Rate Cuts Coming! What's Next for Stocks & Bonds?

Summary

In this video, Adam Coup shares stock investment strategies based on market waves and interest rate trends. He emphasizes the importance of buying after a stock experiences a 'wave down' rather than chasing it on a 'wave up.' He discusses the benefits of consumer discretionary stocks, such as Amazon and AutoZone, in a low-interest-rate environment. Adam also touches on the riskier nature of small-cap and speculative growth stocks, recommending ETFs for the former. Throughout, he stresses the need for high-quality stocks with strong financials and modes, while introducing his upcoming tool, Stock Oracle, to help investors make informed decisions.

Takeaways

• 😀 **Buy on Dips**: Always buy during a 'wave down' in the market cycle, never chase stocks when they are on a 'wave up'.
• 😀 **Avoid Chasing Stocks**: Don’t buy stocks when they are overvalued; wait for a pullback to buy them at a better price.
• 😀 **Interest Rates and Consumer Spending**: Lower interest rates increase disposable income, which boosts spending on non-essential goods, benefiting consumer discretionary stocks.
• 😀 **Focus on High-Quality Stocks**: Choose companies with strong economic moats, high predictability, profitability, and undervaluation for long-term investments.
• 😀 **Stocks in Consumer Discretionary**: Examples of good consumer discretionary stocks include Amazon, AutoZone, and Booking.com.
• 😀 **Be Cautious with Small & Mid-Caps**: Small and mid-cap stocks are riskier and should be invested in through ETFs like the Russell 2000, rather than individually.
• 😀 **Speculative Growth Stocks**: Avoid speculative stocks unless they become profitable; if they do, they can offer opportunities for short-term trading.
• 😀 **Focus on Profitability**: For speculative growth stocks, only buy when they show signs of profitability to minimize risk.
• 😀 **Stock Valuation is Key**: Always check the intrinsic value of stocks; never buy them when overvalued. Wait for the price to drop below intrinsic value to get the best deal.
• 😀 **ETF Exposure**: For exposure to riskier stocks, use ETFs like the IWM to spread risk and avoid holding individual small-cap stocks.
• 😀 **Trading vs Investing**: Understand the difference between trading for short-term gains and investing for long-term wealth. Short-term speculative trades are riskier and should be approached cautiously.

Q & A

Why does Adam prefer to buy stocks during a 'wave down' rather than a 'wave up'?

Adam prefers to buy stocks during a 'wave down' because that's when prices are lower and offer a better entry point. He believes in buying stocks after they drop, rather than chasing them when they are rising, to maximize long-term value.

What sectors are likely to benefit from lower interest rates, according to Adam?

Sectors likely to benefit from lower interest rates include consumer discretionary stocks, such as internet retail, auto manufacturers, home improvement, restaurants, travel, and apparel. These sectors see increased consumer spending due to more disposable income from lower interest payments.

What criteria does Adam use to select high-quality stocks?

Adam looks for stocks with high predictability, profitability, strong economic moats, financial strength, and undervaluation. These factors help ensure the stock is a good long-term investment.

What are some examples of consumer discretionary stocks Adam recommends?

Examples include Amazon (internet retail), AutoZone (auto parts), Booking.com (travel), Nike (footwear), and companies in the restaurant and apparel sectors. He emphasizes choosing stocks that have strong fundamentals and are undervalued.

Why does Adam recommend investing in small to mid-cap stocks via an ETF instead of individual stocks?

Adam finds small to mid-cap stocks riskier due to their volatility. Therefore, he recommends investing in these stocks through an ETF like the Russell 2000 ETF (IWM) to diversify risk and gain exposure to a broader set of companies.

What makes speculative growth stocks risky, and how does Adam approach them?

Speculative growth stocks are risky because they typically haven't turned a profit yet. Adam avoids buying them unless they become profitable. When he does invest in them, he focuses on short-term trading opportunities rather than long-term investments.

How does Adam decide when to buy a stock after it 'waves down'?

Adam waits for the stock to fall below its intrinsic value, indicating it’s undervalued. Once it reaches this point, he will add to his position, ensuring he buys at a favorable price for long-term gains.

What role does Stock Oracle play in Adam's stock selection process?

Stock Oracle is a tool Adam uses to assess stocks. It evaluates factors like the economic moat, valuation, predictability, and financial strength of companies. It helps Adam identify high-quality stocks that are undervalued and have solid fundamentals.

Why does Adam avoid buying stocks in certain sectors like auto manufacturers or resorts and casinos?

Adam avoids these sectors because he either believes they are too risky (auto manufacturers) or doesn't see them as aligned with his investment strategy (resorts and casinos). He focuses on more predictable and profitable sectors with strong economic moats.

How does Adam approach speculative growth stocks, and what is his stance on their profitability?

Adam is cautious with speculative growth stocks. He only invests in them once they become profitable. For example, he bought Palantir and Salas after they became profitable. These stocks are usually seen as high-risk and are more suited for short-term trades.