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Using Maximum Pessimism for MEGA RETURNS!

In my book Mega Returns, I explain how to use negative sentiment to your advantage. Stocks often go too far in both directions, both on the upside and downside.

There are many terms for this: John Templeton called it maximum pessimism, George Soros calls it reflexivity, some call it buying when there is “blood in the streets.” What you are looking for are stocks or assets that have overshot to the downside and where investors are too negative on the outlook.

This happened to the entire market in 2009 when the market priced in a full-blown depression while the economy was about to bottom. Valuations became the cheapest in nearly two decades and the market soared for years after.

The market valuations, according to many metrics such as market cap to GDP and price to sales, are the most overvalued they have ever been.

However, even in this overvalued market you can find hidden gems, and I have managed to do this over the past year.

Basic Rules for Maximum Pessimism Investing

When I am looking for maximum pessimism turnaround plays in stocks, I usually look for three things:

• A stock that has fallen at least two-thirds from its all-time highs.
• A stock trading at a large discount to sales.
• A catalyst for turning around. Most stocks are depressed for a reason; they have too much debt; they are in a sector that has collapsed; their business has struggled so you need a catalyst to turn the company or sector around.

An added bonus is if the company possesses a cheap price-to-earnings ratio or large dividend, but this is not strictly necessary as many turnaround players are struggling and may be losing money or paying no dividends.

American Eagle AEO — This was my most recent maximum pessimism trade. American Eagle is a clothing store that specializes in jeans targeted to millennials and Gen Zers.

The stock peaked at $34 a share back in 2021 and fell to as low as $9 a share over the past year. This got the stock down to 11 times earnings and a near 4.50% dividend at its lows. It was also trading at a cheap 0.4 times sales.

However, there was a reason for this decline. The company’s sales were struggling in 2020; they recorded nearly $5 billion in sales, and that had only increased to 5.2 billion by 2024. If you factor in inflation, their sales had decreased in inflation-adjusted terms during that period.

They needed a rebranding and a way to turn around the stock. Enter Sydney Sweeney and Travis Kelce.

Sweeney’s great “jeans” campaign went viral. American Eagle’s website and social media traffic blew up. Many on the left were outraged. However, when President Donald Trump came to her defense and backed up the ads, it added the MAGA crowd to their customer base and Gen X and baby boomer clients. In addition, there is a huge backlash against “woke culture” and I know many politically incorrect people such as myself would buy American Eagle products out of spite.

Then they also signed a contract with Travis Kelce, the famed tight end of the Kansas City Chiefs, who is now more famous for dating and being engaged to pop superstar Taylor Swift.

Both MAGA and Swift fans are rabid, and I realized these two campaigns could drive sales. In addition, the company has cut expenses, making it leaner so any growth would go directly to the bottom line.

I bought a ton of the stock in August 2025, making it my largest position. I even juiced the trade with some call options (a call option is a bet that a stock will be at a certain price by a certain date). I bought September 2025 $14 options when the stock was about $13.30 for $0.70. Meaning that by Sept. 19, 2025, I needed the stock to hit 14.70 a share to break even.

Recent earnings were a blow-out and the stock spiked nearly 38% in one day. I was up about 45% on my stock and nearly 500% on my options in just a few weeks!!!

FuboTV

Another rule of investing I learned from the famed investor Peter Lynch is to buy products of companies that you like and use. Lynch in the 1980s and 1990s used to say that if you like a product, go to the store that sells it and if the store is busy and the product is good, it’s probably a safe bet the company will do well.

Where I live in the Bahamas, I cannot get cable, so I use all sorts of streaming services. I love American and European football and Fubo is a great streaming service for both. I use the service, and it is great. So, I looked up the company. It had fallen from an all-time high of $62 a share in 2021 to just over $1 a share in 2024. I got in at around $1.40 a share.

At $1.40 the stock was trading at only a quarter of sales with a market cap of $400 million and sales of $1.6 billion, and they were growing their revenues at nearly 20% a year! Also, I could see a catalyst on the horizon. 2024 was the European Cup, and in 2026 the World Cup will be held in the United States. With soccer growing in popularity, it should drive subscription growth to Fubo.

There was an additional kicker: Disney, Fox, and others were trying to start a rival streaming service called Venu, which would be a sports-only streaming service. But here was the catch: Fubo had already asked these companies’ permission to do a similar “skinny package” which would be a sports-only streaming service, and those companies turned Fubo down.

Fubo then filed an antitrust complaint against these companies saying they were monopolizing sports streaming. Even Venu’s logo was a ripoff of Fubo’s! Fubo won the first hearing, which meant that the antitrust case would go to trial. I figured they had a very good case, which would mean hundreds of millions for Fubo and the right to stream sports-only packages!

The case never went to trial because Fubo made a deal with Disney to stream sports, and Disney paid them hundreds of millions. The stock shot up to nearly $5 a share, where I sold for a gain of more than 300% and my options made nearly 400%!

I saw a company that was beaten up, with a quality service that had a catalyst, and it soared.

GoPro (GPRO)

This is the final company we will talk about. This company has been both irrational exuberance in a bubble and then maximum pessimism after the bust.

In 2024 GPRO’s action-based camera, which could be used for vlogging and underwater video, was all the rage.

I remember sitting in Sip Sip, my favorite restaurant in the Bahamas, just over 10 years ago and overhearing a bunch of middle-aged men talking about how they were going to make a fortune in GoPro. The stock at that time was about $60 a share. It went to $100 at its high.

Where did GoPro trade in 2025? $0.50! A decline of over 99% from its 2014 highs!

I looked at the financials, and they were OK. Revenues were declining but the company at its lows was trading at a sixth of sales. The issue was they were bleeding money and burning through cash.

I figured, if the company could stop bleeding cash, they could trade back at one times revenues (which is still cheap). Even with the stock’s decline, GPRO still makes the best vlogging and action cameras around.

I bought the stock at $0.90 and soon after, it began to soar. Little did I realize that GoPro was a meme stock (stocks with large short positions that retail investors pump to squeeze shorts). It soared to $2 a share, where I sold for a more than 100% gain!

The reason I sold was, unlike American Eagle or FuboTV, GoPro had not yet turned around its business and the rally was just a short squeeze. However, buying a cheap stock that was out of favor again yields a great return!

I will look to return to GPRO after the meme craze is over.

Conclusion

As you can see from the above, using maximum pessimism and finding diamonds in the rough and cheap beaten-up companies with the potential to turn around can bring great returns.

In my book Mega Returns: Profit from Maximum Pessimism, I discuss how to use maximum pessimism to make fortunes.

I also use these techniques in my monthly articles for the Financial Intelligence Report.

Click HERE and I will send you my book for FREE with this special offer.

To Mega Returns,

David Skarica