There's One Common Ingredient In Every Successful Portfolio
Key Takeaways
- The more successful portfolios have stocks that show excellent relative strength.
- Over the last three months, Technology is the only S&P 500 sector that has outperformed the benchmark index.
- Out of 100 industry groups, only 15 have outperformed the S&P 500 in the past three months.
Putting together a somewhat diversified portfolio to beat the benchmark S&P 500 is not an easy task. Doing it over an extended period, like years, is nearly impossible. Just ask any portfolio manager for their long-term track record and compare it to the S&P 500's return over the same period. Usually, it's not even close.
At EarningsBeats.com, we've had great quarters and bad quarters, but our process has remained the same and, as of Thursday's close, our Model Portfolio had nearly doubled the S&P 500. I believe our process works.
Winning portfolios have one thing in common. They have several stocks showing excellent relative strength. That should be fairly obvious. I mean, if you want to beat the S&P 500, then you're going to need leading stocks from sectors and industries that are beating the S&P 500, right?
This past quarter has been incredibly difficult to beat the S&P 500 unless you've heavily weighted technology (XLK) and, more specifically, semiconductors ($DJUSSC). There are 11 sectors and over 100 industry groups. Over the past three months, would you like to know how many of the 11 sectors have outperformed the S&P 500?
One.
Technology has crushed the S&P 500. If you've significantly overweighted this sector, then you have a fighting chance. Otherwise, beating the benchmark has not been easy. Taking this one step further, take a look at the following industries that beat the S&P 500, exhibiting relative strength:
Only 15 industries have outperformed the S&P 500 over the past three months. If you're diversifying among the more than 100 industry groups, most stocks in your portfolio are likely underperforming the S&P 500. That's not a random guess, it's simple math.
Our latest quarterly portfolios — Model, Aggressive, and Income — featured many technology stocks, but clearly not enough of them. With just three trading days left in our Portfolio quarter (February 20th through May 19th), our Aggressive Portfolio is clinging to a slight advantage over the S&P 500, while our Model and Income Portfolios are underperforming the benchmark. Like I said, it's hard to beat a skewed S&P 500 with a reasonably diversified portfolio.
Having said all of that, however, we stick to our tested process. Every quarter, we identify leading stocks in mostly leading industry groups and put them in our portfolios for the next 90 days, or one quarterly earnings cycle. Then, we rinse and repeat. On Monday, we will rinse and repeat as we announce the newest stocks in our portfolios. There have been many unbelievable quarterly earnings reports with many of those same companies raising revenue and EPS guidance. Including many of those types of stocks in our portfolios has been a recipe for success since 2018.
FREE LiveStream Event
For the first time ever, I will unveil to the public our entire process at EarningsBeats.com. I utilize what I like to call my "War Room", similar to the War Rooms that NFL teams use prior to each year's NFL Draft. My War Room is designed to organize all of my research in one place to make the best, most disciplined decisions in maximizing each portfolio's potential. We will also have a free, valuable giveaway for anyone who registers and/or attends this event.
If you want to see what a disciplined and organized approach to portfolio construction looks like, I'd suggest you attend our FREE LiveStream event, "5-Step Process To Trade With More Confidence", on Saturday, May 16th, at 10:00am ET.
Even if you cannot make the event live, registration will yield you a copy of the recording to watch at your leisure. To find out more and to reserve your spot, simply CLICK HERE.
I hope to see you on Saturday!
Happy trading!
Tom
