A Tale of Two Investors, Which One Are You?

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Weekday Wisdom
Kevin Matras - Editor

A Tale of Two Investors, Which One Are You?

By: Kevin Matras
January 18, 2023

Gladly, the books are closed on 2022, with the S&P finishing lower by -19.4%. It was the market’s worst performance since 2008, when it was down by more than -38%.

Although, it should be known that in 2009, the S&P rallied by 23.4%. A hefty rebound by any measure.

Is 2023 in store for something similar?

The odds say yes.

History shows a high probability of outsized gains following a down year for the market.

Then add in the favorable seasonal tendency which shows that year 3 of the 4-year Presidential cycle (that’s 2023), is the best year of all 4 years. In fact, since 1950, stocks have always gone up in the year after midterms, with an average 12-month forward return of 18.6%.

If the aforementioned stats hold up, 2023 could look markedly different than 2022.

And that’s why it’s so important to make sure you take full advantage of it.

Last year was tough. But there were plenty of stocks going up and making new highs.

And there were plenty of investors handily beating the market.

But too many underperformed.

It was bad enough the market was down -20%. But too many investors were down much, much more.

One of the reasons why so many people are not seeing the kinds of returns they want is because they don’t know of new stocks to get into. They find themselves in mediocre stocks because they don’t know of anything better instead.

I think for some, their knowledge or ‘universe’ of familiar stocks is relatively small and this limits their opportunity of getting into better ones.

Which Half Are You In?

Over the last 52 weeks, more than half (62%) of the companies in the S&P are beating the index, with nearly two-thirds of those companies showing positive returns.

That means ‘only’ 38% of the stocks in the S&P underperformed the index.

Statistically, that means it was easier to beat the market than underperform it.

But with so many big-name companies underperforming, it’s easy to see why so many people underperformed as well.

Even ‘good’ companies like Amazon; they’re down -39.6%. Or Meta (formerly known as Facebook); which is down -57.5%. Or Tesla; down -61.7%. So what gives?

I don’t single these out so you can feel bad if you have them. But instead, to stop and think about ‘why’ you have them.

Nobody invests so they can underperform the market. But if you are -- why? You don’t have to. If you’re underperforming the market, that means you have more of these types of laggards in your portfolio than leaders.

How the Other Half Lives

Of course, there are a lot of big names beating the S&P too. Take Lockheed Martin, or Archer Daniels Midland, or Merck for example. All are outperforming the S&P with gains of +19%, +24% and +35% respectively.

But now let’s move outside of the S&P.

Did you ever hear of a company called Griffon? What if you did? It has outperformed the market by gaining +61.7% over the last 52 weeks. Or e.l.f. Beauty? They’re up +90.8%. Or Teekay Tankers? Up by +152%. (By the way, these are all Zacks Rank #1 stocks.)

There are hundreds and hundreds of stocks producing fantastic gains that many people may never have even heard of.

What about you? How many times have you heard about a stock or read about a stock that skyrocketed — only to think to yourself; “if only I knew about that stock ahead of time, I would have been in that.”

Continued . . .

Expand Your Universe and Pick Better Stocks

Increasing your knowledge and awareness of new and better stocks is easier than you think. And you don’t have to reinvent the wheel.

For example, since 1988, the Zacks Rank #1 Strong Buy stocks have beaten the S&P 500 in 29 of the last 35 years, with an average annual return of nearly 25% a year. That’s more than 2 x the S&P with an 82% annual win ratio. That includes 4 bear markets and 4 recessions. And when doing this year after year, that can add up to a lot more than just two times the returns.
Stick with the top industries. Since roughly half of a stock’s price movement can be attributed to the group that it’s in, you’ll significantly increase your odds of success by focusing on the best groups. By how much? Our tests have shown that the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of 2 to 1. And the top 10% of industries outperform the most.
Or select your next stock from a proven profitable stock picking strategy -- like our ‘New Highs’ strategy which has an average annual return (2000-2022) of 38.7%; or our ‘Small-Cap Growth’ strategy with an average annual return of 46.4%; or the ‘Filtered Zacks Rank 5’ strategy which produces an average annual return of 49.5%. Once you know what to look for, and how to pick better stocks, it can transform your portfolio.

You don’t need to turn yourself into an analyst to beat the market. Just focus on what works, and apply those methods consistently.

New Market Leaders

For most of us, our investments are the largest, most important chunk of money we’ll ever be responsible for in our entire life.

And if it isn’t now, it likely will be one day.

The leaders in the past (stock names we’re all too familiar with) will likely not be the leaders in the future.

But you can stay ahead of the pack by following some simple rules and methods that have proven to work.

And don’t be afraid to consider a stock you may never have heard of before. There was a time when some of the best stocks in your portfolio today, were brand new to you before you bought them. And now they’re one of your top performers.

The next time you read about or hear about a stock that’s skyrocketed in price; instead of thinking, ‘I could have been in that had I known about it’ — wouldn’t it be great to say, ‘I’m in it!’

Where to Start

There's a simple way to add a big performance advantage for stock-picking success. It's called the Zacks Method for Trading: Home Study Course.

With this interactive online program, you can master the Zacks Rank in your own home and at your own pace. You don’t have to attend a single class or seminar.

Zacks Method for Trading covers the investment ideas I just shared and guides you to better trading step by step, plus so much more.

You'll quickly see how to get the most out of the proven system that has more than doubled the market for over three decades. Discover what kind of trader you are, how to find stocks with the highest probability of success, and how to trade them so you can consistently beat the market no matter where stock prices are headed.

You’ll get the formulas behind our top-performing strategies suited for a variety of different trading styles. The best of these strategies produced gains of +48.2%, +67.6%, and even +95.3% in 2021.¹

The course will also help you create and test your own stock-picking strategies.

Today is the perfect time to get in. I'm giving participants free hardbound copies of my book, Finding #1 Stocks, a $49.95 value. Its 300 pages virtually unfold every trading secret I’ve learned over the last 25 years to beat the market.

Please note: Copies of the book are limited and your opportunity to get one free ends midnight Saturday, January 21, unless we run out of books first. If you're interested, I encourage you to check this out now.

Find out more about Zacks Home Study Course »

Thanks and good trading,

Kevin Matras - signature
Kevin Matras
Executive Vice President

Zacks EVP Kevin Matras is our chart patterns and stock screening expert. He developed many of Zacks' most powerful market-beating strategies and directs the Zacks Method for Trading: Home Study Course.

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