Peter Mallouk: Stock Market ‘Casino’ is Closed

So far in 2022, investors have learned a lot of painful lessons. The stock market does not always increase in value. Even in a world seemingly dominated by memes and Reddit boards, things like the economy, profitability, and valuations, which may seem like antiquated remnants of a bygone period, are nevertheless important.

It’s not easy to pick winning equities, particularly at a time when the Federal Reserve is raising interest rates and inflation is beginning to affect consumers and the economy. Many speculative tech businesses’ stock prices are currently falling citing concerns about deteriorating fundamentals and unsustainable stock prices.

However, this isn’t necessarily bad news for the stock market. To identify good discounts, investors just need to perform more research. “The casino is closed,” stated Peter Mallouk, president and CEO of the wealth management firm Creative Planning.

“The days of stimulus are over. This is now more of a thinking person’s market. Total speculation is dead,” Mallouk said, adding that market makers can no longer throw SPAC stocks, cryptocurrencies, unprofitable tech firms, and other risky investments around like hot potatoes.

When the Fed was doing everything it could to support the economy, stock-picking seemed a lot easier. Many investors are unfamiliar with handling the market when the central bank raises rates to slow things down.

“The world is realizing that zero percent interest rates are over,” Max Wasserman, co-founder of Miramar Capital, said. “Rates were really low, and individuals took on excessive risk since the Fed dropped rates whenever the stock market fell; the message was to buy the dips because the Fed was on your side, but the party is over.”

Concentrate on the basics

Some investors who were chasing meme stocks like GameStop (GME) and AMC (AMC) with Covid stimulus funding last year may now be less positive on individual stocks. “During the meme stock trading boom in early 2021, the enthusiasm of stock-picking and the active investing methods approach achieved new levels of popularity,” Lindsey Bell, chief markets and money strategist at Ally wrote in a report late last week. “As a result of recent stock market losses, some investors have soured on the strategy.”

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Investors who do their homework, however, may still “make sensible investing decisions” if they retain “a very hands-on approach of investing” and don’t panic, according to Bell. “It’s natural to second-guess investments when markets are sinking, a bear market is approaching, and volatility is strong,” she wrote.

Stock picking isn’t dead, according to Wasserman. It’s just that now is the moment for investors to seek high-quality companies that can do well even when interest rates rise and the economy slows. That means investing in more than just the tech-heavy S&P 500, which is led by Nasdaq giants Apple (AAPL), Tesla (TSLA), Alphabet (GOOGL), and Facebook parent Meta Platforms (FB).

“You can’t just keep tossing money in the air and expect everything to go up,” Wasserman explained. “When you purchase an ETF, you’re essentially buying a basket of equities that everyone else is buying.” “We’re not pursuing the same things as everyone else; there will be greater volatility in the future, which we intend to take advantage of.”

Wasserman favors blue-chip businesses with consistent dividends and believes that investors should diversify their holdings across multiple sectors. With that in mind, he owns equities such as UPS (UPS), Coca-Cola (KO), and Pepsi (PEP), as well as dividend-paying technology companies like Corning (GLW), Microsoft (MSFT), and Texas Instruments (TXN). Timberland, The North Face, and Vans owner VF Corp. (VFC), Medtronic (MDT), and gold miner Newmont (NEM) are other good buys, according to Wasserman.

The good news, if you can call it that, is that the current market turmoil does not necessarily portend a long bear market. “This could be bumpy, but not a crash,” Mallouk said. “This whole turbulence could take less than a year, and it’s already beginning.” “This is a typical bear market, not like 2000 or 2009.” “The stock market is still the best place to develop long-term wealth,” Mallouk remarked. “If you buy now, you might simply have to hold your nose.”