Real Time Example: Using Fear to Your Advantage

There’ll be a lot of fear sweeping through markets this week.

No doubt, you’ve heard about the US-Israeli strikes on Iran over the weekend.

Oil prices are responding; US crude futures are up 8% as I write. Gold is inching up.

How long will this conflict last, and how broad will Iran’s response be? Let’s wait and see.

But this is why I’ve been getting my readers into energy stocks over the past several months, with a focus on oil and gas.

We’ve been building a hedge into our portfolio against these unpredictable risks, and oil and gas stocks have been our primary tool.

For years, oil has been one of the most hated asset classes. But that’s changing rapidly this year.

But I would argue that this is NOT the time to add oil and gas stocks. The horse has bolted for the time being.

So, where should you look?

I get excited about negative markets. Falling prices create opportunities, but ONLY if you’re looking in the right places.

So, let’s step away from the Middle East chaos for a moment so you can understand what I mean…

One of the defining ‘opportunities’ in resource markets was in the deep commodity sell-off in mid-2024.

Headlines we’re overwhelmingly bearish. China’s economy was doomed.

Youth unemployment was in double digits, the economy was stuck in a deflationary spiral, and the unending collapse in real estate prices was supposed to bring down the Chinese economy, imminently.

Australia’s resource market was set to crash (according to mainstream news). Like this AFR prediction:

Source: Source: AFR (August 15, 2024)

[Click to open in a new window]

But as it turns out, iron ore prices didn’t crash, nor did a host of other industrial metals that China imports.

They simply corrected into a long-term accumulation pattern, offering another excellent opportunity to add exposure.

Back in mid-2024, few investors took advantage. But my paid readership group certainly did.

We added a bunch of mining stocks to our portfolio throughout 2023 and 2024. Many are tied to industrial metals, including a small iron ore company!

And that was despite China’s economy supposedly sitting ‘on the brink.’

So, was it luck, blindly doing the opposite of everyone else?

Mining stocks: Managing the emotional vortex

Human emotions fluctuate widely in the stock market… When people have money at stake, rational thinking tends to fade.

But ‘animal spirits’ tend to run especially wild in the resource market. Both up AND down.

I’m not sure why. Perhaps it has its roots in the old gold rushes. Who knows.

But mining stocks have a torrid history of driving turbulent emotions.

So, why not turn that to your advantage?

The 2024 market sell-off, which hit commodities especially hard, is a good example.

Back then, I told readers not to panic. It was a time to hold firm. In many instances, we added more positions.

As far as I could tell, the upward turning of the commodity cycle remained intact despite the extremely bearish outlook on China’s economy.

Which brings us to the opportunity today

No doubt, turbulence in the Middle East will have markets on edge.

Outside of oil and gas, and perhaps gold, resource stocks WILL likely fall on the back of uncertainty this week.

So, why not capitalise on that fear?

Most investors won’t.

But if we are in a long-term secular bull market in commodities, this could be a rare gift that hands you discounted names.

Don’t kick yourself for missing out.

Until next time.