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Markets puked, should you buy tech stocks?

The markets overreacted to a 0.1% inflation miss and sold off by 4.41% (S&P500, the NASDAQ was even worse: -5.67%). Should we be worried? Will the markets continue down? And is this a good opportunity to buy non-dividend stocks? I like to buy dividend stocks because I get paid while waiting for the stock price appreciation. But what will you get with a stock that doesn’t pay dividends? If you bought a stock like Netflix (NFLX), Snowflake (SNOW), or PayPal (PYPL) when they were trading at their highest valuations and didn’t sell before they slid, you are sitting on significant losses, and it may take years to recover. And what if you buy now and the stock goes even lower? What do you get?

Will the markets continue selling?

That’s a good question. I would say yes. The selling gained very strong momentum. In the morning, it was selling down 2%, but the selling got stronger by the end of the trading session. See the chart below. As the price volume indicates, the most volume occurred at 3,980. We then sold off to as low as 3,927, which corresponds with the previous week’s POC. We bounced there. But will it be enough?

markets crashing after CPI

We also stopped at the previous lower upward sloping trend line:

markets at the support

I doubt this support will hold, at least not soon. Today’s investors are primarily idiots, and they freak out about something that was widely known, widely expected, and trumpeted to the world before. So we may see some more selling. We may see a bounce, too, before more selling. Technically, this is damage that will take time to repair.

But it is mostly the weak hands selling. The smart guys are buying because this situation will not last long. It may persist another year when the markets will be depressed, but that’s it. The bear markets do not last forever. The longest bear takes up to three years, and then it goes higher again.

And even if we go to the “difficult” or “lost decade” type of market, if you invest strategically, you will do well too.

Should you be buying non dividend stocks in these whacky markets?

This brings a question of how you should invest in the markets like this. You should not be selling, that is for sure. Today, many young inexperienced investors are used to investing for a quick buck. They want to buy high-flying meme stocks, ideally using options, make thousands, if not millions, and get out. It may have worked in 2020 and 2021, but today, they are getting slammed. But you should be doing the exact opposite.

millennials out of the markets

Buying dividend stocks is a no-brainer. In the markets like today, the stock price gets slammed when everyone panics, but you do not care because you still get paid. Every three months or even monthly, you get paid your dividends. But what about non-dividend stocks like Google (GOOGL), PayPal (PYPL), Netflix (NFLX), T-mobile (TMUS), and many others? They are very good quality stocks. They are just getting slammed because everyone thinks they are no longer alive (yes, the funeral service is this Saturday).

I still think this is the best time to buy these stocks. Even if they are not on the bottom, it is still a good time to add a few shares today. Then wait a few weeks or months and add again.

What happens if you do so?

1) The stock stays where it is for many months or years. Or they may never recover to their previous highs (like Netflix going back to $700 a share). Well, then use the position as a cash-generating vehicle. Sell covered calls every month against that position and collect your dividends. If you keep doing this for the next 30 years, you will generate income that can be reinvested or spent.

2) The stock starts recovering and moving back to its previous highs. Then use the position as your cash-generating vehicle and sell covered calls and puts (strangle). Puts will help you roll the calls should the stock move too fast. Make sure you have enough cash to cover the puts in case the stock tanks and you get assigned.

I always use this strategy, which helps me generate up to $10,000 cash every month. Sometimes, it is hard to manage the position in volatile markets, sometimes, I cannot take the cash out as the open margin requirements collateralize it, but in the end, it pays off. And it is easy to do. All you need to do is to learn how to do it, gain confidence and execute the plan. But mainly, do not panic during markets like this one. Do the exact opposite of what everybody does. In the end, you will be the winner.


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