Why do some people succeed spectacularly in the market while others fail?
The market is the same for one person as it is the next.
Yet there are plenty of investors underperforming the market even while it's making new all-time highs like now.
So why the big difference in performance between one person and another?
It all boils down two things:
1) Knowing what works, and...
2) Doing what works
While the stock market isn't a perfect science, the fact remains that if you concentrate on what works and stop doing what doesn't, you will most surely succeed in the market.
Knowledge Is Power
We've all heard the old adage: 'knowledge is power'.
It's a great saying because it's true.
And that saying couldn't be truer than when it comes to investing.
Take a look at your last big loser for example. After analyzing what went wrong, you soon discover some piece of information that -- 'had you known beforehand, you never would have gotten into it in the first place'.
I'm not talking about things that are unknowable, like inside information or surprise announcements that can catch even the most professional of professionals off guard. I'm talking about things that you could have known about or SHOULD have known about before you got in.
This is part of 'knowing what works'.
• Did you know that roughly half of a stock's price movement can be attributed to the group that it's in?
• Did you also know that oftentimes a mediocre stock in a top performing group will outperform a 'great' stock in a poor performing group?
• And did you know that the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1?
• And did you also know that the top 10% of industries outperformed the most?
More . . .
------------------------------------------------------------------------------------------------------
Today you can claim a copy of Finding #1 Stocks by Kevin Matras (a $49.95 value) free of charge. This 300-page hardbound book unfolds almost every stock-picking secret from the Zacks system that since 1988 through 2015 has nearly tripled the S&P 500 with an average gain of +26% per year. That incredible performance has been examined and attested by the independent accounting firm of Baker Tilly Virchow Krause, LLP.
You can take full advantage of that system without attending a single class or seminar in a lot less time than you think. Opportunity ends Saturday, May 13.
------------------------------------------------------------------------------------------------------
Was your last loser in one of the top industries or in one of the bottom industries?
If it was in one of the bottom industries, you should have known to not take a chance on something with a reduced probability of success.
That part is the 'doing what works'. (And not doing what doesn't work.)
That's not to say that stocks in crummy industries won't go up -- they do. And that's not to say that stocks in good industries won't go down -- because they do too.
But more stocks go up in the top industries, and more stocks go down in the bottom industries.
And that's part of the science of making money in stocks.
If you follow a set of proven profitable rules, you'll have a higher probability of succeeding.
Know What Works
• Did you know that stocks with 'just' double-digit growth rates typically outperform stocks with triple-digit growth rates?
• Did you also know that stocks with crazy high growth rates test nearly as poorly as those with the lowest growth rates?
Did your last loser have a spectacular growth rate?
If so, and it got crushed, would you have picked it if you knew that stocks with the highest growth rates have spotty track records?
It seems logical to think that the companies with the highest growth rates would do the best. But it doesn't always turn out to be the case.
One explanation for this is that sky high growth rates are unsustainable. And the moment a more normal (albeit still good) growth rate emerges, the stock gets a dose of reality as well.
For example, a company earning 1 cent a share that is now expected to earn 6 cents, has a 500% growth rate. But, if it receives a downward revision to 5 cents, that's a significant drop. Even though it still has a 400% growth rate, the estimates were just reduced by -16.7% and the price is likely to follow.
If you've ever wondered how a stock with a triple-digit growth rate could possibly go down -- that's how.
Instead, I have found that comparing a stock to the median growth rate for its industry is the best way to find solid outperformers with a lesser chance to disappoint. And there are growth rate ranges that have proven to work the best.
Did You Know?...
• Did you know that stocks receiving broker rating upgrades have historically outperformed those with no rating change by more than 1.5 times? And did you know they outperformed stocks receiving downgrades by more than 10 x as much? The next time one of your stocks is upgraded or downgraded, be sure to remember these statistics so you know how the odds stack up and whether they're for you or against you.
• Did you know that stocks with a Price to Sales ratio of less than 1 have produced significantly superior results over companies with a Price to Sales ratio greater than those levels? And did you know that those with a Price to Sales ratio of greater than 4 have typically shown to lose money? That doesn't mean that all stocks with a P/S ratio of less than one will go up and those over four will go down, but you can greatly increase your odds of success by following these valuations.
• Did you know that two simple filters added to the Zacks #1 Rank significantly increases its returns? What if you did? We have a screen that utilizes these two additional items. Over the last 17 years (2000 thru 2016), it's produced an average annual return of 55.6% per year, while only holding five stocks in its portfolio at a time. It was up 70.7% in 2016. And so far this year (thru 4/30/17), this strategy is already up 16.9% (more than 2.3 x the market). That screen is aptly called the Filtered Zacks Rank 5 screen.
Do you know how well your stock picking strategies have performed?
Whether good or bad -- do you know why?
Do you know if your favorite item to look for is helping you or hurting you?
Answers
Get the answers to these questions and more. And discover what works and what doesn't before your next trade.
Our Zacks Method for Trading home study course is the perfect place to start. This interactive course shows you how to tilt the odds of success in your favor, starting with your very next trade. We go over in detail how to identify what kind of trader you are, how to find stocks with the highest probability of strong gains, and how to trade them so you can consistently beat the market, regardless of what the market is doing. It also goes over some of our best performing strategies from a variety of different trading styles. In 2016, these strategies generated gains as high of 79%, 95%, even 153%.
You can create and test your own custom strategies, too.
Today is the perfect time to get in. I'm giving away free hardbound copies of my book, Finding #1 Stocks, a $49.95 value. Its 300 pages reveal almost every insider secret I know about the stock-picking system that has nearly tripled the S&P 500 for more than a quarter century.
Please note: Copies of the book are limited and your opportunity to get one free ends Saturday, May 13. So if you're interested, be sure to check this out right away.
Find out more about the Zacks Method for Trading home study course >>
Thanks and good trading,
Kevin
Zacks VP Kevin Matras is our chart patterns and stock screening expert. He developed many of Zacks' most powerful market-beating strategies and directs the Zacks Method for Trading: Home Study Course.
Original post
Zacks Investment Research