Fear and greed are very real psychological hazards when it comes to investing. And lately (with everything going on), it seems growth stocks have taken on the role of greed (considering their performance has been so strong!). Rather than worrying about keeping up with the Joneses, a better strategy right now (and always) is to know your own investment goals, avoid those common mistakes caused by fear and greed, and pick really good stocks! This article provides some perspective on current market conditions and opportunities, it highlights a handful of our recent top investment ideas, shares performance, and hopefully provides a little meaningful perspective as you manage your portfolios in light of everything going on right now (e.g. low interest rates, the upcoming US election, Covid and the acceleration of technology in the global economy).
For a little perspective, the above chart shows the 1-year total return of growth stocks versus value stocks; and for more perspective, I threw in “cloud stocks” (these include many of the growthiest of growth stocks), “REITs” (many REITs have gotten crushed with the rise of social distancing and online shopping), and energy (it’s just been ugly). Growth stocks have clearly been dominating and value stocks have been lagging.
Disciplined Growth Portfolio:
The Blue Harbinger Disciplined Growth Portfolio is up approximately +53% over the same 1-year time-period (versus the S&P 500, which is up approximately +20.5%). We have done that with good stock-picking (the portfolio holds 27 stocks). But before anyone gets jealous and/or greedy, and starts chasing after those returns, first know your personal goals. For example, do you really need to earn that kind of return in a 1-year period, or are you just trying to protect and moderately grow your nest egg? Afterall, owning growth stocks is risky and volatile, and the returns can turn sharply lower at the drop of a hat. How would that make you feel? Do you really need that type of headache? If you’d like to sprinkle a few growth stocks into your portfolio (for the long-term), that could make sense, and you might want to consider some of the top growth stocks on this list or this list, but for goodness sake—don’t lose sight of your long-term goals.
For a little more perspective, here is a list of some of the very highest sales growth stocks in the market today. Their performance has been absolutely phenomenal this year, but when expectations or market sentiment changes—these types of stocks can change direction quickly!
Income Equity Portfolio:
The Blue Harbinger Income Equity Portfolio has consistently paid an aggregate dividend yield of approximately +7.0%, and that can certainly help some people sleep better at night, especially if they’re not looking to hit home runs, but rather just generate income. And while that portfolio’s returns have been volatile too, the yield has been consistently high, something the Disciplined Growth Portfolio cannot say (that strategy yields under 1%). Furthermore, for those of you trying to resist the common pitfalls of fear and greed, you might consider Warren Buffett’s advice to be fearful when others are greedy, and greedy when others are fearful. With a lot of value and income stocks underperforming the market over the last year (see our previous chart above) you might want to consider investing in a few of the high income securities we follow on this list, plus the specific high income securities we’ve highlighted on this list, or even consider the Adams Diversified Equity Fund, which yields around 9% as we just wrote about here. Afterall, knowing your goals, picking good investments, and then hanging on for the long-term is the best recipe for success as an investor.
Volatility:
Volatility is another big concern for a lot of investors as we head into the US presidential election. And while ignoring volatility and hanging on for the long-term is the best approach, some investors prefer to invest in solid blue-chip stocks, that pay decent dividends, have healthy growth and strong management teams. We highlighted two examples recently including Microsoft in this article and again the Adams Diversified Equity Fund in this article. Both are outstanding blue-chip opportunities.
Simple, Income-Generating, Options Trades (puts and calls) is another way to deal with short-term volatility. For example, our recent previous options trades on Microsoft (puts) and Federal Realty Trust (covered calls) have worked out well, and we plan to share more options trades with readers this upcoming week. The idea is not only to share specific ideas, but to help you learn to identify them yourself. And our high-income security tracker is a good way to watch near-term price moves to help you identify attractive options trading opportunities.
The Bottom Line: Know Your Goals
The market has been extremely volatile this year with the terrible Covid pandemic and now the upcoming US election. And when the market gets volatile, many investors get emotional (i.e. fear and greed) and make unfortunate trading mistakes. The best approach to investing is to know your long-term goals and then to stick to them! For example, do you really need to go dumping 100% of your nest egg into volatile grow stocks? Does it make more sense to own high-yielders and then to try to ignore the market volatility—so long as you keep receiving the dividends? Or perhaps you fall somewhere in the middle and prefer to own solid blue chips like Microsoft (MSFT), the Adams Diversified Equity Fund (ADX), Procter & Gamble (PG) and Johnson & Johnson (JNJ)? We own all four (MSFT, ADX, PG and JNJ). Disciplined, goal-focused, long-term investing has proven to be a winning strategy over and over again throughout history, and it will this time too. Just because the market has been volatile—that doesn’t mean you need to get all greedy or fearful. Pick good stocks—that meet your personal goals—and then hang on for the long-term, despite any notions of fear or greed—especially with everything going on in the world today. Stay Safe!