Starting From Scratch (Trying to Win)

June 7, 2024

This week we’re talking about Starting From Scratch, and we’re specifically discussing stocks.

We’ve discussed a no-research, set-and-forget portfolio and a high-income, high-yield portfolio.

But even though those two portfolios might beat the market in some periods, they probably will just match it while providing more income than an index fund ever could.

Which is fine.

What if I wanted to win, though?

What if I wanted to do some research and beat the market?

The first answer from the experts would be, “It can’t be done.” Those experts also remind us we can’t run 4-minute miles, go to the moon, or create personal computers.

Assuming I’m stupid and I still want to try, what would I do to beat the market with individual stock selection?

I’d go back and find a group of stocks that outperformed during horrible recessions. I wouldn’t worry about the good times. I’d focus on the bad times.

If a company does well in hard times, then it hopefully will beat the market.

And I was able to find 6 such stocks.

How have those done since the Great Recession of 2008?

The Portfolio of 6 has returned 472% since ’08 while the poor old market has only returned 263%. That’s quite a beating.

And since the Bear Market of 2022, the Portfolio of 6 has returned 14.6% to the market’s mere 10.7%.

Unfortunately, I’m only sharing that specific portfolio with Elite Members. Which is disappointing, I know. But at least it proves it can be done (at least over sixteen years).

But I’ve also done research on Deep Value stocks. If we buy stocks way down near the lower Bollinger Band™ that have a stable long-term 800-day simple moving average, the research shows we might be able to beat the market by a lot more.

Here’s a Deep Value portfolio from 2/19/24 until 6/1/24:

It’s absolutely destroying the market since February, beating the market by 6x. And the bottom two, ALB and DAR, haven’t started their journey back to “fair value” yet. If they explode, this could be quite a group.

Granted, you’d have to create your own scan or rely on someone like me to provide it for you. But it looks like it might be worth the work: 29% in three months isn’t too bad (assuming every stock is equally weighted).

Of course, not every portfolio created will end up beating the market and even ones that do come out on top can underperform for long stretches.

But if I wanted to try to beat the market, picking “recession-proof” stocks or deep value stocks would be two avenues I would take.

Talk to you soon.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.