The Most Important Skill of the 2020s

By TradeSmith Research Team

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Depending on the type of investor you are, the image below will either terrify you or delight you.

I’ll explain why in a moment. First, feast your eyes on this dastardly picture…

This is a chart of the S&P 500 from 2020 to 2030. I’ve overlaid a snapshot of the trading data from November 1973 to December 1980 (in blue), and normalized it to today’s price levels, to fill out the rest of this decade.

Now, why would I construct such a chart? Why inflict such pain on the hundreds of thousands of innocent TradeSmith Daily readers with brokerage accounts and 401(k)s?

Because today, the global economy faces alarming similarities to the economy of the 1970s. And creating this visual helps demonstrate the severity of what could lie ahead.

But you don’t have to be a victim of what could well be in store for the next decade.

On the contrary, with a small shift in thinking, you could turn it into the most profitable period of your life.

Not just in spite of this ugly chart, but because of it.

We’ll get to that. But first, let’s lay the groundwork of why the next decade could look like this…

The Bright Side of a Lost Decade

The 1970s was a “Lost Decade” — a prolonged period of null or negative stock market returns.

It was also a period of high inflation, which ensured that what little wealth anyone did manage to create was quickly eroded away.

(Legendary investor Marty Zweig notes in his book, “Winning on Wall Street,” that the Dow Jones Industrial Average lost 70% of its value from 1966-1982 when adjusted for inflation. (Meta-sidenote: Mike Burnick referenced Zweig’s book and the prescient indicator he invented in yesterday’s Inside TradeSmith. Subscribers can check it out here.)

I wrote recently about the prospect that we could be in another Lost Decade for stocks. There, I noted the striking similarities between the last Lost Decade and the situation we face today.

  • Energy prices are rising and volatile.
  • Inflation is a big problem that’s not going away easily.
  • Government spending is running hot to finance foreign military conflicts.
  • Economic growth is weak or patchy.
  • Interest rates are high and prone to rapid rises.
I’m not alone in this. Stanley Druckenmiller recently made headlines with his claim that the U.S. stock market could be facing another Lost Decade in the 2020s.

(Similar to Bill Gross, Druckenmiller is a titan of the Street. He bagged annualized returns of 30% from 1986 to 2010 at his hedge fund Duquesne Capital. When he talks, we should listen closely.)

If you’re a long-term investor, especially one nearing retirement, the idea of a Lost Decade is untenable. You cannot afford for stocks to flounder for so long and at such a crucial moment, especially with high inflation. It would destroy your wealth. And quickly.

If you don’t think this could happen, well… I hate to burst your bubble, but it may have already begun.

The stock market is at the same level today that it was in August 2021. Factoring in inflation, investors have lost as much as 10% already.

That’s two painful lost years down… And potentially eight more to go.

And don’t kid yourself about inflation, either. Global conflict and high government deficits both point to a higher baseline inflation rate for quite a long time — the next decade and potentially several more. That will sting far more than the last 27 months of zero stock market returns already do.

There is a solution here. And, funny enough, it lies within that very same chart I assaulted you with at the beginning of this essay.

We just have to look at it from a different perspective…

Learning to the Love the 2020s Chop

Think again about that flat period I just mentioned, over the last 27 months.

It sure didn’t feel flat, did it? It was made up of whole lot of chopping up and down.

Here’s the secret: every single one of those choppy moves is the key to making money in a lost decade.

Take a look…

The market might have been flat over the last two years, but it was ripe with opportunities for you to trade the short-term trend and make a ton of money doing it.

In 2022 alone, you could’ve traded the market to the downside three separate times, profiting as stocks fell 14%, 18%, and 19%.

You also could’ve traded the rebounds as stocks got wickedly oversold, profiting on bounces of 19% and 18%.

This year saw bounces of 6%, 11%, and 17%… and a fall of 9% most recently.

All of these moves are extremely tradable with a little know-how and the right tools.

Now, look once more to the rest of the 2020s…

I see a whole lot more potential chop ahead… And a lot of opportunities for quick trading gains.

Again, this is about turning crisis into opportunity.

If the 2020s are going to present a Lost Decade scenario, we simply cannot sit idly by and stick to the book of tricks the last bull market taught us. We must outright refuse to.

It won’t be enough to help a financial advisor buy a second boat for sticking you in low-cost index funds and calling it a day. It won’t be enough to chase hot trends and money-losing zombie businesses.

The only strategies I see working in this scenario are exactly what I told you when we first discussed this:

  • Buy great blue-chip, capital-efficient, dividend-paying stocks. This is a win-win strategy. By carefully selecting only the stocks that have historically paid and increased their dividend, and are insulated against periods of economic stagflation, you have protection in a lost-decade scenario by way of income and stability.

    And if we don’t see a lost decade, you stand to profit from growth in a new bull market.
  • Learn to trade the short-term. This may prove to be the most important investing skill of the 2020s.

    A lost decade of stock prices chopping up and down doesn’t scare traders — it entices them. Because as I’ve showed you, every one of those up-and-down moves is a chance to draw money from the market.
And on that latter note, I have something I’d like to share with you.

A Lost Decade Lifeboat

TradeSmith’s premier trading tool, Options360, is like using both of the above strategies at the same time.

Every Monday at noon Eastern, our system sends an email that’s full of opportunities to draw income from high-quality stocks by exploiting short-term moves in their stock prices.

It’s been an exceptional performer for our subscribers, some of whom claim to have made as much as $1 million… just from trading the recommendations contained in this single, weekly email.

Options360 is powered by our all-new POP algorithm, which determines the Probability of Profit for any given asset on any given time frame.

We like to think of it as Wall Street-caliber research, designed for Main Street. These are the techniques the pros use and hope you never find out about. But we’ve simplified them to a level that anyone can use to get started.

One user, Tim G., claims he’s made anywhere from $2,000 to $3,000 a month using this tool.

Another, Peter M., simply told us: “Finally, an analytical trade product that’s both accurate & easy to use.”

That second endorsement tells me we have something special here.

If everyday people can easily use Options360 to thrive in a Lost Decade scenario, we’ve done everything we set out to achieve with it and then some.

Like I said, learning to trade the short-term could prove to be an essential skill for the rest of the 2020s. One that, perhaps quite literally, your life will depend on if you’re on a fixed income in times of high inflation.

Options360 is one of the best ways I’ve seen to both “teach a man to fish” and “give a man a fish” at the same time.

Follow these two guidelines and you’re likely to come out of the 2020s, at minimum, with your head above water.

To your health and wealth,

Michael Salvatore
Michael Salvatore
Editor, TradeSmith Daily

P.S. What do you make of the idea that we’ll see a Lost Decade in the 2020s?

Is it possible? Is the idea completely ridiculous? Or, forgive me for saying it… could we see the 2020s end with stock prices lower than they are now?

I’m always curious to know what’s on your mind. Write me at [email protected] and I’ll look to share your thoughts with your fellow readers.