Winning in a Stock Picker's Market

02/05/2014 6:00 am EST

Focus: STOCKS

Joseph Fahmy

Managing Director, Zor Capital, LLC


Although the major indexes are struggling so far, Joe Fahmy of JoeFahmy.com thinks that when this pullback is over, 2014 will be a year where individual stocks can really shine and outperform the averages.

Last August, I wrote a blog about five stocks that could be higher by year-end. From the time of the post through year-end, here is how the stocks performed:

Netflix (NFLX) +41.7%
Splunk (SPLK) +37.3%
Chipotle (CMG) +32.0%
Herbalife (HLF) +26.4%
EOG Resources (EOG) +9.9%

During the same period, the S&P 500 was up +12.3%. I am writing this post to stress a few points:

1) Many people say it’s impossible to beat the market by picking individual stocks. While I agree it’s challenging, it CAN be done if you know what to look for. You can GREATLY increase your chances by picking growth stocks with strong fundamentals AND combining the proper technical time to enter the positions. Studying past winning stocks can significantly speed up your learning curve.

2) Since May 2013, I have noticed a “decoupling” of individual stocks from the market. In other words, many stocks are moving higher without the help of the general market. The fact that asset classes are becoming less correlated is PERFECT for active managers. The results above prove this and I continue to see the same so far this year.

3) There are a number of growth stocks that are currently acting VERY STRONG. Through the first 20 trading days of the year, I can think of seven days where individual stocks were outperforming, but the major averages were flat to down. The main sectors I am focused on right now are biotech, enterprise software, Internet security, and big-cap growth.

Although the major indexes are struggling so far in 2014, when this pullback is over, I think this will be a year where individual stock pickers can really shine and outperform the averages. I recently got an email from someone who attended one of my seminars last year, and he said the biggest lesson he learned was “Don’t be afraid to make money.” He didn’t understand the concept at first, but now he does. He used to only trade ETFs and was horrified of individual stocks. After learning some key concepts, he put in the time, started with small positions, and continues to build his account as his confidence grows. I encourage you to do the same, work at your strategy, and constantly look to make improvements.

By Joe Fahmy, Trader and Blogger, JoeFahmy.com

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