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Navigating the Markets: 3 Key Takeaways from Investing in 2023
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Now in my tenth year as a trader, the market still manages to surprise me day after day. As investors, we must always be learning from our mistakes, and fine tuning our methodology, because there is no end-goal, just a constantly evolving process. If you love learning you can do very well in markets.
As 2023 nears an end, it is a good time to reflect on the year of trading so we can identify what worked and what didn’t. Although I will be sharing the things that I learned this year, I think they are broadly applicable to all investors.
Price Action Over Economic Forecasts
Want to hear something crazy? The S&P500 never traded below the low of the first day of the year. That means the stock index never went negative YTD once! And yet 2023 was almost unanimously expected to experience a recession and market selloff.
This is why it is so important to really listen to what the market tells you and try to read through the most popular narratives swirling around the market. The price action tells you everything you need to know.
While the economists were referring to their models, they forgot about the best economic forecasting tool in the world, the market itself. Because the stock market is a forward discounting mechanism, it is almost always doing a better job at discounting future risks than any individual analyst or trader.
Image Source: TradingView
Invest in What You Know
Many commentators on the internet will often say, retail investors looking for alpha should focus on micro and small cap stocks if they want an edge. However, I wholeheartedly disagree. I personally have always been one to closely follow the large and mega cap stocks, especially tech, and many of them returned more than 100% just this year.
Nvidia (NVDA - Free Report) and Meta Platforms (META - Free Report) , two of the largest companies in the world, were the best performing stocks in the S&P 500. The setups were quite compelling, with Meta Platforms ending 2023 at its lowest relative valuation in a decade and Nvidia leading the Artificial Intelligence revolution.
Both stocks were also steadily trending higher, confirming bullish price action all year.
Image Source: Zacks Investment Research
Utilizing the Zacks Ranks
This year was my first year at Zacks and my first time using the proprietary tools. I was constantly impressed with how effective they were at anticipating which stocks would be the top performers.
In my years I have gone through many different filtering and signal generation tools, and the Zacks Rank has easily been one of, if not the simplest and most effective for identifying winning stocks.
For example, Nvidia and Meta Platforms enjoyed Zacks Rank #1 (Strong Buy) ratings for many months and sat atop the list right from the beginning of the year. Because the Zacks Rank aggregates the earnings estimates and revisions from all analysts on Wall Street, it provides a broad opinion on expectations, like the way the market functions.
As earnings estimates trend higher, institutional traders begin buying the stock thus pushing it higher. In the chart below, which shows the earnings estimate trend of META, following the upgrades in February the stocks rallied higher all year.
Image Source: Zacks Investment Research
Final Thoughts
Of course, hindsight is 20/20, and though Meta Platforms and Nvidia were top Zacks Rank stocks, many investors doubted they would continue to trade higher all year. Although it isn’t a new insight, good trading requires courage. You must form your opinion and stick to it, even if that goes against the herd.
Often, going against the herd is a fantastic signal that you may be following the right path, however you should use the principles shared above to confirm the thesis. Price action should be confirming the thesis, you should understand why a stock is moving, and the Zacks Rank should be showing upward trending earnings revisions.
Best of luck in 2024!
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Navigating the Markets: 3 Key Takeaways from Investing in 2023
Now in my tenth year as a trader, the market still manages to surprise me day after day. As investors, we must always be learning from our mistakes, and fine tuning our methodology, because there is no end-goal, just a constantly evolving process. If you love learning you can do very well in markets.
As 2023 nears an end, it is a good time to reflect on the year of trading so we can identify what worked and what didn’t. Although I will be sharing the things that I learned this year, I think they are broadly applicable to all investors.
Price Action Over Economic Forecasts
Want to hear something crazy? The S&P500 never traded below the low of the first day of the year. That means the stock index never went negative YTD once! And yet 2023 was almost unanimously expected to experience a recession and market selloff.
This is why it is so important to really listen to what the market tells you and try to read through the most popular narratives swirling around the market. The price action tells you everything you need to know.
While the economists were referring to their models, they forgot about the best economic forecasting tool in the world, the market itself. Because the stock market is a forward discounting mechanism, it is almost always doing a better job at discounting future risks than any individual analyst or trader.
Image Source: TradingView
Invest in What You Know
Many commentators on the internet will often say, retail investors looking for alpha should focus on micro and small cap stocks if they want an edge. However, I wholeheartedly disagree. I personally have always been one to closely follow the large and mega cap stocks, especially tech, and many of them returned more than 100% just this year.
Nvidia (NVDA - Free Report) and Meta Platforms (META - Free Report) , two of the largest companies in the world, were the best performing stocks in the S&P 500. The setups were quite compelling, with Meta Platforms ending 2023 at its lowest relative valuation in a decade and Nvidia leading the Artificial Intelligence revolution.
Both stocks were also steadily trending higher, confirming bullish price action all year.
Image Source: Zacks Investment Research
Utilizing the Zacks Ranks
This year was my first year at Zacks and my first time using the proprietary tools. I was constantly impressed with how effective they were at anticipating which stocks would be the top performers.
In my years I have gone through many different filtering and signal generation tools, and the Zacks Rank has easily been one of, if not the simplest and most effective for identifying winning stocks.
For example, Nvidia and Meta Platforms enjoyed Zacks Rank #1 (Strong Buy) ratings for many months and sat atop the list right from the beginning of the year. Because the Zacks Rank aggregates the earnings estimates and revisions from all analysts on Wall Street, it provides a broad opinion on expectations, like the way the market functions.
As earnings estimates trend higher, institutional traders begin buying the stock thus pushing it higher. In the chart below, which shows the earnings estimate trend of META, following the upgrades in February the stocks rallied higher all year.
Image Source: Zacks Investment Research
Final Thoughts
Of course, hindsight is 20/20, and though Meta Platforms and Nvidia were top Zacks Rank stocks, many investors doubted they would continue to trade higher all year. Although it isn’t a new insight, good trading requires courage. You must form your opinion and stick to it, even if that goes against the herd.
Often, going against the herd is a fantastic signal that you may be following the right path, however you should use the principles shared above to confirm the thesis. Price action should be confirming the thesis, you should understand why a stock is moving, and the Zacks Rank should be showing upward trending earnings revisions.
Best of luck in 2024!