The markets have been on a tear (last week notwithstanding), with all of the major indexes recently breaking out to new all-time highs.
YTD, the blue-chip Dow Index is up 7.0%, the broader S&P Index is up 9.0%, the small-cap Russell 2000 Index is up 10.4%, and the tech-heavy Nasdaq Index is up by 16.6%. And with that, there are plenty of investors handily beating the market.
So why are so many other investors underperforming the market?
Could it be that 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 and showing positive returns this year. But that means roughly half of the stocks in the S&P 500 are underperforming the Index.
Even 'good' companies like Hershey; they're down -10.4%. Or MGM, which is down -17.0%. Or even Goodyear; down -28.1%. And there's 3 months left in the year. 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 Best Buy, or Pfizer, or Costco for example. All are outperforming the S&P with gains of +14.3%, +21.2% and +25.7% respectively.
But now let's move outside of the S&P.
Did you ever hear of a company called Medpace? What if you did? It has outperformed the market by gaining +63.4% since the start of the year. Or Paycom? They're up +92.9%. Or Amedisys? Up by more than +131%. (By the way, these are all Zacks #1 Rank stocks.)
There are hundreds and hundreds of stocks producing fantastic gains that many people may never have even heard of.
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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".
Expand Your Universe and Pick Better Stocks
Increasing your stock knowledge and awareness of new and better stocks is easier than you think. And you don't have to reinvent the wheel.
• For example, over the last 29 years, the Zacks #1 Rank stocks have beaten the S&P 500 in 24 of the last 29 years, with an average annual return of 25.3% a year vs. the market's 10.2%. That's more than 2 times the returns of the S&P with an 82% annual win ratio.
• 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 'Filtered Zacks Rank 5' strategy which was up over 94% last year; or our 'New Highs' strategy which was up 102%; or the 'Big Money Zacks' strategy which was up a whopping 112% last year!
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.
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
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Thanks and good trading,
Zacks Executive VP Kevin Matras is responsible for all our trading and investing services. He also developed many of Zacks' most powerful market-beating strategies that come with the Research Wizard.