Ditch the Herd
Investors love to follow the herd... And most of the time, "fighting the trend" is difficult at best. If you immediately take the opposite side every time a stock gets overvalued or a sector looks oversold, you're going to go bust very quickly.
But in the words of Michael Lewis, bestselling author of Liar's Poker and The Big Short and a former bond salesman for Salomon Brothers, "On Wall Street, everybody says he's a contrarian, and nobody is."
If you've been reading my work for long, you'll know I'm an advocate for going against the herd. You won't make a lot of money by doing what everyone else is doing.
It's why, throughout my professional life, I've questioned everything...
Anytime I would hear, "That's just the way things are," I wanted to cringe. You could almost see the steam coming out of my ears. This mindset is part of what drove me out of Wall Street and then out of medicine.
Even during board and manager meetings I've attended over the past several years for Stansberry Research's parent company MarketWise, I've never just accepted the status quo. I question everything and want to see if there's a better way... It's just in my nature to be a contrarian. It's a lesson I've taught everyone on my team.
You don't have much success in life by just doing what everyone else is doing.
Period.
And that's especially true in the markets.
Some of today's hottest stocks are the ones you should be avoiding. Instead, find the stocks the market is ignoring...
According to my friend Marc Chaikin, a much larger and wider variety of stocks in the market is going to participate in this bull market going forward.
But the biggest winners, by far, are not going to be stocks like the "Magnificent Seven" that have been largely responsible for the market's gains up till now.
They're going to be a group of stocks that almost everyone is ignoring.
On Wednesday, Marc detailed the straightforward investing approach that...
- Historically outperformed the biggest and most popular stocks nearly fourfold since 1966...
- Could beat the S&P 500 fourfold over the next year based on a signal that has been 100% accurate since 1943...
- And amplifies the impact of the bullish signals he sees using his stock-rating tool, the Power Gauge.
If you missed it, you can catch Marc's entire presentation – for free – right here.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
June 29, 2024
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Reader question of the week...
Q: Hi Doc. Will you recommend a formula or a percentage to start taking profits on stock gains? For example, sell 20% of a position when the stock is up 50% from your buy price. Thanks. – B.V.
A: Thanks for being such a loyal subscriber, B.V. Longtime subscribers know I like to hold blue-chip stocks for the long term. For example, I first recommended folks buy Microsoft (MSFT) back in 2010. And we're up more than 1,400%. Microsoft is the kind of company that will likely be around for decades – a classic sleep-well-at-night investment. So this is a case where you can just let your winner ride.
What you should pay attention to is how much of your portfolio a position takes up. For anyone who doesn't know, I recommend subscribers put no more than 4% to 5% of their portfolio in any one stock. And more speculative positions should represent even less. Then I recommend using stop losses that tell you when to sell – typically 25% below your entry price (called a hard stop) or 25% below the position's peak price since you bought in (a trailing stop).
With a 5% position size and a 25% stop loss, the most you can lose on any single stock is around 1% of your entire portfolio.
If you invest in funds, you could consider a larger position size of up to 20% of your investment portfolio. That's because funds are already diversified within the class they invest in.
But whether you're invested in either an individual stock or a fund, your portfolio's makeup will change over time as different positions move up and down at different paces.
That's why I recommend reevaluating your portfolio at least once a year. If you notice a stock is taking up a large portion (say, 10%) of your portfolio, sell part of it to get back closer to the 5% mark. Then, you can put your money to work and try to do the same thing over and over.
Selling doesn't mean it has become a bad investment. It's just a way to protect yourself from having too much of your money in one place and suffering from the risk of a larger loss if that investment were to fall.
Look at your funds the same way... When a single fund takes up more than 20% of your portfolio, consider scaling back and reinvesting the proceeds into other positions.
Keep sending your questions, comments, and suggestions our way. We read every e-mail... feedback@healthandwealthbulletin.com.
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