When explaining sudden stock price declines, Warren Buffett hit the nail on the head with this quote: “The light can at any time go from green to red without pausing at yellow.”
Buffett wrote this way back in his 2017 Berkshire Hathaway shareholders letter. He was making the case for why you shouldn’t borrow money to buy stocks – you never know when a stock is going to experience selloff, resulting in a major loss and little left in your bank account.
However, Buffett’s traffic light analogy is even more relevant today following the coronavirus pandemic’s toll on the stock market. No stock was left unscathed as we fell into a bear market, but at least the stocks I’ve been finding have come roaring back. Meanwhile, the companies with weak fundamentals have really taken it on the chin.
Case in point: Tilray, Inc. (TLRY). You might recall that Tilray was all the rage in 2018, as it was the first pure-play marijuana stock to go public on the U.S. stock exchanges. On July 19, 2018, the stock hit the market at $23.05 – 36% above its $17 per share IPO price. In just two months, the stock surged a stunning 1,201% to a record high of $300.
Unfortunately, it’s been downhill for the stock ever since. And nowadays, it’s a cautionary tale of how even the biggest gain means nothing unless you make it a realized gain…cash in the bank.
During the broader market selling in mid-March, TLRY hit an all-time low of $2.43 per share. That means the stock lost 99% of its value! While TLRY has bounced a bit off its March lows, it still trading around $10 per share. That’s still a significant ways away from its $300 peak.
The reality is the stock didn’t have the fundamentals to back up its performance. TLRY has missed earnings estimates every quarter since going public in 2018. Sooner or later, that will catch up to you, and investors will wish they locked in profits while they could.
Tilray’s meteoric rise clearly has very little to do with the numbers…and a whole lot to do with investors’ emotions. In fact, there’s even a name for it: Crowd-Seeking Bias.
In contrast, I’ve adjusted my quantitative investing analysis to focus on “accelerated income” stocks: the ones that can shoot up quickly on their own merits … and thus provide you the extra income everyone can use … now more than ever. That’s what we’ve been discussing here in Market360, in this series of articles: Your Accelerated Income Guide.
But first, you’ve got to set your human emotions and biases on the sidelines. So, in today’s Accelerated Income Guide, I’ll detail Crowd-Seeking Bias, how it works, and how you can neutralize its negative effects.
The Problem With Crowd-Seeking
A lot of you are probably fans of momentum investing. The truth is, I am, too. You always want to capitalize on a trend, and trends are made up of people.
But while following the crowd CAN result in great momentum plays…you don’t want to do so blindly.
The crowd-seeking I’m talking about – follow the herd, think later – is responsible for a lot of failed investments, just like Tilray. It means you won’t pick up on a shift in the trend. Thus you’ll get your timing all wrong. You’ll often end up buying near the highs and selling near the lows.
With Crowd-Seeking Bias, even the best investing ideas can become a losing proposition.
The flip side is to be a contrarian. In other words, to buy the dip and sell the highs.
As we’ve established, though, it goes against our instincts. That’s why everyone isn’t Warren Buffett. But you can get his level of returns (or better) by checking your emotions at the door – and sticking with a pattern that works.
The premise is simple:
Instead, Go Bargain-Hunting
There’s an easy way to resist our tendency for crowd-seeking, and it’s to look for buys when a stock has become a bargain. And I don’t just mean “cheap”; I mean a good value.
In other words, look for a company that’s still growing like crazy – in terms of sales, operating margins, and especially earnings. Whenever its stock experiences a sell-off…then that’s a great opportunity. And those fundamental factors are exactly what I’ve designed my system to detect.
But, again, you only want the highest-quality companies.
Then you can shift the engine into reverse, too. When an investment starts to slip on these factors, it’s time to sell. (Especially when the crowd hasn’t caught on yet.)
In total, there’s 8 factors to look for. Apply them to the fastest-moving stocks around, and that’s the basis for my newest endeavor, The Accelerated Income Project.
Once you have these 8 precursors in mind, the results can be phenomenal. For example…
Here’s a company called Arm Holdings:
This stock was going nowhere for several years. During this time, the company showed six of the eight precursors for The Accelerated Income Project.
Then one March, things changed. Arm registered all eight precursors…and shortly after, the company’s stock took off. Shares jumped 182% over the next 11 months! This would’ve handed folks the chance for $9,100 in extra cash for every $5,000 invested.
But in February of the following year, the company’s performance started to fade. Specifically, two of my precursors dropped off. That’s what The Accelerated Income Project picks up on, and I decided to take this cue to get out. Shortly after, the stock flattened out.
With this concept, we found:
- Cognex Corporation for 101% gains.
- DryShips for 320% gains.
- Bitauto, which returned 209%.
- And Ebix for 186% gains.
And by locking in those gains, we’ve got literal cash in the bank. That’s the beauty of The Accelerated Income Project: it gives you real income.
Secure Your Financial Future In Weeks Or Months – Not Years
People have used my quantitative system to invest in blue chip stocks, or to find small caps that can grow 10X. But now I’ve adjusted my proven investing analysis to focus on the stocks that are set to soar … like coiled springs … in just a short time period.
You won’t have to wait years for double- and even triple-digit returns with my Accelerated Income Project. I’ve designed it so you can get the income you need on a regular basis. And no: It doesn’t require using options or any “trick” investing.
So many investors have spent years getting lousy market returns and now they need a strategy to catch-up to live the life they’ve always dreamed. In my next article for Your Accelerated Income Guide, we’ll talk more in-depth about my quantitative approach and the extra criteria that indicates an “accelerated income generator.”
In observance of the U.S. Memorial Day holiday, the stock market and the InvestorPlace offices will be closed tomorrow, Monday, May 25.
Then make sure to keep an eye out for my next article to learn how to achieve financial freedom much faster. Or you can get started by signing up now.
I just released two brand-new stock recommendations on Thursday and will be unveiling three more stock recommendations next week. Every stock features strong earnings and sales growth, as well as increasing institutional buying pressure.