It was like a scene straight out of the movie It’s a wonderful life…
In the film, George Bailey took over the family business Bailey Bros. Building & Loan. The Building & Loan received deposits and lent the money in the form of mortgages.
The difference between the interest they pay to depositors and the interest they receive from mortgages is the gross profit of Building & Loans.
At one point in the film, there is a race on the bank…
Panicked depositors want their money — all at the same time. George tells them he doesn’t physically have their money…it’s in the mortgages.
And those mortgages have helped their neighbors buy homes in the community.
After calming the crowd down, George persuades them to only withdraw the money they need immediately, which he luckily has on hand.
The townspeople follow George’s advice and a run to the shore is averted.
Well, on March 8, Silicon Valley Bank (SVB) was not so lucky. He witnessed a banking panic in the 21st century.
With just a few taps on their banking app, depositors moved $42 billion out of SVB in one day.
Signature Bank was close behind. Customers were spooked by the collapse of SVB and withdrew over $10 billion in deposits.
Now there is panic in the market.
When Mr Market panicked about SVB closing, bank stocks sold off sharply. Several regional banks lost up to 60% on the Monday following the bankruptcy!
And last week, Moody’s placed six regional banks under review for possible credit rating downgrades.
First Republic Bank was one of the banks on the list and is down nearly 80% since early March.
We have never had banks in our portfolio and have avoided the carnage that bank stocks are going through.
But Mr. Market’s panic spread across the entire market – not just bank stocks. So if you see red in your portfolio and other investors are panicking selling their stocks, I want you to keep one thing in mind…
The path to higher gains will always put investors to the test – to see how confident you are of your position in the face of downturns.
So when that happens, just ask yourself two questions about the companies in your portfolio…
do not forget
Mr. Market measures a company’s performance in quarters, but we measure it in years.
To determine whether we want to continue to hold the shares, we ask ourselves…
No. 1: Has anything fundamentally changed in the company?
Show me the money!
I was reading the latest earnings report and quarterly transcript.
Does the business continue to grow over the long term? Does it devote real income? Does he still have a rock star CEO focused on creating shareholder value?
If so, why would you sell? Nothing has changed. And ultimately, stock price will follow activity, not the other way around.
#2: At the current stock price, is the company priced right?
When investors panic, stock prices fall. It’s the nature of the beast when it comes to investing.
And if you don’t have the right temperament, it will keep you awake at night.
But if you checked out question #1, low stock prices can be like manna from heaven!
Because quality businesses that we want to own for five years or more are trading at an even better price than when we recommended it.
I recommend using these periods to BUY.
⬆️ 140%+ in ONE year
Over time, stock prices will be eventually follow the success of the business.
Or… its failure.
I’ve been telling you all year that we’re in a whole new era for the stock market – an era where investing success is all about choosing the right company.
This is especially true when it comes to microcaps.
They provide some of the best opportunities in today’s market — but you need to know where to look! (Don’t worry, that’s what you got me for.)
In the words of legendary investor Peter Lynch: “The best way to make money is in a small, growing business that’s been profitable for a few years and just continues to grow.”
Which one is Exactly what we did with my research service Microcap Fortunes all along.
Here’s a real-time example of why it pays to hold onto your stocks despite market volatility and panic.
One of our health tech companies has already grown revenue from 0 to over $51 million…
The founder and CEO is a rock star. After launching a new drug that has just been approved by the FDA, he is convinced that within two years, the company’s revenues will exceed double.
At the start of the year, the stock reached more than 140% while the stock market was down -9%…
However, 141% was not a forehand…it never is.
Look at the board again.
My readers had to endure three to two digits levies to reach 140%.
And we still keep the stock in the portfolio for bigger gains to come. And just days ago, another stock soared 102% since being added in September.
It won’t always be easy, but volatility is the price to pay for big wins.
Did you keep your shares during this draw? Or did you panic and sell? let me know at BanyanEdge@BanyanHill.com.
There is ALWAYS a reason to sell… But if you did, you would be kicking yourself today.
Large drawdowns would test the patience of most investors.
If you had no idea what the company was doing, its prospects, or who the CEO was…you might have sold.
But not us.
Because we had a very good idea of the underlying value of the company. So when prices fell, I told my readers to buy more stocks at a better price!
Microcaps continue to be one of the biggest bargains in the stock market right now.
They are like little hidden gems in the market.
And here’s why…
Large institutions cannot invest in them because they are too small. This gives us a big advantage.
On average, there are five times more analysts covering large-cap companies compared to the micro-cap average.
Since there are few to no institutional investors following these companies, their pricing becomes very efficient. And that’s because most trades are done by retail investors who consider them like lottery tickets.
When stock prices rise, they jump on board. And when prices go down, they join in the sale…no matter the price.
It’s music to my ears because it creates opportunities for us. Because the stock price tells you nothing about the company.
Attached to every stock is a business. So while retail investors buy and sell stocks based on price, I spend my time researching the company.
We make money when the stock price is trading at a huge discount to the value of the company.
And now is the time to buy them.
Are you ready to stop trading stocks based on moves and shakes on a chart or headlines in the news?
And ready to invest focusing on the business? (And sleep better at night!)
Founder, Alpha Investor