“There is nothing new on Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.” – Legendary speculator Jesse Livermore.
Investing should be viewed similarly by investors. While there is no guarantee of success or sure-fire method to avoid the risk of ruin on any given trade, investors can find success by studying past winners and their similarities. Doing so can dramatically increase the odds of investing success in the long run.
The Quest for Definitive Market Champions
When I ponder a true leader in the stock market, I visualize a stock with exceptional fundamentals, price action, and the ability to multiply over five years. Below are the top 10 performing stocks over the past two decades:
Image Source: Zacks Investment Research
Deciphering the Elements of Stock Market Victors
Amongst thousands of publicly traded stocks for investors to sift through, hunting for the next colossal winning stock is no simple endeavor. While most investors are better off “indexing” their money into the S&P 500 Index, outperforming Wall Street in the long haul is feasible. To achieve this, investors must delve into the past and grasp the ingredients and traits that constitute these monstrous stocks. Indeed, history doesn’t always repeat, but it frequently rhymes.
Sector & Industry Examination
For those aiming to identify the next standout stock market champion, look no further than the technology sector. The tech-laden Nasdaq 100 Index ETF (QQQ) has outperformed the S&P 500 Index twofold in the past 15 years.
Image Source: Zacks Investment Research
Out of the top ten performing companies over the past 20 years, five belong to the tech realm, including Nvidia (NVDA), Apple (AAPL), Netflix (NFLX), Booking (BKNG), and Amazon (AMZN).
The evidence is clear that the tech sector breeds the most champions, and these winning stocks are frequently part of a robust industry segment, such as semiconductors.
Disruption, Innovation, & Barrier
Dynamite stocks always fall under one or all of the three categories above. Streaming juggernaut Netflix revolutionized the movie industry by introducing a DVD-by-mail service and subsequently its massively popular streaming service. Netflix’s disruptive business model prompted the downfall of former movie rental giant Blockbuster.
Intuitive Surgical (ISRG), arguably a tech stock, engineered its innovative “da Vinci” surgical robot, conducting minimally invasive surgery for various procedures like cardiac valve repairs. The system commands a million-dollar price tag due to da Vinci’s sheer innovation and distinctiveness.
Apple embodies the best example of a “moat.” Apple’s product lineup includes computers, iPads, iPhones, the app store, and watches, offering a seamless, interconnected user experience. The company’s extensive ecosystem is the secret sauce to its triumph.
Earnings Surge in Triple Digits
Stock price escalation is closely linked to earnings growth over the long haul. Since winning stocks typically exhibit robust EPS growth before their significant moves, investors should scout for these attributes.
Image Source: Zacks Investment Research
The Zacks Rank, offering investors a glimpse into how a company will expand in the future based on consensus Wall Street analyst estimates, is an essential tool.
Momentum & Stock Price
Amateur investors often harbor two fallacious assumptions regarding finding lucrative investments:
1. Buy low, sell high: While this approach is viable, it’s far simpler to catch hold of a major victor by trailing momentum. In reality, the easiest way to pinpoint the next stock to double is to spot one that has already.
Image Source: Zacks
Insightful Analysis of Investment Trends
In the ever-evolving landscape of Wall Street, the wisdom of investing in low-priced stocks versus high-priced ones shines like a beacon. Take the case of travel booking giant, Booking (BKNG). Back in 2011, its shares commanded a seemingly lofty $500 each. Fast forward to today, and the same stock is trading at a princely sum of around $4,000. As the age-old adage goes, you get what you pay for even in the hard-nosed realm of Wall Street.
Institutional Foothold
Mutual funds, hedge funds, and banks stand as the juggernauts of the finance world, laying claim to the lion’s share of assets on Wall Street. Due to their colossal financial heft, these institutions can take months, and even years, to amass significant shares in a particular entity. A prudent method of monitoring institutional accumulation involves scrutinizing 13F disclosures – reports that money managers overseeing more than $100 million must submit quarterly. Noteworthy mentions include the brilliant investment acumen of luminaries like Stanley Druckenmiller or David Tepper.
Key Takeaways
The ten best-performing stocks over the past two decades showcase several common characteristics. To unearth the future superstars, investors must delve deep into the annals of market history and glean insights from the shared traits of genuine market champions.
