Here are the 4 stocks this professional trader would buy if the market crashed

By Michael Sincero

Steve Burns: Stocks are in the “largest bubble in the history of civilization.” He blames the Federal Reserve.

‘It’s quite surprising to see how little fear and uncertainty there is in the market right now. I’ve never seen anything like it. ‘

Steve Burns began his stock career the old-fashioned way, echoing famous mutual fund manager Peter Lynch’s advice to buy shares of companies whose products you use and appreciate.

As a teenager, Burns worked in a mall store. He was surprised to discover that many stores in the mall were operated by publicly traded companies. Burns began to follow these actions. He saw how prices moved, how some companies went public with an initial public offering and how they were valued. He realized the power of compounding returns and how even conservatively positioned portfolios could grow significantly over time.

When he turned 18, Burns opened an account at a brokerage firm and began buying and selling stocks. This was during the dot-com-fueled bull market of the 1990s, and Burns enjoyed a lot of beginner’s luck: “I had a crazy, absurd run, similar to what people are experiencing now,” he recalls.

Burns also made some mistakes: “I didn’t learn how to trade or have a system,” he says. “I was lucky until I got hit with a 50% drawdown, which was really painful. Now, I trade with smaller profits, but I avoid those monster drops.”

Today, Burns is a popular teacher for both experienced and novice traders. He has a large following on social media and is the author of over 20 books, including his latest: “The Ultimate Guide to Swing Trading.” He is also expanding his teaching to personal finance and wealth creation.

In this recent interview, which has been edited for length and clarity, Burns offered advice for trading in this market and expressed his major concerns about it. Right now, Burns is noticing “a lot of similarities to buy-and-hold investors and index funds versus how I felt in 1998 and 1999.”

As Burns sees it, the U.S. market is now even more dangerous: It’s trapped in what he calls “the biggest bubble in the history of civilization.”

‘The Federal Reserve is terrified of a depression, so it won’t tighten monetary policy. “The real risk is hyperinflation or a devaluation of the US dollar.”

MarketWatch: What do you think of the US stock market right now?

Burns: We are in the largest bubble in the history of civilization. The reason is that there is too much US currency in the financial system. It all goes back to the US dollar (DX00). At the same time, most of the money is flowing into stock indices and bonds and metals are rising. It doesn’t make sense anymore. Everything is going up in price. It’s quite surprising how little the market takes into account fear and uncertainty right now. I’ve never seen anything like it.

MarketWatch: Do you think the US Federal Reserve can do anything to deflate this bubble?

Burns: The worrying thing is that the Federal Reserve has lowered interest rates, but it didn’t lower mortgage rates. The Federal Reserve has lost control of both the yield and the yield curve. The Federal Reserve is now in a dangerous situation where it has also lost control of interest rates. They could keep cutting rates, but banks don’t want to lower mortgage rates and bond investors want higher returns for the risks they are taking.

MarketWatch: How bad could it get?

Burns: The Fed is terrified of a depression, so it won’t tighten monetary policy. They are flooding the system with money through public debt and cutting interest rates. The real risk is hyperinflation or a devaluation of the (US) dollar at some point. The last 12 months have amazed me with the lack of pullbacks, the lack of bearish swings and the market continuing above new all-time highs. It’s absurdly overbought.

MarketWatch: How are you preparing for this possible scenario?

Burns: I have a lot of real estate as a hedge. I’m not looking to be a buy and hold investor at this time. It’s great to be a buy-and-hold investor during secular bear markets, where you can dollar-cost average and profit from the bull market. It wasn’t great to be a buy-and-hold investor in 2001 and 2002, or 2008 and 2009. It took a decade for a lot of people to get back on par.

MarketWatch: Are there any stocks you would buy after a market crash?

Burns: If we have a 50% correction or drop, because everything is so overvalued, I will buy metals like gold and silver ETFs (GLD GLD and SLV SLV) to protect against the devaluation of the US dollar. If we have a secular bear market and a 50% correction, I would buy Palantir Technologies (PLTR), Reddit (RDDT), Nvidia (NVDA), and Rocket Lab USA (RKLB). These are four of the most attractive stock charts I’ve ever seen.

MarketWatch: What are you buying now?

Burns: I’m actually short the market. The only thing that seems good to me right now is GLD and SLV. Everything else seems mind-bogglingly overbought.

MarketWatch: What advice would you give traders for managing this and other market conditions?

Burns: The number one way to manage risk is by position sizing. Regardless of your trading system, position size will determine whether you can increase your profits, maintain them, or go bankrupt.

Stop and think: ‘Are you operating as a business or as a player?’ If you are a player and you simply make opinions and predictions based on your personal thoughts, you will get into trouble, especially at these big turning points, because anything can happen. Traders must ask themselves: “Are you simply a lucky player in the wildest bull market in history?”

More: The stock market’s wild party is coming to an end. This is how you can avoid a hangover.

Also read: What’s behind the Dow’s current losing streak? Should investors be worried?

-Michael Sincero

This content was created by MarketWatch, operated by Dow Jones & Co. MarketWatch is published independently of Dow Jones Newswires and The Wall Street Journal.

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