How To Find Opportunity In This Market Chaos

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Premium Update

I am sure you got the memo by now. If you missed it, not to worry.

The news is all over the internet.

There are 15,348 different interpretations and explanations of the news available for all the newly minted Instant Experts of the Internet who recently traded their Nuclear Engineering degrees for degrees in Global Trade and Economic policy:

• Stocks are now worthless, or close to it.

• Those nations that did not declare war upon the United States will come crawling on bended knees to make a deal.

• It is highly likely that we will never produce another drop of oil and gas, but prices will decline anyway.

• Offices and hotels will be plowed under to plant community gardens and ICE deportation holding facilities and shipping terminals.

• The President is the greatest genius of all time, except during the hours when he is serving as the greatest idiot of all time.

• If you look at the prices on oil and gas MLPs and Real Estate Investment Trusts, it is clear that tariffs will be horrid for both the US and global economy.

There is plenty of news and noise right now, and you can choose your own flavor of distortion and spin.

I think I have been very clear that I am not a fan of tariffs.

History tends to be on my side when it comes to tariffs, but I was not asked my opinion before they were levied.

I am also very aware that there is a bell curve of outcomes to this policy with the left edge being all the bad stuff like sustained stagflation, recession, geopolitical tension, price spikes and jumps in unemployment.

The right edge has the potential for good stuff like reshoring of industries, a construction boom, higher commercial real estate occupancies and an economic boom.

In the middle are hundreds of possible combinations of the two.

The market right now is only considering the left-hand side of the curve.

As I write this, the S&P 500 is almost 20% off the highs.

The NASDAQ 100 is off 22%.

The Russell 2000 is off 26%.

The iShares Micro-Cap ETF is off almost 30%.

These last two should at least start to pique your interest.

There can be no doubt that Stanley Druckenmiller is one of the greatest investors/traders of our time. He has earned very high returns for 30 years with no down years.

I think he may have a handle on this thing.

He has talked several times about the most valuable lessons he learned from his mentor. The most important according to Druckenmiller is, "Never, ever invest in the present. It doesn't matter what a company's earnings, what they have earned. He taught me that you have to visualize the situation 18 months from now, and whatever that is, that's where the price will be, not where it is today. And too many people tend to look at the present, oh this is a great company, they've done this or this central bank is doing all the right things. But you have to look to the future. If you invest in the present, you're going to get run over."

Where will we be in 18 months?

We will either be in much better shape with a clear vision of an economic boom, or it will be the worst bloodbath midterm election ever.

The right side of the curve will be in play to a much greater degree than today.

Real estate, preferred stocks, and energy are getting hammered.

Nothing about the fundamentals of anything in the Total Return or Income portfolio has changed.

Fears about what might happen over the next year are elevated, and that's creating an opportunity.

During the Cuban Missile Crisis, most of the United States was frozen in place, anxiously watching television for updates on what many feared would escalate into Armageddon. That included Wall Street.

As the standoff reached its crescendo, Howard Browne of Tweedy Browne returned from lunch and noticed that one partner, Joe Reilly, was not with everyone else clustered around the television.

Instead, Reilly was at his desk, furiously buying stocks.

Browne asked Reilly why he was buying when the world could be facing nuclear war. Reilly's response was simple and sharp: either it was the end of the world, in which case portfolio performance was irrelevant, or it was not—and these bargain-basement stocks would generate a fortune.

It turned out to be the latter.

Shelby Cullom Davis is another icon whose story underscores this point. When his wife inherited just under $50,000 in 1947, she gave it to him to manage. He focused on cheap insurance companies and held them long term.

By the time he passed away in 1994, that $47,000 had grown into over $900 million. Davis endured market crashes and setbacks but famously said, "Out of crisis comes opportunity. You make most of your money in a bear market. You just do not know it at the time."

The tariff policy is creating fear of an economic crisis.

Always remember that fortunes are born in a bear market.

Markets go down, and sometimes they go down a lot.

If the world does not end, those who buy into the correction make a lot of money.

I expect this time to be the same.

With our approach, you get paid to wait.

On average, the income portfolio is 21% undervalued and the yield is 9.9%.

The average high-quality REIT in the Total Return portfolio trades at just 65% of my NAV calculation and yields 7.27%.

Charlie Munger once noted that "When everybody goes insane, staying sane is your competitive advantage."

There is a lot of noise and more than a whiff of fear.

Stay sane.