Money can sway our emotions and lead us to do stupid things sometimes.
Trust me, I know.
I learned long ago that an unemotional approach to investing my hard-earned money was both easier on the stress levels and better for my bank account.
Use emotions to love your family, but use data to invest.
There are never-ending stories to stoke worry and fear that cost investors untold amounts of money. And that’s not a knock against them or their emotional susceptibility. It’s just the way we’re wired.
We don’t want to lose some of the value, like money.
That’s why we see $6.4 trillion parked in money market accounts – an all-time high.
Sure, if you have a big balance and put your money in a highly competitive money market account, you might earn around 5% a year right at this moment.
That’s not bad, but keep in mind two things:
- The S&P 500 has gained more than 30% in the past 12 months.
- Money market yields will fall when the Federal Reserve starts cutting interest rates.
And over the last 100 years, you would have made more than 1,000,000% on your money in stocks.
Source: officialdata.org
There are two takeaways from the chart:
- Volatility exists. There are pain periods where deep drawdowns occur. The path to glory is not linear.
- But the path to glory is real. The 1,000,000%+ return proves it.
Stocks make a ton more money over time than cash or any other investment class. That’s why this huge mountain of cash – this “cash bubble” – is set to start flooding back into stocks.
But here’s the complicated part:
Only a handful of stocks account for all of that stock market success.
As proven by the impressive work of Professor Hendrik Bessembinder, only 4% of stocks account for all of the net gains of stocks above government bonds in the past 100 years.
To complicate matters even more, only 1% of stocks account for half of the entire net gain of stocks over bonds.
That’s quite a conundrum.
We have a seemingly sure thing: Invest in stocks, they go up over time. But then we find out that we’re wasting our time with 96% of stocks.
Guess we need to find those 4% of stocks that outperform. Or better yet, those 1% that outperform even more.
But how?
That is the question… and I have pursued the answer for more than 20 years.
I devoted an immense amount of time, resources, energy, and money to solving this riddle. I talked to every investor I could find. I read every book I could find. And my own trial and error (there were plenty of errors) taught me even more.
When all was said and done, I boiled the answer down to three things a stock must have to be a rare outperformer:
- Superior fundamentals. This is the strength of the business. The company must grow sales and earnings, make a profit, manage debt, and several other key factors.
- Strong technicals. This is the strength of the stock. It should be trending higher, getting bought (on rising volume), and be among the leaders in its sector.
- Big Money buying. Institutions don’t play by the same rules as everyday investors. They deploy massive amounts of money that can really disrupt the marketplace for a stock. My Quantum Edge system sees when they buy massive amounts of stock, allowing us to ride the wave with them.
When these three things align, your odds of picking those rare 4%, or even 1%, of outperformers go way up. Which means that over time, your odds of making a lot of money also go way up.
A Potential Shift in Big Money Flows
There are a lot of companies out there with at least one of those three factors.
There are fewer companies with two of the factors.
And stocks with all three are the market’s jewels. They have the highest likelihood of making you good money.
There are a lot of secret sauces in my Quantum Edge system, which is the result of my two decades of riddle solving. My computers run multiple algorithms on more than 6,000 stocks and one million data points every single day, conducting the critical analysis that helps me best predict future price movement.
You want a quality company whose shares are in demand and being bought by Big Money.
The hardest of those three for most investors is tracking institutional money flows. And that’s because Big Money purposely makes it hard to track.
Institutions, pension funds, and hedge-fund players manage tons of cash, so when they buy, they have to buy huge blocks of a stock. If they bought all those shares at once, the buying pressure would drive the price skyward in a matter of minutes. So they hush it up by spreading the purchases across different brokers and by stretching it out over days and weeks.
One of my early jobs as head of a trading desk for Cantor Fitzgerald gave me a unique vantage point to see how Big Money players buy stocks – and how that buying drives stock prices. I not only had a front-row seat to this, but I was part of it.
My time matching up big buyers and sellers taught me everything I needed to know to spot Big Money at work in the data. Over time, I wrote algorithms that pore through reams of data and tell me when Big Money is buying or selling unusually substantial amounts of stock.
My algorithms picked up some rather interesting changes in Big Money behavior just last week. They are not a trend yet, but they need to be monitored and could impact future trades.
Technology, which has been the strongest sector since late 2023, was eclipsed by the Energy sector two days last week and Financials another day.
Source: MAPsignals.com
Energy stocks got a boost from rising oil prices, which hit four-month highs due to low supplies in the U.S. and global tensions in key oil areas of the world. Energy stocks also typically pay out solid dividends, which investors are starting to consider more with the expectation that interest rates will fall.
I wanted to see if this was real buying or perhaps a reversion, which is typically characterized by poor quality stocks also getting scooped up. I dug down into the individual stocks seeing unusual buying, and it looked legit.
I recommend one of the stocks, so I can’t give you that one, but I can share a few others that caught my attention, like Permian Resources (PR) and Ovintiv (OVV). Both rate well in my system, with PR having the highest Quantum Score at 87.9. Its Technical Score is a little over heated at 91.2.
Source: TradeSmith Finance and MAPsignals.com
I am monitoring the data, but feel free to take those stocks as candidates for further research.
As you do your research, remember to take the emotion out of it and concentrate on data about a company’s fundamentals, technicals, and institutional inflows. Your stomach won’t get in as many knots, and even better, you will make more money over time.
If you’d like me to do the research for you and recommend stocks to buy, click here to learn more about joining TradeSmith Investment Report today. Our current stocks are up more than 25% on average.
Talk soon,
Jason Bodner
Editor, Jason Bodner’s Power Trends
