Posted June 02, 2020
By Ray Blanco
Are Your Stocks Part of This Elite Group?
Its an exclusive group.
Just 28.7% of all S&P 500 stocks fall into it.
And yet it could have a colossal impact on how your portfolio performs for the rest of 2020.
Im talking about stocks that are actually up so far this year.
(And its very good news for your tech portfolio... more on that in a minute.)
"The only way to make sure you own winners is to buy winners."
Its pretty simple advice absurdly simple, maybe but it's really as good as gold.
I first heard that phrase years ago at a talk given by Frank Teixeira, a fund manager who launched one of the first technical analysis-focused mutual funds.
A couple years after the dot-com bubble burst in the early 2000s, Frank was walking down a hallway at his firm when he bumped into one of his fundamental colleagues.
This guy was scratching his head over Apple's newest device, the iPod.
After suffering alongside the rest of the tech sector for a year or two, Apple was finally going on a tear again all thanks to the popularity of this little white box that could put 1,000 songs in your pocket
While Apple climbed, Frank had been adding more to his fund's Apple position. And the fundamental investor couldn't figure out why.
"I really can't see a justification to own Apple anymore. This iPod thing is just a fad," sighed the fundamental portfolio manager.
"You think the iPod's a fad? I hope you're right!" Frank shot back.
Sure enough, it was the beginning of a colossal multiyear trend that sent shares of Apple rocketing more than 2,000% in the five years that followed.
As investors, we want to own the fad stocks!
We don't necessarily care what's driving the price action we only care that the price action is trending. To paraphrase one successful investor we know, The market doesnt pay you extra to explain why. It only cares about the what. Just identify whats working and youre off to a good start.
In other words, markets trend.
Strength often begets strength.
Data shows that markets that double are actually twice as likely to double again than they are to fall back down to breakeven.
I recently conducted a study that showed that stocks in crisis environments that have positive six-month relative performance versus the rest of the market are 50% more likely to be winners a month later than the average stock.
Back to the quote: "The only way to make sure you own winners is to buy winners."
And, right now the market is telling us to buy tech
Right now, the tech sector is winning. The S&P 500 Technology Sector Index is up more than 12.9% in the last six months. The average stock in the S&P 500 itself is down about 8% over that same timeframe.
Keep winners in your portfolio to boost your odds of a successful year for the rest of 2020.
Jonas Elmerraji, CMT