It doesn't matter if you're a professional money manager or individual investor...
If you want your portfolio to succeed, you've got to think about a lot more than just finding investment ideas.
Sure, the good ideas matter. It's hard to create a masterpiece with only a box of broken crayons. But owning great stocks is only part of the picture.
You've also got to manage your behavior.
You can't always trust your instincts. They're often the enemy of long-term returns.
Right now, you might be falling for the three most expensive words in investing... I missed it.
Stocks have soared over the past three months. You might feel like the gains are already over. But as you'll see, that's a mistake...
The rally that's underway will continue. Let me explain...
The "I missed it" feeling starts creeping in anytime a major rally unfolds.
You start thinking about how much money you could have made... if you had bought at the beginning of the rally. And even if you did own that asset from the get-go, you feel like you should have owned more.
So you tell yourself it's too late to buy in now. Prices have already soared. You sit paralyzed, convinced that you missed it.
The situation is all too familiar. But you shouldn't fall for this way of thinking. And the run-up we just experienced proves it...
This Rare Signal Points to More Gains Ahead
You see, stocks just finished one of their most impressive three-month rallies in history. The S&P 500 Index was up 26% in the three months after its April low. And that pushed the index back to all-time highs. Take a look...
A massive short-term jump like this is a perfect breeding ground for regrets and paralysis. But according to history, you haven't missed it. There are still big gains to come.
We've only seen five other unique instances of a 26%-plus three-month rally since 1950. And in every case, stocks continued to soar. Take a look...
One of the best ways to succeed as an investor is to focus on the trend. Assets that are rising tend to keep rising. This tendency is the antithesis of "I missed it." And history shows it's about to play out once again.
Similar three-month rallies led to 8.1% gains in three months... 11.5% gains in six months... and 23.4% gains over a year. That's massive outperformance versus the typical buy-and-hold strategy. Plus, stocks were higher a year later 100% of the time.
What's more, only one of these five instances happened late in a bull market. That was in January 1999. Stocks peaked a little more than a year later.
But in the other four cases, the rally occurred near the beginning of a major bull market.
This is a powerful setup. It tells us that we haven't missed it. The gains should keep piling up from here... and stocks have the potential to keep soaring for years as the bull market continues.
It's easy to worry about missing your chance after the kind of rally we just saw. But don't fall victim to that mistake. There's still plenty of upside ahead.
Good investing,
Brett Eversole
Further Reading
Even the best strategies don't win every month. But the key to long-term investing success is knowing what works and sticking with it, even when the market is chasing flashier stories.
"Asset allocation is the only way to build long-term wealth and sleep well at night at the same time," Dr. David "Doc" Eifrig writes. It keeps you from betting too heavily on any one idea – and shields you from the kinds of losses that can derail a retirement.