they should be the first to go.
Admittedly, it’s difficult to “concede defeat” on a stale or losing position, especially if you’ve held that stock for a long time. But that’s okay. Clearing out stocks like that can help you to focus on new and better opportunities.
Plus, clearing out stocks like that raises the capital necessary to invest in new opportunities.
Like the one I want to tell you about today …
Eric’s Top “Must Own” Sector
So once you have reduced your exposure to stocks and raised some capital, you must identify and focus on the top one or two “must own” sectors of the stock market for the next five years and begin building a shopping list of stocks in those sectors.
Today, for example, my top “must own” sector is 5G telecommunications.
This new technology is the next generation of mobile broadband that will replace or augment existing 4G LTE connections.
5G technology drastically improves upload and download speeds, while also improving latency, which is the time it takes devices to communicate with wireless networks.
The current 4G network delivers around 100 megabits per second. But once 5G rolls out, that number jumps to 10,000 megabits per second — or 100 times faster than the current speed!
What does “100 times faster” mean? It means that an entirely new generation of technologies may become feasible and flourish.
Whereas 4G provided the network speeds necessary to run online apps and mobile streaming video and audio, 5G represents a monumental leap forward. It provides the foundation for a whole host of “gee-whiz” technologies like:
Healthcare technologies like telemedicine and remote robotic surgeries
“Smart factories” that integrate machine-learning processes with human oversight — i.e., “cobotics”
Internet of Things (IoT) — a vibrant, high-speed network of physical objects — things — that are embedded with sensors, software, and other technologies for the purpose of exchanging data and “communicating with” other devices, systems and/or people
We cannot yet imagine what other innovations 5G will enable.
Qualcomm estimates that 5G networks will generate a whopping $13.2 trillion in global sales activity by 2035. The table below shows the five industries that stand to benefit the most.
Clearly, we’re on the cusp of a 5G revolution … and this revolution will create enormous opportunities for select companies and their shareholders.
The nascent 5G boom is a powerful megatrend that will provide a wide range of investment opportunities — beginning with constructing the actual 5G infrastructure throughout the world, and then continuing with the vast range of technologies and business applications that the 5G infrastructure will enable and supercharge.
Trillions of investment dollars will flow toward and through 5G infrastructure over the next several years, no matter how well or poorly the global economy is faring.
A “Forever Stock” … and a 5G Play
No company or country can afford to ignore 5G or to lag behind constructing and utilizing it. This new network will quickly become the essential oxygen of the coming tech-based economy … and the dollars involved will be astronomical.
One of my favorite 5G plays is a high-flyer that has nearly doubled from its March lows. The stock isn’t cheap, at least not based on most traditional valuation metrics. Because of its relatively rich valuation, the stock is vulnerable to a sharp pullback.
If you owned the stock, that would hurt. On the other hand, that selloff would provide an excellent opportunity to increase your holdings in what I believe will be a hugely successful stock over time.
This 5G play is a classic “forever stock” — the kind of stock you hold through good times and bad, simply because the long-term investment potential is so enormous.
You see, caution does not just mean playing defense. It also means playing offense … selectively. That’s where “forever stocks” come into play.
Choosing when to buy powerful stocks like these is important, but it’s not everything.
Imagine, for instance, that you had purchased shares of Amazon (AMZN) on December 10, 1999, at the very peak of the dot-com bubble — seemingly the worst possible time to buy the stock. But if you had continued holding those shares until today, that 21-year investment would have produced a total return of more than 2,832% — or 11 times the return of the S&P 500 over that time frame.
This is why owning forever stocks is so important.
Some of the most compelling “forever stocks” to buy today are plays on the coming 5G boom. The 5G boom will be creating fortunes for many years to come … in good times and in bad.
I recommended such a “forever” 5G stock to the members of my Fry’s Investment Report service in our September issue. You can find out how to join us — and get that “pick” — by going here.