It’s August, and we all know what that means.
August has been one of the weakest months for the major market indices since the mid-’80s, as Wall Street goes on its last-minute summer vacation so liquidity dries up and the market gets bumpy.
So with this August bumpiness in mind, here are two secrets to our stunning gains—even in volatile markets.
First, we are diversified and our stocks are meant to work together in a portfolio. For example, take my Emerging Growth service.
Since the June market lows six weeks ago, our current Emerging Growth Buy List has gained 14.2%—better than three-to-one performance vs. the Dow’s 3.9% gain. This is what your performance would be if you had purchased all of our older positions on June 28, as well as our new July and August recommendations as they were recommended.
Naturally, we’re going to have some stocks that outperform the rest of our Buy List, and by owning more of our recommended stocks, you spread out your risk. So if you owned just five of our Emerging Growth stocks, you could potentially be up 44.8% if you chose our five best performers… or down 3.9% if you chose our five worst-performing stocks!
But if you owned more positions, say 20 stocks, you drop your worst-case scenario to a 5.3% gain—still beating the Dow’s 3.9% gain in the same timeframe—and your best-case scenario is still up a stunning 22.3% in six weeks.
You want to be in that sweet spot in the middle, where you maximize your potential gains and minimize your losses, and the best way to do so is to hold at least 15 to 25 stocks that work together in a balanced portfolio.
We do that for you in our Blue Chip Growth and Emerging Growth services, and we also recommend when to "trim" your profits—the second secret to our smooth and steady gains.
Just like you have to trim your grass and hedges every month—especially in the hot summer months—it’s a good habit to trim profits in stocks that are outpacing the rest of your portfolio, especially in the summer months when the market can be a bit more volatile.
So when you have a position that runs way up in a short amount of time, take some profits off the top. And of course, as always, I recommend holding 60% conservative stocks, 30% moderately aggressive stocks and 10% aggressive stocks.
There you have it. Two of our secrets to our stunning outperformance.
It sounds simple enough in practice, but I can’t tell you how often I have folks asking me why their gains don’t match mine—and the answer is almost always because they’ve cherry-picked their way into just a handful of stocks.
So please keep in mind the importance of diversification if you’re looking to outperform the market, and the good news is that I expect this August seasonal weakness to be short lived. So please hang on and enjoy the ride as we wrap up the second-quarter earnings season and look forward to what’s to come!