By Matt McCallMar 29, 2020
You can’t make a move in today’s world without seeing the price for something.
You’ve got prices for cars, homes, gas, food, insurance, medical care, appliances, and services. You’ve got prices for financial assets like stocks and bonds.
Most people view a price as having just one side. A stock’s price is $42, a home’s price is $350,000, and a car’s price is $27,000.
For most people, the thinking stops there.
Yet, there’s a different, very powerful way to view prices beyond them having just one side. Not many people use this way of seeing things, but it’s one of the great secrets of the financial markets… something that lets you see what others do not.
Once you learn and start using this idea, you’ll ascend to a higher level of understanding the markets… and, honestly, even a higher understanding of everyday life.
Those are bold statements, I know. They’re also critical to understanding what’s a stake in today’s market… so let me show you what I mean.
Rather than seeing a price as having just one side, an enlightened individual sees a price as having two sides.
He understands there is great power in knowing that, “There’s always two sides to a price.”
Here’s how “two sides to a price” works:
On one side of a price, you have the asset, product, or service being measured.
On the other side, you have your “measuring unit.”
This is the currency you’re measuring the other side with, like dollars, euros, Swiss francs, bitcoin, Japanese yen, or “hard money” like gold.
If you keep these two sides in mind, a whole new world of opportunities will open up to you. When you realize there are always two sides to a price, you’ll start viewing the stock, bond, and commodity markets in a much more useful way.
Both sides of a price can fluctuate wildly. They can boom and bust. They can enter bull markets and bear markets.
Most people panic during stock crashes and bear markets, but someone who knows there are always two sides to a price thinks and acts differently.
This is because he knows a bear market in stocks is also a bull market in cash.
He knows that when asset prices go down, his power to accumulate assets goes up. This is especially important to remember now… and why there are some buying opportunities at prices some stocks may never see again.
Let’s take a hypothetical company called Broward Breweries. With its suite of popular beers, Broward is one of the country’s top beer makers. It has a large and loyal customer base.
Because of these qualities, Broward Breweries is a great business that rewards its shareholders. Broward’s share price is currently $50.
Now, let’s say stocks enter a terrible bear market. During this bear market, Broward continues to sell beer. Its customers stay loyal and the fundamentals of the business remain strong. But since investors are selling stocks regardless of fundamentals, Broward’s share price falls to $25 per share.
In this example, one can say Broward’s share price dropped by 50%. That’s absolutely true. And for most folks, the thinking stops there.
But since we are enlightened investors, we go a step further. We say the amount of this great business we can acquire with our investment dollar has increased… not by 50%, but by 100%!
To illustrate, let’s say we wanted to spend $5,000 on Broward’s stock. At a share price of $50, that would have bought us 100 shares, but then Broward’s stock fell 50% to $25.
Our same $5,000 now buys us 200 shares – 100% more than before, even though the stock itself only fell 50%!
Thanks to Broward’s lower stock price, we can own a larger share of the business’s assets per dollar invested than we could before.
This simple example shows how the mirror image of a bear market in stocks is a bull market in the value of your cash.
Said another way, as asset prices go down, your ability to employ cash in the acquisition of assets goes up.
You can also see this idea at work in the real estate market.
Say there’s a well-built single-family home in your neighborhood. It’s capable of generating $24,000 in annual rental income (before factoring in expenses like maintenance and insurance). Let’s say the house would sell on the current market for $240,000, or 10 times rent.
Now, let’s say that housing in your area enters a bear market. That home declines in value and sells for $180,000.
In this instance, we could say the home’s value decreased by 25%. Or, we could say your dollars increased in value relative to the home. You can now buy the home that throws off $24,000 in rental income for $180,000 instead of $240,000.
It was a bear market in housing, but a bull market in your ability to acquire real estate with your cash.
Let’s go to the commodity market for another example.
We’ll use copper, one of Earth’s most useful natural resources. Copper is used in cars, homes, appliances, electronics, power lines, construction, and a thousand other things.
In 2007, copper traded for around $3.50 per pound. During the 2008 financial crisis, it plunged 57% in value. By early 2009, it traded for around $1.50 per pound.
By now, you know the other way to view this situation.
Copper’s massive price decline increased the amount of this useful natural resource you could accumulate with your investment dollars.
In 2009, your investment dollar bought you a lot more copper than it did in 2007. (And by 2011, the dollar price of copper had recovered more than 150%.)
We’ll go to the currency market for one last example.
The financial media often runs articles about big moves in the currency market. You might read how the Canadian dollar has dropped 10% in the past year, or how Russia’s currency, the ruble, is crashing.
But when a currency crashes in price, another currency, like the dollar, soars in price relative to that currency.
That’s exactly what happened in 2014 when Russia’s economy struggled badly. The Russian ruble lost more than 50% of its value relative to the U.S. dollar, but you know there are two sides to this story.
On one side of the price, you had a major currency crash.
On the other side, you had a major currency rally.
During this rally, the dollar holder’s ability to buy Russian assets skyrocketed. (By the way, this knowledge is useful for taking vacations. Your buying power goes a lot further in a country that has experienced a big currency decline.)
“There’s always two sides to a price.”
When you know a bear market in stocks or commodities or real estate is also a bull market in cash, you’ll be more comfortable keeping a portion of your wealth in cash, knowing the whole time that it’s increasing in value and will eventually allow you to accumulate valuable assets at bargain prices.
That’s where we are right now. And it’s what I will lay out for you in Part 2 of my Crisis & Opportunity Investment Summit on Wednesday, April 1 at 7 p.m. ET, including one of my favorite stocks right now. It’s completely free to attend. All you have to do is click here to register now and you’re all set.
Keep this idea of two sides to a price in mind in the current volatility. You’ll see what others don’t.
P.S. During Wednesday’s Crisis & Opportunity Investment Summit, I’ll be revealing an overlooked corner of the market that could hand you a small fortune no matter what happens next.
I’ll also give you a simple road map you can use to help you navigate your way through these uncertain times.
This exact same road map helped me identify a handful of “off the radar” stocks that saw gains as high as 2,235%, 1,423%, and 1,502% in the years following the financial crisis.
I’ll even give you the name of my favorite stock right now.
This live event will be 100% FREE to attend, with no strings attached. All you have to do is click here to register now, and you’re all set.
Click here to listen to Matt McCall’s MoneyLine podcast! This week, Matt discusses the latest action in the market. While the market sold off on Friday, things aren’t looking too bad. Is the bear market done? Are there still great deals out there for long-term investors? Matt says there are.
You can subscribe to this podcast on iTunes, Stitcher, Spotify, or wherever you listen to podcasts.
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