I've never really thought about it before, but putting together a portfolio is very similar to drafting NFL or NBA players. The idea in professional sports is to select someone who you believe will provide a major positive impact on your organization and to establish a winning tradition, outperforming all of your draft peers.
When you buy stocks, aren't you essentially doing the same thing? There's one HUGE difference however. In the stock market, we own all the draft picks.
In the NFL, it's difficult to argue with the success the New England Patriots have enjoyed the past two decades. Non-Patriots fans can point to DeflateGate or other actions, perceived or real, that have enabled the Patriots to win championships, but two points that cannot be argued are (1) their success as an organization, from coaches to players to scouting personnel to draft management, etc., and (2) the total number of championships they've won.
But, for one minute, imagine how great they might have been if they owned every draft pick in each of the past 20 drafts?
As traders and investors, when we sculpt our portfolios, don't we essentially own all the draft picks? Can't we decide which stocks we want to own? Have you ever attempted to buy Apple (AAPL) and your broker said, "Sorry AAPL has already been drafted. Please pick another stock."? Of course not. We are 100% free to put our portfolios together however we wish and to hold them for as long as we wish.
Welcome to the Model, Aggressive, Income, and Character Change portfolios at EarningsBeats.com. Since their respective inceptions, three of these portfolios have crushed their benchmark indices. It hasn't been close. Our longest-tenured portfolio, the Model, has gained 58.25% in 15 months, trouncing the S&P 500's 25.62% gain. We have full control over which stocks we add, which sectors and industry groups we choose from, and how long we hold the positions. We've developed a strategy of owning these stocks for 90 days, re-evaluating, and then re-drafting. It's working.
The benchmark S&P 500 has a forced draft and must own the same 500 companies, many of which belong to underperforming sectors like energy (XLE) and materials (XLB). Check out the sector performance over the past 3 months:
Materials and energy have been underperforming the S&P 500 for 8 years. In our four portfolios, here's how many stocks we have in each of these two sectors:
Materials: 0
Energy: 1
When you own all the draft picks, you don't need to draft stocks in these two sectors. Meanwhile, the best sector last quarter was technology, where we owned 10 stocks. So take advantage of your allotted draft picks.
Our Income portfolio has outgained the S&P 500 by 5.5 percentage points in just under 9 months. That's not easy to do. Here are the component stocks and how they've performed over the past 3 months:
In addition to excellent capital appreciation, this group of stocks have annual yields of approximately 2% to boot. While these are mostly household names that nearly everyone has heard of, there'll be many companies drafted that you likely haven't heard of. Three months ago, Cardlytics (CDLX) was added to our Aggressive portfolio and it's returned nearly 67% since that time. Obviously, they don't all perform like that, but just owning one or two can completely transform your portfolio.
This Wednesday is DRAFT DAY at EarningsBeats.com. If you'd like to be part of it, CLICK HERE for more information. In the meantime, I'll let you in on our #1 draft pick. You may have heard of this company:
Some might say, "how can it go any higher"? My answer is simple. By having more buyers than sellers. AAPL is growing its earnings at an alarming rate and high-growth companies demand much, much higher PE multiples, especially in a modest GDP growth, historically-low interest rate environment, with rates likely to drop further in 2020. The relative strength panels above don't lie. If you don't own leaders, beating a benchmark index like the S&P 500 becomes nearly impossible.
AAPL is to the stock market like Joe Burrow is to the NFL. A lock at #1. Come join me for the rest of the draft!
Happy trading!
Tom
