Legend has it that Canada Bill Jones was the greatest card sharp ever to work the Wild West casinos.
He could beat any man at any game. And while he was generous to those in need, he was ruthless when it came to making money from “suckers” at the poker table.
“It’s immoral to let a sucker keep his money,” Jones was reported to have said…
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The statement is particularly timely today. Because the majority of Wall Street is in the exact same business — the business of fleecing suckers and keeping their money.
It’s a timeless concept. Even the book of Proverbs states that “A fool and his money are soon parted.”
So what’s the message for us as investors?
Don’t be a sucker! (or to use the King James Version, “don’t be a fool!”)
Today, I want to take a quick look at the market from a card sharp’s perspective. If you see what’s happening from a professional investor’s perspective, I think you’ll see this turbulent environment a little differently.
In fact, I think you’ll be very excited about the opportunity that today’s market is giving us.
The Rigged Wall Street Game
If you were to design a system that transfers money from foolish people to sharp professionals, you couldn’t do much better than the U.S. stock market.
Just take a look at how the investment process works for most people…
When the market trades higher for an extended period, people hear stories about their friends making money. It seems that this investment game is a “no brainer.” And the longer the stock market moves higher, the more attractive stocks become to foolish investors.
At some point, usually when stock prices are near their highest point, foolish investors jump in with both feet. They scrape together all the money they can and put it into the most popular stocks on Wall Street.
Then something terrible happens…
Stocks start trading lower.
Maybe it’s because of trade war rumors. Maybe investors are worried about interest rate hikes. Or maybe there’s a privacy issue with one of their favorite social media companies. (Sound familiar?)
Whatever the reason, stocks start trading lower. And that’s when the fools panic.
In most cases, foolish investors sell shares of stock at the worst possible time. When things look risky and when prices are low.
Of course, these shares are sold to savvy investors who wait for opportunities just like this to accumulate shares at a discount.
And what happens when the market rebounds?
The fools kick themselves and promise to not ever get in the stock market again. (At least until stocks move higher and they feel comfortable again.)
And the smart investors count their money as higher stock prices hand them lucrative profits.
So my question today is… which side of this ledger are you on?
Or more importantly… which side of the market would you like to be on?
Three Reasons the Pros Love This Market
You probably won’t hear a lot of media coverage on why this market is such a great buy right now. (Not until the fools are done selling).
But today, I want to show you three reasons why professional investors are happy to buy shares of stocks on sale right now.
Reason #1: Spend Less, Get More
Whenever you make a purchase, there are two things you look at. First, what am I getting? And second, what am I paying for it?
When you buy shares of a stock, you’re buying a small piece of the company. But more importantly, you’re buying the rights to earnings the company generates.
So, as a stock “shopper” you should be asking how much you’re paying for the earnings you’re getting.
Today, investors in the broad U.S. market are paying about $16.50 for every dollar of annual earnings their companies are generating. That’s the cheapest price investors have been able to pay in about two years!
Reason #2: Bigger Earnings to Come
Too many foolish investors spend time looking in the rear view mirror instead of anticipating the earnings companies will generate in upcoming quarters.
That’s a big mistake!
Research firm Deutsche Bank expects good things when companies report first quarter earnings starting next week. Not only will companies benefit from lower tax rates, but the strong U.S. economy should lead to much bigger profits.
You can look at a picture of this trend on my Twitter feed here.
And when you do, be sure to click the “follow” button on the page to follow my day-to-day market thoughts!
Bottom line, higher profits will naturally drive stock prices higher.
Reason #3: Consistent Income For Less
As you know, I love stocks that pay us reliable dividends. These dividends help you cover life expenses, or they can be reinvested into new shares of stock to give us even more profits.
Since stock prices have pulled back, you can now get more income while spending less money to buy shares of these dividend stocks.
Who wouldn’t like that? More income for less money!
It’s one of the best benefits investors get from a stock market pullback. Yet, very few savvy investors really think about getting more income for less.
Over the past few weeks, I’ve been steadily investing more of my money into this market, taking advantage of the lower stock prices.
That doesn’t mean I expect the market to turn around tomorrow, or even the next day. I can’t tell you exactly how long it will take for shares to start moving higher again.
But I can tell you that using lower stock prices as a buying opportunity is the “pro” way to invest. And selling when other investors panic is an “amateur” way to invest — and one that will lose you money in the long run.
This article originally appeared on The Daily Reckoning.