The flight attendant’s head nearly hit the ceiling. And Diet Coke was all over my shirt and lap.
I was lucky I was buckled up. It felt like we were in free fall.
After a long business meeting, I was taking a red-eye from San Francisco back to New York.
At first, the flight was smooth. I started to nod off. But then, the plane hit an air pocket.
Local downdraft causes air pockets. And when a plane hits one, it drops suddenly.
The best way I can describe it is that it feels like the Tower of Terror in Disney World.
The ride takes you up to the top of the building, and then … you plunge.
But air pockets don’t only happen at 36,000 feet. They also happen in the stock market…
Look Out Below
Last Friday, DocuSign (Nasdaq: DOCU) reported third-quarter earnings.
It’s a company that has benefited from “work from home” (WFH) hype early in the pandemic.
And while it beat estimates, it saw slower bookings. Management also issued weaker guidance for the next quarter.
With that news, DocuSign hit an air pocket. Its stock price plunged 42% in one day…
Ouch!
Other WFH stocks have also hit air pockets recently. Peloton, Zoom and Zillow have plunged as much as 76%, 68% and 75%, respectively.
Even though some of these companies have good businesses, the overall buying frenzy has pushed prices to extreme levels.
In fact, Berkshire Hathaway’s Charlie Munger recently said this at a conference:
Overall, I consider this era even crazier than the dot-com era.
And when a stock price becomes detached from reality and the underlying worth of the business, look out below. It doesn’t take much to send it lower.
One slip — like DocuSign’s slightly lowered guidance — and they go falling off the mountain.
So, how can you avoid these air pockets?
The Right Price
The answer is to never buy a company if its stock price is detached from reality.
The Real Talk is that the price you pay for any investment is what determines your return.
Here’s what Munger said at the conference about the current state of the markets:
“You have to pay a great deal for good companies and that reduces your future returns.”
And he’s spot-on. If you pay too high a price … it doesn’t matter how great a company is, it’ll be hard to have good returns.
My goal is to show you how to build your portfolio to help gain financial freedom and sleep easy at night.
I want you to be able to see the maximum potential returns with my recommendations. That’s why I only recommend companies in Alpha Investor when they’re trading at attractive prices.
When I work with my team each month, we sometimes have dozens of companies on our watch list. But even though they’re all great businesses, we only want the best profit opportunities for readers like you…
And those are the ones that are trading at the right price. Companies like Marvell Technology Inc. (Nasdaq: MRVL), Arista Networks Inc. (NYSE: ANET) and The Charles Schwab Corporation (NYSE: SCHW).
They’re all seeing triple-digit gains in our model portfolio, in a span of nearly three years, two years, and two and a half years, respectively.
I don’t recommend buying these stocks right now, since they’re no longer trading at attractive prices.
But the bottom line is that my team and I spend weeks doing the heavy lifting and ruling out which businesses are trading at crazy valuations, so you don’t have to.
In fact, we’re doing it right now for the next monthly issue of Alpha Investor.
So, if you’re a subscriber keep an eye out for it. And in the meantime, check out our holiday shopping list of stocks already in our model portfolio that you can buy today at attractive prices.
And if you’re not already a subscriber, you still have time to join me and thousands of other everyday readers.
Be sure to check out the details on Alpha Investor right here. I want you to get in before I release my next recommendation.
Regards,
Founder, Alpha Investor
