“A lie gets halfway around the world before the truth has a chance to get its pants on.” That’s one of the oft-quoted witticisms of Winston Churchill.
It’s a statement that’s only gotten more accurate with time. He didn’t live in an era of 24/7 news coverage. Or during a time when editorials and news were often blended together as “analysis” or the like.
People don’t just want the facts anymore, they want to see the facts in a way that corresponds to their worldview. It seems likely that we’ll increasingly have to deal with issues like “fake news” as time goes on.
That’s a shame. But as investors, we should always focus on the truth. Sometimes that truth hurts. After all, capitalism is all about creative destruction. A hot product—and hot investment—might cool quickly thanks to competition or a shift in consumer behavior.
But sometimes it’s Mr. Market himself that’s pushing a narrative that seems off. Our job as investors is to ask the all-important question: What’s the truth? By objectively looking for such an answer, we can find out what’s really going on, how to invest, and be right as a result.
Markets move in cycles. And within those cycles contain two wildly oscillating human emotions: fear and greed. By finding the truth, you can look past the fake news that results from fear and greed and get to the heart of the matter.
Here’s the truth: stock prices are elevated. In terms of price to earnings, book value, sales, no matter how you measure it, the average stock is trading well above where stocks historically trade. That makes it sound like the market is being greedy.
That’s especially true when a company like Tesla Motors (TSLA) can get a larger market capitalization than Ford (F), even though they’re selling less than a tenth as many cars. While a single anecdotal situation like this doesn’t translate to the market as a whole, it’s the kind of development that tends to look like a bubble in the making only in painful hindsight.
But that’s not the case. After all, stocks don’t move in a vacuum. There are other asset classes as well. And compared to those alternatives, stocks still look attractive. I wouldn’t get greedy about markets as a whole at these prices, especially if corporate earnings continue growing much more slowly than share prices. But it’s not a reason to head for the hills.
Drilling down from the forest and into the trees, we can see that many individual companies and sectors have sat out the market’s drive to all-time highs as well. That’s a good sign that stocks may continue to rally, as money moves out of high-priced parts of the market and into overlooked sectors instead.
Some of those overlooked names are ones that I’ve been pounding the table on in recent months. One such out of favor sector is retail. Any company selling goods that isn’t named Amazon (AMZN) is struggling to win over the market’s favor right now. That fact is supported by weak sales. But it’s also at odds with the fact that consumer confidence has soared in recent months. When consumers feel good about spending, they tend to do so, sending sales higher at retail stores.
As I’ve pointed out in recent blogs, many names in the space have been unfairly beaten up, although I’d avoid any mall-based retailer given the long-term trends in that specific space. The big box stores should continue to perform well, especially since the rate of growth in online sales have slowed.
That’s just one sector that looks out of favor. The gold mining stocks are looking increasingly attractive here as well. That’s an entirely different beast than retail. Commodities move in multi-year cycles. From 2011 until 2016, gold was going down. It posted a gain in 2016, and it’s faring well in 2017. A modest move in the metal could mean a much bigger move for gold mining stocks in general.
That’s especially true once you consider the size of the gold mining market. You can fit the entire sector into less than half the market cap of Apple (AAPL). Jumping into the sector after gold has started to move higher means missing out on sizeable gains. There just isn’t that many places for capital to go when investors start to seek the safety of gold. And with rising inflation (finally) and rising geopolitical tensions, gold just might not wait.
Finally, there are still plenty of individual companies that continue to operate well but remain out of favor with the market. I’m a huge fan of Qualcomm (QCOM), for instance. Shares sold off far in excess as a result of their lawsuit with Apple—a lawsuit that doesn’t seem to have considerable merit. I’m also looking past the short-term issues now, and toward the future. Qualcomm’s future looks bright, as they continue to dominate the wireless chip space amidst the rollout of the new 5G Network—a fact that most investors haven’t gotten to yet.
I’m not a fan of the whole “fake news” mentality. But it’s something I’ve seen often as an investor. And the issues that it’s created in the market now will be different in a few months. There’s always some shift in the narrative that benefits some sectors and sends others reeling. While it may mean occasionally thinking about defending your wealth, it’s often a profit-making opportunity in disguise.
The important thing is to look to the facts themselves. That’s where you find the profits. It’s the truth that matters. And when markets start adjusting prices up or down to a false narrative, looking past that to the facts are where the real money is made. Sometimes it’s a market-wide phenomenon, whether a panic or a mania. Sometimes, like now, it’s more in individual names or a sector. The facts matter. In investing, getting the facts right means making money.
The rumors, innuendo, fake narratives, and outright lies will always be there. Just keep searching for the truth. The truth will unleash your ability to create wealth.
Andrew Packer is a Senior Financial Editor with Newsmax Media. He currently writes the Insider Hotline investment advisory, serves as investment director for the Financial Braintrust, and writes the monthly newsletter Crisis Point Investor.
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