- Buying and holding through thick, through thin, through peak, through valley
- Loading up on "FAANG" stocks (Facebook, Apple, Amazon, Netflix, Google) – plus Microsoft
- Chasing biotechnology stocks in pursuit of a Covid vaccine jackpot
- Going "long" the S&P
- Heeding The Daily Reckoning's investment advice
"It's hard to be optimistic about September and the fourth quarter, with the chance of a further relief bill before the election receding as Washington focuses on the Supreme Court."
"Even if just coincidence, September has become the month when most of investors' widely-held reservations about the global economy and markets have converged. These include an early-stage downshift in global growth; a rise in US/European political risk; and virus second waves. The only missing component has been the use of systemically-important sanctions in the US/China conflict."
"September is a historically tough month and this one has been a quagmire of headwinds. Today is reflective of that."
"These seem like 'can't miss' stocks, and investors are abandoning diversified portfolios en masse (or opting against diversification from the start) in favor of these high fliers. Collectively, these stocks now account for about 25% of the US stock market! So even if you are not going the individual stock route and putting all your assets in a US stock index like the S&P 500 or Vanguard Total Stock Index, you're chasing these stocks higher and higher. What's wrong with that?"
"The graphic below looks at all of the top 10 largest stocks in the market, going back to the 1920s. The list changes regularly as winners fall, and new firms ascend (just a few years ago, Exxon was the biggest stock but is no longer in the top 10), but we can track their returns before and after. On the way up, the stocks that will eventually reach the top 10 have incredibly high returns: in the prior ten years, they outperform the market by +10% a year; in the preceding five years they beat the market by +19.3%, and outpace the market by +24.3% in the preceding three years."But the outsized returns don't last. After reaching the market's peak, on average, the top stocks underperform the market by -1.1% over the next five years and -1.5% per year over the next ten years. Chasing yesterday's hot stocks is a recipe for lower returns."