Whether you're investing in individual stocks or ETFs, finding that next BIG winner makes a huge difference in your absolute results and your relative results vs. a benchmark like the S&P 500. At EarningsBeats.com, we spend a great deal of time researching stocks and reviewing technical patterns and relative strength to uncover exactly that. We're pretty good at what we do. In terms of stocks, our Model Portfolio was up 225% since November 19, 2018. The S&P 500 has done very well over that time at +42%, but hopefully you understand what the difference between 225% and 42% will do to your portfolio over a 2 year period.
ETFs are a different breed. There are similarities and differences. The comment I get most often is, "I don't like to invest in individual stocks, I prefer ETFs." Hhhhhmmmmm. We all know that ETFs own stocks, right? What ETFs are doing is diversifying your portfolio over a LARGE number of stocks that you DO NOT select. Diversification kills returns more than anything else. When you diversify, you're essentially saying, "give me the bad stocks, along with the good stocks." Or perhaps you're out to dinner, and you say "I really LOVE broccoli, but let's throw some brussels sprouts in there too!" (Ok, maybe you like brussels sprouts, but play along please)
The more stocks you own, the more your return is going to gravitate to a benchmark like the S&P 500, which is widely diversified.
I will always prefer a stock portfolio over an ETF portfolio because I can personally select the stocks I want to own. I turn that responsibility over to someone else when I buy an ETF. So then I have to evaluate the stocks owned within that portfolio. But I also know that many investors prefer ETFs. Therefore, we announced our very first Model ETF Portfolio on October 19, 2020. It was designed in such a way to weight the ETF Portfolio towards areas that were technically-strong. Our ETF selections were very intentional, ensuring that our weighting into different sectors was appropriate given the current secular bull market at hand. That meant more investment in the aggressive sectors and less investment in the defensive sectors. It's worked out very well for us as our Model ETF Portfolio has gained nearly 16% since that October 19th "draft" of ETFs, outperforming the benchmark S&P 500 by more than 4 percentage points in less than 3 months. Here's the inception-to-date chart of our Model Portfolio:
My point here is that if ETFs are your preference, that's fine. But PLEASE "know what you own". That's my mantra when it comes to ETFs. Don't blindly buy them. Have a plan, just like you would if you're buying stocks. Make sure that your ETF portfolio is representative of your overall views of the market.
Our Model ETF Portfolio crushed the S&P 500 mostly because of 2 of the 8 ETFs that we included in it. IBUY, and online retail ETF was weighted 20% in our Model ETF Portfolio, making it our largest holding and it is currently higher by 24% since October 19th, more than doubling the S&P 500. Our biggest winner, however, has been PBW, which focuses on solar stocks. If you haven't been following solar stocks, they have SOARED, up 75% in less than 3 months. Check out the chart:
I knew this one would be volatile, so it was weighted the lowest at 5%, but that type of return is still very influential, even at just 5% of the portfolio. My goal in the next quarter is to do the same - find attractive areas of the market and then find ETFs in a position to capitalize. Our next "ETF Draft" is coming up soon on January 19th, where we'll fill out our Model ETF Portfolio for the next three months. If you'd like to find out more about our ETF strategies and to see our EB ETF Analyzer in action, today is a great opportunity!
At 10:00am EST this morning, I'm hosting a webinar, "Building an ETF Portfolio the Right Way", that will feature our brand new EB ETF Analyzer. It will be available for download to our members, but I'll show you how it works during today's webinar. This webinar is FREE to everyone, although invitations and room instructions have already been sent out to our entire EB community, both current paid members and our free EB Digest subscribers. If you'd like to join this session, you can use the room link below. If you're not already an EB Digest subscriber, we'll add you to that FREE (no credit card required and you may unsubscribe at any time) newsletter, effective Monday, January 11th. Here's the link:
The room will open at least 30 minutes prior to the webinar starting. I hope to see you there!