Seizing Double-Barrelled Buying Opportunities Amidst Investor Fear and Hidden Market Value

I began using the term “double-barrelled buying opportunity” in the 1980s, and most recently wrote about it in my 2017 book, Pat McKeough’s Successful Investor Toolkit. It occurs when the two conditions below come together in a way that creates a notably favourable investment opportunity.

1. Investors generally are fearful; as a result, they have low expectations for market performance. This is happening right now.
2. There’s a lot of hidden value in today’s stock market—that is, value that is not yet evident in economic statistics or business earnings. That’s because observers see risk in these four issues and are ignoring their potential for growth.

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These two factors will work together to improve your chances of making money in the stock market over the rest of the decade. They can do it in two different ways.

When investors are fearful and have low expectations, they hold off on buying. So, stock prices tend to stay on the low side. They can rise by merely getting back up to average. Hidden value also works in your favour, once it gets going. Hidden value will eventually start to generate profits, spurring a rise in stock prices.

Many investors look at all four of these factors as negatives, which we’ve written about in recent weeks:

1. Artificial Intelligence (read more)
2. Putin’s war against Ukraine, topped off with veiled threats of tactical nuclear warfare (read more)
3. Communist Chinese ambitions for regional or global domination, through trade growth, military threats in the South China Sea, plus the long-threatened Taiwan takeover (read more)
4. Shortening of North America’s supply chains, from halfway around the globe down to regional, local or halfway across town (read more)

In fact, all four may turn out to be positives.

Artificial Intelligence is likely to energize earnings for a broad swath of companies, just as an early acquaintance with electricity, advertising or computers did in years past. However, it would be unwise to plunge into a company’s stock just because it announces a plunge into AI.

Half a century ago, promising companies would sometimes succumb to what was casually referred to as “death by computer.” Less serious cases of the illness could leave companies stumbling for fiscal quarters, if not years.

The big risk for most investors would be to bet too heavily on any of these four issues. Focus on companies located in North America, or that are connected to the continent by a supply chain. Refuse to pay a premium for companies that have too much riding on hoped-for AI success. Far better to stress companies that would seem attractive if AI didn’t exist. The best companies will make use of it in due time.

Each of these two factors improves the odds that prices will go up after you buy. But the combination may need time to pay off. Note, too, that this is a “buying opportunity,” not a guaranteed profit.

All in all, you should continue to apply our Successful Investor strategy and tactics.

Our three-part Successful Investor approach, one of the most successful investment Strategies, is as follows:

1. Hold mostly high-quality, dividend-paying stocks.
2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities
3. Downplay or stay out of stocks in the broker/media limelight.

Do you think there are any other investor fears weighing on the stock market?