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A Tale of Two Investors, Which One Are You?

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After a fantastic year of gains in 2021, this year couldn’t have started out any worse.

First, rising inflation (40-year high inflation), spooked the market.

Then the war on Ukraine weighed on stocks even more.

All of the indexes fell into correction territory. (A correction is defined as a decline between -10% and -19.99%). Corrections are actually quite common as they happen on average of once a year.

But after Wednesday’s Fed rate hike, the indexes have all bounced off their correction lows. In fact, the Dow and the S&P have all exited correction territory. And the Nasdaq is not that far behind.

In spite of a tough start to the year, there are plenty of stocks going up and making new highs.

And there are plenty of investors handily beating the market.

But too many are underperforming.

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?

More than half of the companies in the S&P are beating the index, with more than a third of the companies showing positive returns this year.

But that means nearly half of the stocks in the S&P are underperforming the Index, with  roughly two thirds showing a negative return.

Even ‘good’ companies like Home Depot; they’re down -20.3%. Or Moderna; which is down -33.3%. Or Netflix; down -40.7%. 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 Kroger, or Chevron for example. All are outperforming the S&P with gains of +18%, +21% and +34% respectively.

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

Did you ever hear of a company called Danaos? What if you did? It has outperformed the market by gaining +41.8% since the start of the year. Or Alpha Metallurgical? They’re up +80.6%. Or Peabody Energy? Up by +101%. (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 . . .

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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 28 of the last 34 years, with an average annual return of 25.4% a year. That’s nearly 2.5 x the S&P with an 82% annual win ratio. And when doing this year after year, that can add up to a lot more than just two and a half 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 (2000-2021) of 43.2%; or our ‘Small-Cap Growth' strategy with an average annual return of 50.4%; or the ‘Filtered Zacks Rank 5’ strategy which produces an average annual return of 51.2%.

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.

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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 unfold virtually 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, March 19, 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

Zacks Executive VP Kevin Matras is responsible for all our trading and investing services. He developed many of our most powerful market-beating strategies and directs the Zacks Method for Trading: Home Study Course.

¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research’s newsletter editors and may represent the partial close of a position.