A few weeks can make a huge difference. The macro environment hasn’t changed much: trade war is still on the horizon, shipping is slowing down and no deals have been confirmed. But investors have rediscovered their inner taste for risk.
Wall Street has its nerve back. And it shows around the messaging I got to give my GameChangers subscribers last week. We trade only high-growth stocks over there . . . what some of the analysts like to call “speculative” or “priced for expansion.”
They’re usually considered vulnerable when economic tides turn sour, and it’s true. They were hurting along with the rest of the market a few weeks ago. That’s why I was so pleasantly surprised to see them come roaring back in the last few weeks.
Suddenly the stocks that were deep in negative territory are roughly even YTD. We’ve erased practically all the losses of the last month or so. Now we’re ready to get back to work.
Compare that “neutral” performance to the NASDAQ, down 7.5% over the same period. Or the S&P 500, down 6%. Or the Magnificent 7 that have turned into such a drag on both benchmarks and are collectively down 15% YTD.
What’s the secret? Two things come immediately to mind. First and foremost, the Magnificent 7 and their problems have clouded the market’s ability to accurately reflect what’s really going on in the economy.
When 7 stocks account for 30% of the NASDAQ by weight, those stocks no longer function as diversifiers. They become an obstacle to true diversification . . . and when they all fall together, a portfolio too highly exposed to the group will find nothing to catch their fall.
But dig into the actual market and close to 40% of the NASDAQ 100 are actually up YTD. They’ve shaken off all the anxiety at the top. Investors with their eye on the ball could easily focus on these stocks and stay ahead of the game, as if the year’s bear market rumble had never happened.
That’s exactly what we’ve done with the GameChangers. And that’s the second factor. We avoid truly mature companies that are already part of the global establishment, like the Magnificent 7 that changed the world a generation ago.
Instead, our focus is on the smaller and more ambitious companies that have a shot at changing the world in the next generation . . . the disruptors, the ones that laugh while the giants tremble. Not all of them will enter the Wall Street pantheon, but right now they’re doing well as a group.
After all, in disrupted times, everybody gets disrupted. The only way out of that zero-sum trap is to innovate your way past the obstacles and plan around the uncertainties. Back those stocks and you come out looking like a visionary.
Anyway, that’s why our GameChangers are enjoying their best performance in history. If you’d like to know more about how we do it, the information page is right HERE.