You Can Beat The Market, Even In Times Like This

[Zacks | Our Research. Your Success.] WeekendWisdom Tactics that Work in Good Markets and Bad [Kevin Matras - Editor] You Can Beat The Market, Even In Times Like This By: Kevin Matras May 7, 2022 --------------------------------------------------------------- After a fantastic year of gains in 2021, this year couldn't have started out any worse. First, rising inflation (40-year high), spooked the market. Then the war on Ukraine, which exacerbated already high energy prices, weighed on stocks even more. High inflation, of course, has prompted the Fed to raise rates (they hiked rates by 25 basis points in March, and then another 50 basis points on May 4th). And they have foreshadowed the likelihood of another 50 basis points at each of the next two FOMC meetings in June and July, before ultimately getting to a target of 1.9% by year's end. While the increase in rates will help tamp down inflation, which will benefit the economy, there's a fear that increasing rates too high and too fast could cause a recession. Fed Chair, Jerome Powell, just a couple of days ago, after remarking how strong the economy is, said there's "nothing about it that says we're close or vulnerable to a recession." Nonetheless, those fears persist, hence the sell-off. But it should be noted that over the last 50 years, there's never been a recession (aside from 2020's pandemic-induced plunge), when the Fed Funds rate was under 4%. So with officials pegging rates at 1.9% this year, and 2.8% next year, with no further rate hikes in 2024, we'll still be a long way from 4%. That being said, the market has been tough. Even so, there are plenty of investors 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. Underperformers 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 Starbucks; they're down -30.2%. Or Meta Platforms (i.e., Facebook); which is down -33.6%. Or Netflix; down -66.1%. 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 Kroger, or Lockheed Martin, or Chevron for example. All are outperforming the S&P with gains of +23%, +25% and +42% respectively. But now let's move outside of the S&P. Did you ever hear of a company called Vermilion? What if you did? It has outperformed the market by gaining +73.2% since the start of the year. Or Kosmos? They're up +115.3%. Or Alpha Metallurgical? Up by +167%. (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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For example, did you know that stocks with a Zacks Rank #1 Strong Buy have beaten the market in 28 of the last 34 years (an 82% win ratio), with an average annual return of 25% per year? That's more than 2 x the S&P. And consistently beating the market year after year can add up to a lot more than just two times the returns. And did you know that stocks in the top 50% of Zacks Ranked Industries outperform those in the bottom 50% by a factor of 2 to 1? There's a reason why they say that half of a stock's price movement can be attributed to the group that it's in. Because it's true! Those two things will give any investor a huge probability of success and put you well on your way to beating the market. But you're not there yet, as those two items alone will only narrow down a field of 10,000 stocks to the top 100 or so. Way too many to trade at once. So the next step is to get that list down to the best 5-10 stocks that you can buy. Stock Picking Secrets of the Pros One of the best ways to begin picking better stocks is to see what the pros are doing - the pros who use these methods to select the best stocks to buy. Whether you're a growth investor, or a value investor, prefer fast-paced momentum stocks, or mature dividend-paying income stocks, there are certain rules the experts follow to maximize their gains. This applies to large-caps and small-caps, biotech and high-tech, ETF's, stocks under $10, stocks about to surprise, even options, and everything in between. Regardless of which one fits your personal style of trade, just be sure you're following proven profitable methods that work, from experts who have demonstrated their ability to beat the market. The best part about these strategies is that all of the hard work is done for you. There's no guesswork involved. Just follow the experts and start getting into better stocks on your very next trade. 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