Whether you're bullish on the market or bearish; whether you believe the top is in, or not even close; it's now more important than ever to make sure you're doing everything you can to get the most out of your trades.
Regardless of which camp you put yourself in, there will be distinct winners and losers as we move forward. So before you make your next trade, please read this first to learn how to put the probabilities of success on your side.
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.
Did You Know?...
• 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 . . .
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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's what is meant by knowledge is power. Knowable things that you need to know.
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 since there are over 10,000 stocks out there to pick and choose from, why settle for one with a reduced chance of making any money?
Did You Know?...
• 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 by 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.
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.
• Do you know how to effectively combine both technical analysis and fundamental analysis into one screening strategy? What if you did? We have a screen that does just that and it’s been doing fantastic. Over the last 17 years (2000 thru 2016, using a one-week holding period), it’s shown an average annual return of 52.9% vs. the S&P’s 4.2%. And last year alone it was up 79.0% vs. the S&P’s 12.0%. That screen is aptly called the TA and FA Winners 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?
Get the answers to these questions and more. And discover what works and what doesn't before your next trade. Learn how to take advantage of today's market and how you can start beating it no matter what it does.
Our Zacks Method for Trading program is the perfect place to start. With this fun, interactive online program, you can master the Zacks Rank without attending a single class or seminar. Do it online in your own home at your own pace. It will also guide you to better trading step by step.
You'll quickly see how to get the most out of the system that has nearly tripled the S&P 500 with an average gain of 26% per year since 1988 through 2015, including bullish, bearish and range-bound markets. Discover how to identify what kind of trader you are, how to find stocks with the highest probability of success, and how to trade them for maximum gains no matter where the market is headed. The course also includes some of our best-performing strategies and shows you how you can create and test your own.
Today is the perfect time to get in. I'm giving participants free hardbound copies of my book, Finding #1 Stocks, a $49.95 value. Its 300 pages unfold virtually every trading secret I know and have learned over the last 25 years to beat the market.
Please note: Copies of the book are limited and your opportunity to get one free ends midnight Tuesday, March 28. So if you're interested, be sure to check this out right now.
Find out more about the Zacks Home Study Course >>
Thanks and good trading,
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.
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