In today’s Money Morning…making sense of all the uncertainty…a smorgasbord of opportunity…and more…
If you’re feeling a bit pessimistic about the state of the world right now, I don’t blame you…
In Australia, the Delta wave of COVID-19 is spreading like wildfire. Seemingly undoing all the effort and self-sacrifice that has been put in over the past 17 months or so.
On top of that, we’re seeing political and social upheaval take root on a global level.
Whether it be the Taliban taking over Afghanistan. Or the ongoing trade disputes between the West and China. Perhaps even just the long-running cultural divide between the left and right.
As for markets and the world economy, it can be easy to draw similar conclusions.
Inflation is up and is seemingly proving to be far less transitory than central bankers would have you believe. And yet, interest rates are at record lows as these same monetary policy custodians refuse to budge.
It doesn’t take an economic genius to figure out that printing endless amounts of money will have consequences. Particularly when this is paired with further fiscal stimulus as well.
So again, I really don’t blame you if you’re feeling pessimistic.
But today I want to tell you why it pays to be an optimist…
Making sense of all the uncertainty
Now, I’m sure I don’t need to tell you that investors have had a pretty good run recently.
Ever since the COVID correction in March last year, most of the market has been going up. Again, a lot of this has to do with the shocking amount of stimulus from both central banks and politicians.
All of which, you could argue, is creating one big asset bubble that is set to burst.
That’s one train of thought anyway.
Trouble is, it is by no means the only opinion on markets right now. With dozens of perspectives and arguments ranging from economic collapse to a return of stagflation, and even a case for unimpeded growth for years to come!
The only thing ‘critics’ and ‘experts’ can seemingly agree on is that markets won’t be neutral.
All of which makes for an uncertain and unpredictable future for you. A conundrum that can influence and potentially even jeopardise your wealth aspirations.
Which is why I’m here to tell you, that in my humble opinion, the best course of action any investor can take right now is to seriously consider small-cap stocks.
I realise that might strike you as somewhat surprising.
After all, I’ve even shared some of my own criticisms and concerns about markets recently. Particularly surrounding the incompetence and inconsistency that is stemming from monetary policy right now.
But I still stand by small-caps as the best avenue for long-term investor returns, right now.
Well, as the title of today’s essay suggests, when the outlook becomes totally unpredictable, you can at least count on the predictable unpredictability of small-caps to deliver some sort of consistency…
A smorgasbord of opportunity
See, small-caps are somewhat of an investing enigma.
Compared to larger stocks they are less influenced by macroeconomic conditions. Granted, that doesn’t make them immune to these influences, just a little more flexible.
This is because a lot of the time small-caps aren’t valued by measurable metrics, but more often speculative trends or narratives. The kind of drivers that can make a stock increase its share price 10-fold in a short time span, or reduce it to zero…
It’s this increased risk and reward payoff that makes small-caps so unique.
Giving individual stocks the ability to buck the more cyclical trends of large- and even mid-cap alternatives. Whether that be for better or worse.
I’ll be honest with you though, most small-caps won’t pan out as expected. Either delivering an underwhelming return or even a sizeable loss.
But these losses and meek returns can be offset by the huge winners that are up for grabs. The kind of stocks that can deliver triple- or even quadruple-digit returns.
Winners that can more than make up for a handful of duds.
That’s what makes small-caps so predictably unpredictable!
And the best part is, no matter what may be happening in the wider world, these small-cap winners can usually be found somewhere. Stocks that are primed for huge long-term returns, despite what central bankers, inflation, or any other pessimistic narrative may suggest.
Which is why right now, when everything is so uncertain, I believe small-caps are your best bet for long-term returns. And over the next few days, here at Money Morning, we’re going to tell you why right now is an opportune time to jump into small-caps. As well as and perhaps more importantly, where to find some of the best potential picks on the market today.
So join us, as we endeavour to explore the smorgasbord of opportunity that ASX small-caps have to offer. Because at the very least, we can promise you that it will offer up some optimism in these trying times.
Better yet, it could also make you a small fortune…
Editor, Money Morning
PS: Our publication Money Morning is a fantastic place to start on your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here