The Trend

Every Crisis Creates an Opportunity to Make Money

There’s always opportunity in crisis.

Capture it at the right time, and you stand to make a fortune.  However, it all depends on the severity of news.  The more severe it is, the bigger the potential opportunity. 

For example, in April 2017, a United Airlines passenger was pulled off a plane after the airline asked him to give up his seat to United’s employees.  The incident was all captured on video, and was quickly disseminated throughout the world.  In fact, within hours of it happening, even those in China were negatively reacting.

What made it worse was the fact that the company CEO appeared non-apologetic, blaming the passenger’s unruly behavior for the situation.  But as any public relations pro will tell you, that’s the worst thing he could have done.  In the court of public opinion, especially with video in hand, judgments were made.  It’s why the stock lost $830 million in days.

Unfortunately, until news of such a crisis has been fully disseminated, the public isn’t willing to be so apologetic to the stock either.  That’s the power of news.

Crises like this one aren’t anything new, unfortunately.

Years ago, United Airlines smashed a $3,500 custom guitar and refused to pay for it.  The story went viral. More than 10.7 negative reviews hit You Tube following it.  Within weeks of this happening, the stock fell 10%.  However, the stock did recover not long after.

A crisis became an opportunity. 

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Once the news was out, and priced in, the story was forgotten about and life went on.  That’s not to say we shouldn’t forget about a bloodied passenger, but with time the story will fade and opportunity could emerge.

Years ago, Steve Jobs denied he was ill.  Then, all of a sudden he took leave to have a liver transplant, sending shockwaves through shares of Apple.  The stock would fall that day, only to recover shortly after.

When Mylan (MYL) CEO Heather Bresch said the EpiPen price hike was fair in September 2016, the stock plummeted from $12 to less than $6.  However, as the crisis of the report faded, the stock began to recover not long after. 

Plus, we could tell a lot of the bad news baked in technically, too.

In fact, not long after the news, look how severely oversold the stock became on momentum indicators, such as relative strength (RSI), MACD and Money Flow (MFI).  All told traders – smart traders – that the negativity became far too great.

In 1989, the Exxon Valdez ran aground on Price William Sound, Alaska.  Within hours, nearly 11 million gallons of oil gushed into the bay.  It destroyed 1,100 miles of coastline.  The XOM stock would fall about 12%.  However, with time, the stock recovered.

Severe crisis became opportunity.

Every year, there are thousands of examples of bad crises, oftentimes created by CEOs that should have just listened to the public relations team.  But if you buy and hold as a crisis unfolds, you stand to do very well.