Are you prepared for the next bull run? 2023 could be very interesting if the S&P 500 is anything to go by, states Zaheer Anwari of SublimeTrading.io.
However, a process to first find stocks and then secondly invest in them safely is a must. This is where many budding investors tend to fall short, with holes in the process that leak opportunities and profit and also tend to accelerate losses. Let’s bring some order to this.
The S&P 500 (SPX) is an average of a group of stocks, making it ideal as a sort of thermometer of how the stock market is performing. Investing in an S&P 500 tracker fund is a nice simple place for investors to start. It just involves transferring a monthly amount from your salary and then setting and forgetting. Over 20+ years, you will likely average 5% to 10% per annum, which is excellent if you compare it to the banking system. Compounding is a beautiful thing. However, the savvy amongst us would not stop there.
Here's something you may not have considered. If the S&P 500 is an average of a group of stocks, then there will be stocks performing better than the average. If you can filter, shortlist and invest in those stocks performing better than the average, logic should prevail that will exceed the average returns investing in the S&P 500.
So instead of settling for an average of 5% to 10% investing in the index, you will achieve that per stock. If you have five to ten stocks in your portfolio and compound the winning stocks, the results are mind-boggling.
And that is precisely what I do and how I have been investing since 2007. I subscribe to professional scanners that cost me more than a few dollars annually. They are worth every penny as they form the foundation of my analysis process. I have programmed them with precise criteria focusing on the stock's performance.
I can then cherry-pick the best stocks to invest in by doing a final manual filtration using charting tools I have developed. This is a step that many budding investors overlook as opinions tend to take precedence over facts. What I mean by that is budding investors choose stocks based on how they feel they will perform and often coupled with a healthy dose of sentiment towards the brand name. These are grave mistakes.
One of the first rules of sound investing is to ignore opinions, including your own, and instead focus on the stock performance. If it has performed well in the past, then it will likely perform well in the future.
As investors, we just want to ensure that the moment we enter the stock, the odds are in our favor to profit. This is where a strategy comes in that covers entry points, risk and exit management, and the all-important compounding.
One criterion I scan for are stocks creating new all-time highs. Note how my approach is the opposite of what most do, which is buying into stocks that are dropping in price or 'undervalued'. This is the approach made famous by Warren Buffett. For me, it is a complicated and inconsistent approach, and how many of you end up in the 'catching a falling knife' scenario?
I subscribe to the school of trend following, which in simple terms allows the market to establish a direction first, and then I invest in that direction. I leverage the market by aligning with her rather than trying to outsmart her.
Below are the monthly timeframes of five stocks printing new all-time highs that are very much worth watching for 2023.
Arch Capital Group Ltd. (ACGL)
Booz Allen Hamilton Holding Corporation (BAH)
Cigna Corp (CI)
General Mills, Inc. (GIS)
Genuine Parts Company (GPC)
Stocks printing new all-time highs is a vital sign that the market is potentially recovering from this year's decline, particularly whilst the S&P 500 is trading almost 20% below its all-time high. I am applying just a tad bit more patience as I wait for further confirmation of a bull market. Once the right high-probability market conditions present themselves, I will then go to town buying the very best stocks.
The question is will it be this year or next?