Stock Investors Brace For "Silent Spring"
The canary in the coal mine just died…
Today I’m going to show you how two press releases — posted just two hours apart — spell danger for conventional stock investors.
Just like the coal mine canary seems to be a very small thing, this small indicator actually sheds light on a much bigger problem… a problem that most investors are blissfully ignorant of.
Let’s take a look at this disturbing signal, and what it means for the market. And let’s also take a look at how you can protect your wealth from the approaching danger…
“Silent Spring” for Stock Investors
As a former hedge fund manager, I’ve become very good at reading between the lines.
Often, the headlines you read only tell a small part of the story. But if you can connect the dots between what is being said and what is ultimately implied, you can make a lot of money!
Case in point: a recent price war that has broken out between two of the largest retail brokers in the business.
On Tuesday, Fidelity announced it was cutting commissions on individual stock trades to just $4.95.
If you have an account with Fidelity or Schwab, that’s certainly good news for you. It means you’ll be paying less in commission costs when you buy or sell shares of stock.
But the question I’m asking is WHY??
Why would two of the biggest retail brokers slash prices and trigger what will certainly be a price war in the industry? Are these two brokers seeing something that the media hasn’t caught in to yet?
Here’s why this price cut should concern you…
Supply, Demand, and Commission Prices
The price war between Fidelity and Charles Schwab is a battle to capture market share in a declining industry.
More and more retail investors are parking their money into passively managed index funds and ETFs. And this takes commission business away from big companies like Fidelity and Schwab.
So both brokerages are lowering prices in a desperate attempt to attract investors who actively trade stocks.
The important takeaway is that trading activity is lower… much lower.
It’s so low that the two biggest brokerages are slashing their prices by almost 40% in single move.
Individual investors are basically going on strike, and choosing not to buy shares of stock. And this at a time when the market is overvalued by just about any measure you choose.
And here’s the thing… When investors step back and stop buying, it’s only a matter of time before this inflated market starts sliding lower.
So the fact that Fidelity and Charles Schwab are aggressively slashing commission costs is a very telling sign about the health of this market.
Here’s How to Protect Your Wealth
When the market starts to head lower, most stock investors are going to be hurt.
I’ve see this time and time again as the market moves through the inevitable boom and bust cycles. Unfortunately, traditional investors never seem to learn, and suffer big losses over and over again.
But it doesn’t have to be this way!
There are steps you can take to protect your wealth, even if the market moves sharply lower.
Below, are three specific examples which you can use to insulate your investment account from a market crash, and set yourself up to profit when the market ultimately rebounds.
- Balance Your Investments — All too often, investors only buy stocks. But there are many other investments you can make which are not tied directly to the stock market. If you’re currently only invested in stocks, I suggest adding some discount bonds, and my Income on Demand strategy — both of which can give you profits even in a bear stock market.
- Trim Positions With Large Gains — If you’ve held stocks for a long time, you’re probably sitting on some big gains. And that’s a good thing. But after such a long stock market run, it makes sense to take some of those gains off the table. I recommend selling partial positions, that way if the market moves higher for a while longer, you’ll still participate. But you’ll protect some profits from a decline.
- Be Willing to Hold Cash and Gold — Most investors hate to hold cash in their account, especially with today’s interest rates so low. And one of the criticisms of investing in gold is that it doesn’t pay you any cash flow. But holding some cash and gold in your account will protect your wealth in a falling market. And it will leave you in a great position to buy stocks cheaply after the market moves lower.
I’ll be keeping a watchful eye for more signs of danger in the market. It’s been a great run, but now it’s time to add defense to our investment game plan.
Here’s to growing and protecting your wealth!
Editor, The Daily Edge