Why Our Investment Strategy Still Works Despite Negative Headlines
There are always going to be negative headlines somewhere in the world.
But with April’s retail sales report — which is important because consumer spending makes up about two-thirds of the U.S. economy — rising almost in line with Wall Street’s expectations, one would think that major retailers would also be humming along.
Not so fast…
The nation’s largest retailer, Walmart Inc. (WMT), reported quarterly earnings on Tuesday that missed Wall Street’s forecasts by a decent margin. Walmart said its profits were dragged down by higher fuel and food costs across the country.
The company’s income for Q1 fell to $2.05 billion while its adjusted earnings came in at $1.30 per share, $0.18 per share less than what analysts anticipated. As a result, shares of Walmart closed at $131.35 on Tuesday, down roughly 11%.
But then another major retailer warned the exact same thing just one day later…
Target Corp. (TGT) reported a 52% drop in profit in Q1, severely missing Wall Street’s expectations. The retail giant was quick to place the blame on continued supply chain bottlenecks and said that consumers are holding back on bigger-ticket items, such as televisions, due to rampant inflation.
Shares of Target tumbled more than 25% on Wednesday, its largest one-day decline since Black Monday, or when the Dow fell 22% and marked the start of a global market decline in 1987.
So as investors, it is our job to assess whether these types of problems require a change in our investment strategy.
When I’m asked questions about mine, I often think about how Warren Buffett — one of the world’s greatest investors — would respond.
I unfortunately don’t have a direct line to his office, but Buffett is famous among investors for revealing his personal insights and broad clues about his process in his writings. He might not give away the exact formulas he uses to evaluate certain companies or market conditions, but by studying his words and actions, we can still learn more about how he thinks.
In an Op-Ed for The New York Times back in October 2008, Buffett wrote:
“Most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.”
Our current market environment is in a bit different state than it was when this piece was published. At the time, the U.S. economy had been in a recession for 10 months and the Dow had fallen more than 35% from its all-time highs.
But the point I want to make is that Buffett wasn’t buying stocks because he thought the market had bottomed — in fact, he clearly states in his Op-Ed that this wasn’t his intent…
Buffett was buying stocks because they do well in the long term, even in the face of daunting headlines.
So I will continue to use my covered call strategy to invest in the market despite the doom and gloom headlines — just like Buffett did in late 2008 — because when shares fall, it is better to sell covered calls than to simply hold the stock…
There is no reason for that to change now.
I believe selling covered calls in VanEck Gold Miners ETF (GDX) can offer us a high-income opportunity no matter what negative news comes out next.
The VanEck Gold Miners ETF is an exchange-traded fund that tracks and mimics the NYSE Arca Gold Miners Index. It became the very first gold miners ETF in the U.S. when it launched in May 2006.
Investors tend to consider gold a great option during periods of financial uncertainty and inflation because gold has an inverse relationship to the U.S dollar. Keep in mind, inflation typically decreases the value of a dollar over time. So as the value of a dollar falls, the value of gold jumps higher and vice versa.
But the best part about investing in GDX is that we’ll be able to reap the benefits of all 53 of its holdings…
That’s because ETFs spread your money out across different stocks, which usually makes them safer investments because their broad diversification protects your portfolio from one single downturn in the market.
To help minimize our risk even further, I’m recommending a trade that will only be open for four weeks.
Trading this way is the closest thing you can get to a “win-win” scenario when it comes to investing. And that’s why I think it’s so important for regular investors to learn how it works — especially if your primary focus is income.
Unfortunately, most investors have no clue how to do this… Even though it’s pretty straightforward and easy to learn. In order to change that, I’ve put together a special report that explains everything you need to know. Once you get started, you’ll see just how easy it is — and how you could be earning hundreds (or thousands) in extra income every single month, like clockwork. Go here to learn more now.