Transcription
There are four steps that separate investors who get destroyed in a market crash from people who get rich. Today I want to share with you the exact four-step playbook I've used time and time again over my 35-year career. It's brought me great success.
The idea here is to make sure you're not frozen in place like some prey animal during the next market crash. You become more of a predator instead. I also want you to learn how to preserve your wealth when markets crash. Because the biggest mistake I see people make is they ride stocks up all the way to the top and then they ride them all the way back down. And as I learned from the 2000 crash, the dot-com crash, stocks can stay low for decades after a correction.
I know how hard it is to earn a buck. It does not come easy. I mean, think about me. Nothing was handed to me. I've had to fight for every single penny I have ever made in my life and I'm trying to make it a little easier for you by sharing this playbook. If you're anything like me, you can appreciate that.
But here's what you need to understand first. A crisis is always the best time to make money in the stock market. Heck, any market. Stock market, real estate market, any market. The good news is that since 2000, we've averaged one crisis and market crash every 4.8 years. That includes the 2000 dot-com crash, the September 11th, 2001 attacks sending the market down, the 2008-2009 financial crisis, the real estate crisis, the 2020 COVID crisis, and of course the 2022 to 2023 inflation crash.
Sometimes markets, they're funny. Sometimes they crash because of impossible-to-predict events like 9/11 or COVID. Who would have seen that coming? When the smoke clears and the panic passes, there's always a snapback rally like we had after both of those. But other times, the big big ones, all the warning signs are there and are plain for folks to see them if you know what you're looking for. And right now, with the Buffett indicator at an all-time high, the Shiller PE index at an all-time high, the warning signs are all around us right now. In other words, we're going to have a crash coming. You can almost set your watch to it. The only question is when.
Here are the four steps I want you to know for the rest of your life. I want you to cherish these. Save this video cuz here are four steps you need to take when the AI crash happens cuz that would be the next one.
Step one, what you do when the market is just spiking is you start to sell down your most speculative stocks and funds. You have to understand, all stocks go down in a market crash, but the most speculative ones go down most and the hardest. But how do we define what a speculative stock is? A good rule of thumb is the stock of a company that doesn't earn consistent [music] profits. It is not uncommon for stocks like these to go down 80, 90, 99% during a market panic, and many can take years to recover if they ever recover at all. Given that the market is selling right now at historical highs, I would be slowly lightening my position in these stocks each leg higher, maybe in 10% or 25% increments. I would be selling into the crazy.
Step two, take the money from selling these stocks that have been crazy overvalued and don't earn money and invest it in federal money market mutual funds. But not just any money market fund. The safest ones are funds that invest in short-term US government securities and or repurchase agreements that are collateralized solely by US government securities or cash. Collectively, we call them government securities on Wall Street. It's liquid cash. If you sell it, the money's free the next day. One I recommend, and I don't get paid to do this, I wouldn't do that to you, is the Vanguard Federal Money Market Fund. The symbol [music] is VMFXX, Victor Mary Frank X-ray X-ray. That's a good example. As of this writing, its compound yield is 3.65%. Expense ratio is 0.11%, but look, I have no horse in that race. You find the one that best fits for you. That's just one that I like.
All right, and this brings us to step three, preparing a shopping list of stocks. For years, you've watched from the sidelines as certain stocks just kept going higher and higher and higher. And the people that own them, they kept getting richer and richer and richer. I mean, you think of Facebook, Amazon, Google, Nvidia, Microsoft, Apple, all of them. Folks who got in early made a fortune, but you missed out. By the time you realized you should own them, it was too late. Not anymore. The great thing about a market panic is that you get a chance to buy all those stocks again, all your favorite stocks. It's like a cosmic do-over. It's like getting a mullet again in golf. You know, I remember back one stock on my list during the 2008-2009 financial panic, when that happened, was Starbucks. Ever since the '90s, I walked around New York City, I'd go to Wall Street, I watched the Starbucks open more and more and more stores around the city, around the country, and then around the world, and I watched the stock go from the '20s to the '50s to as high as 100 bucks a share, but I never owned any. The stock was always just too expensive for me. I also knew that the market at some point would give me an opportunity to buy this stock cheap one day. You can set your watch to it. It always does. I knew that if I was patient enough, one day that stock would come into my strike zone, my price range. So, when the market crashed in 2008-2009, the stock collapses and it goes all the way down in that year, year and a half leading up to it. It collapses to 20 bucks a share. That's when I started to buy and I happily bought shares all the way down to 13 and 3/4. Within 4 years, 4 and 1/2 years, the stock was back to 100. But, here's my point. Starbucks was on my shopping list before the 2008-2009 stock market crash ever happened. So were a dozen other companies that I really liked and I wanted to buy for a long time, but that were just too expensive, too crazy in that bull market. American Express, FactSet Research, AutoNation, every one of them went up between 400-700% in the years [music] following that crash. It was great. That's why you have to sit down and write your shopping list of stocks now before the crash happens. If you do it too late, you're going to lose your cool.
Now, listen. Here's step four and you're going to understand why it's important to write your shopping list down early. Step four is you get ready to pounce. Remember, the great thing about a big market crash is you don't have to be a financial wizard to make money. But, the key that most people miss is this. You have to be mentally and financially prepared before it happens. This helps you keep your cool while everybody around you is panicking and losing their cool and is caught flat-footed.
Now, you've already taken the first steps to make sure you're ready for the next crisis. He sold your stocks, step one. You've taken that money and put it into safe money market mutual fund, step two. And you've written down a shopping list of we'll call them 10 category killer stocks to buy when the next market crash hits. And again, we've seen one every 4.8 years. You can almost set your watch to how often crashes happen, not only in American history, modern American history, all the way back to the tulip bulbs in the 1600s. But now all you have to do is wait. You're sitting on cash. You have to be patient. This is the ultimate competition with yourself. Do you have the patience? Like a hunter, it pays to be very, very patient as you wait for the opportunity to come into your scope. That's what the game's about at the highest level.
But how do you play it out when the crash finally does hit? Well, let's say you've raised $10,000 from selling your weaker speculative positions. And you've invested that money in a money market mutual fund that invest in short safe short-term US government bonds. That's $10,000 you could earmark for these 10 category killer stocks on your shopping list. Or you know, $1,000 per stock. But you don't want to use that entire $1,000 per stock in one shot. Because, you know, stocks sell off big time. Remember Starbucks story. I started buying it at 20. Bought some at 17 and 3/4, 15 and 3/4, 13 and 3/4. I didn't care. I just knew under 20 it was a steal. So I just started buying it on the way down and I was tap dancing to work because from my perspective, it's like buying a dollar for 50 cents, for 40 cents, for 30 cents, for 25 cents. I was so happy that I had that opportunity to do that. That's why I love crashes so much. [music]
You're going to want to Assuming a $1,000, you're going to buy each stock on your list in four increments of 250 bucks each. Now, here's the tricky part. That means you're going to have to steel yourself for one of the most unnatural acts in all of investing. Buying a stock when it's crashing and everybody is panicking. I remember I had this playbook fully locked in when the 2009 crash happened. And I I saw this coming. I predicted it. I wrote about it publicly, etc. etc. etc. And I remember everybody's panicking. The New York Times calls it the greatest crisis since the Great Depression. CNBC, great crisis, great depression, world's coming to an end. Everybody's screaming the world comes to an end, the world's coming to an end. Oh my god, how are we going to fix this, etc. etc. etc. But because I had this playbook, I was on autopilot. Make a left here. Make a right there. Make a left here. Make a right there. You want to be on autopilot. So, you got to get right because it's a very hard thing, very unnatural thing for most folks to do. It's like running into a burning building, but that's where the money is when it comes to investing.
But the question now is when should you begin to buy? Look, a good rule of thumb is to look at the company's price to book value as the market crashes. During good markets, the strongest companies tend to trade at a about seven to minimum of seven times their book value. For example, right now Amazon has a price to book value of around eight. Meta has one of about six. Alphabet has one of about nine. Visa has a price to book value of 14. Starbucks has a price to book value of seven. And Microsoft has a price to book value of around nine. But the general rule is this. This is a very important rule. The stronger the business, the higher its price to book value will be the higher its return on capital. The weaker the business the closer it will trade to its book value. This is because the stock market adds premiums when a company consistently earns high profits in relation to its book value high returns on equity. I'd start buying any of the stocks on my super list at about five times book value. Let's say we're using meta as an example. My first $250 buy would be at five times book value. My second $250 buy would be at four times book value. My third $250 buy would be at three times book value. And my fourth $250 buy would be at two times book value if I ever got that lucky. If not, I just begin buying it or at any of the other book values on its way back up.
What I'm telling you is kind of simple. It's all four steps, but I know it's not easy because again, buying stocks cheap during a market crash is how fortunes are made, real wealth. But those kinds of returns only come for those who are prepared ahead of time. Before the next crash hits, you want your shopping list to be ready. You want your sell list ready. So I built a free report on 40 stocks I think are going to get wiped out even before that happens. You can grab it by joining Dylan's Diary. The link is in this description. >> [music] [music]