I’ll Never Look at Investing the Same Way Again

My quantitative analysis system is based on a stunningly simple premise…

Own the best.

Easy to understand, right?

Not as easy to do.

Hence all the time and money that went into developing my system – identifying the right data to collect and then designing the algorithms to analyze it the right way.

I have used this system with great success every day since I completed it 15 years ago. And I continue using it in my personal investing, my institutional research business, and my research services helping investors like you.

I recently wrote here in Power Trends about how finding and investing in these leaders can change your financial life. (You can read it here.) And I got a great question from one of your fellow readers.

I showed how the top three stocks in the iShares Semiconductor ETF (SOXX) have dramatically outperformed the ETF itself. If you had bought Advanced Micro Devices (AMD), Broadcom (AVGO), and Nvidia (NVDA) in late 2011, you would have averaged returns of 94X – nearly seven times more than the ETF.

One of our readers wrote in with a great point:

Jason… I’m curious what the top 3 holdings in the SOXX were in late 2011? According to your suggested methodology and performance analysis that would have been the time to select and invest in the best stocks of SOXX.

Your 94X performance is remarkable and enticing; however, it does assume you knew in late 2011 what the top 3 stocks would be in Jan 2024. I am curious what the performance calculation would look like if you had invested in the top 3 of late 2011 and held to today.

I would love to have you show me those results. I think that’s the realistic performance comparison to make. Afterall, we can’t invest in the past. We can only invest today with today’s information.

You’re absolute right. So, let’s find out…

The Results – Including Current Quantum Scores

The first step was to find the ETF’s top holdings from 2011. I dug into this and found form N-CSR that iShares submitted to the SEC in 2011 disclosing the fund’s holdings. (You can see the original document here if you’re interested.)

The top three holdings by weight at the end of 2011 were Intel (INTC), Broadcom (AVGO), and Applied Materials (AMAT).

Here’s how they’ve done since Dec. 1, 2011…

The average return is 2,549%, which still doubles the ETF’s overall return.

If we look at those three stocks today, we find the one with the lowest return, Intel, also has the lowest rating in my system with a Quantum Score of 51.7.

The other two are both in my buy zone. Broadcom’s Quantum Score is 81, and Applied Materials tops the trio with a Quantum Score of 84.5.

Source: TradeSmith Finance and MAPsignals.com

AMAT was an outlier then, and it’s an outlier today. It’s well positioned to benefit from increasing demand for newer and better semiconductors, which are driving the next technology revolution that is unfolding right now.

Shares just hit a new all-time high yesterday after the company easily beat earnings and sales expectations. The stock is up 50% in our TradeSmith Investment Report portfolio in just five months.

And while it may be a little overheated in the short term, it maintains great long-term potential.

Leaders Lead

It’s true that we can’t go back in time, superimpose today’s leaders, and say we would have bought them back then. That wasn’t what I was trying to do, and I apologize if that wasn’t clear.

I was really going for a broader point, which is this: To build wealth, you must own the outliers.

Outliers are the stocks with superior fundamentals, strong technicals, and clear indications that they are getting bought by the biggest investors on Earth.

Consistently owning these stocks has allowed me to beat the market by 7-to-1 since 1990, according to independent testing by TradeSmith.

It also allows me to bring that same stellar performance to my readers. It’s how 16 of the 17 current stocks in TradeSmith Investment Report are making us money – a 94% success rate. Those 16 stocks average 27.6% gains compared to one loser that is down just 2.1%.

If you want to not just make money in the market but outperform it and truly grow your wealth, then you must own these kinds of stocks.

Once you learn how, you’ll never look at investing the same way again. And if you want my help, just let me know.

Once you see it, you can’t unsee it.

In this case, that’s a beautiful thing.

Talk soon,

Jason Bodner
Editor, Jason Bodner’s Power Trends