I’m sure you’ve heard the saying, “If something sounds too good to be true, it probably is.”
That’s exactly the case with “free” commissions for trading exchange-traded funds (ETFs).
I’ve talked several times about why I believe it’s better to invest in stocks than ETFs, and a recent report at Bespoke supports this – again.
The report found that the big, liquid ETFs for the S&P 500, Nasdaq and Russell 2000 – SPDR S&P 500 Trust (SPY), Invesco QQQ Trust (QQQ) and iShares Russell 2000 (IWM) – swung all over the place. During market hours, the SPY fell 7%, QQQ rose 1% and IWM declined 16.4% over the past two years. However, after market hours, the trading action was quite the opposite. The SPY, QQQ and IWM increased 25.6%, 26.5% and 26.3%, respectively, in the past two years.
That’s a pretty big difference! This is why commissions are now free, because investors are being fleeced on ETF premiums and discounts when they buy and sell index ETFs during market hours.
All brokerage firms are now fighting for order flow, which allows them to make money on ETF spreads during market hours and exchange rebates. In addition, the brokerage firms can also make a lot of money on cash reserves. So, they want your accounts, as they can still make money if you do not invest your cash in a higher yielding money market product.
Now what I find especially galling is how Wall Street has taken some of the most popular passive indices and is now routinely “fleecing” investors during market hours, as investors have been mistakenly told that simply index investing is the best way to make money.
A Stock Picker’s Market
This couldn’t be more wrong, and I’ve been fighting this battle my entire investing life.
You may not know this, but way back when I was in grad school at Cal State Hayward, I was taught that we should all invest in indexes, as the stock market was supposed to be efficient and impossible to beat. However, while working on a college project, I discovered that this couldn’t be further from the truth.
You see, I was given access to one of Wells Fargo’s mainframe computers and assigned a project on how to build a tracking portfolio that tracked the S&P 500. Through a bunch of number crunching, I figured out that I needed 322 stocks to mirror the S&P 500.
Unfortunately, I failed the assignment and actually beat the S&P 500! After this it became clear to me that indexing was not efficient. I didn’t want investors to fall into the same trap, which is why I began publishing my newsletters and Portfolio Grader and Dividend Grader.
The reality is that we’re in a stock picker’s right now, and while you can certainly invest in indexes, the real money will be made in individual stocks.
Back in September 2018, in my Accelerated Profits service, I recommended a little-known company called AudioCodes Ltd. (AUDC). It focuses on Voice over IP (VOIP) and data networking products, applications and services. For the past 25 years, AudioCodes has helped companies build and operate voice networks that unify communications, contact centers and business services.Let me give you an example…
In the time since I’ve recommended AUDC, the stock is up 134%! In comparison, its small-cap peers in the IWM are down about 1% in the same time period!
The Portfolio Grader breaks down why it’s such a strong performer. Its Fundamental Grade is a B and its Quantitative Grade is an A. Top marks for its Quantitative Grade is especially important, as it tells us that the “smart money” is still very much interested in the name. You can take a look at its Report Card below:
The stock has been on a tear this year – up over 155% – and I expect it to continue to climb higher as buying pressure increases next year. Small- and mid-cap stocks have been rising on low volume as we remain in the midst of an early January effect, so I expect them to surge once volume increases in January with new pension funding. And given AUDC’s strong fundamentals and buying pressure, it’s sure to be one of the leaders.
Of course, there are many other stocks on my Accelerated Stocks Buy List that have outperformed the market and should continue to do so in 2020. In fact, one of my new buys from last week is already up in the double digits!
I look for this outperformance to continue in 2020, all with the help of my very unique system. I call it: Project Mastermind. It uses artificial intelligence (A.I.) to scour thousands upon thousands of stocks across the stock market and flag the top 1% that are primed to soar. Click here to learn how this system works and get the buy information on my most-recent recommendations.
If you’re looking for massive profits in 2020, you’re going to want to get into position, as the next best buying window is only between Christmas and New Year’s. I believe the recent strength we’ve seen is just the quiet before the storm. Next year is going to be electric.
Note: With the Christmas holiday next week, the stock market will close at 1:00 p.m. EST on December 24 and be closed on Wednesday, December 25. The InvestorPlace offices will be closed on those days, too. I will be back in touch on Thursday with your next Market360 article. I hope that you have a wonderful holiday season!