In a recent post, Charlie Bilello shared data on the best performing stocks in the S&P 500 universe over the past three decades. The purpose of this data is to highlight the fact that most discretionary investors are unable to study and analyse all 500 stocks in the index. As individual investors, we are often limited to the stocks we know, have heard of, or those that have been recommended to us. This limited universe of stock selection may cause us to miss out on potential winners that are not widely known or discussed in the media.
Let’s take a closer look at some of these top performers and the opportunities they represent
Monster Beverage Corporation: With an annualised return of nearly 31% and a staggering 210,000% return over 30 years, Monster Beverage Corporation demonstrates the potential for substantial growth in the market.
Amazon: As a household name, Amazon needs no introduction. Over the past three decades, it has generated significant returns and has become one of the most valuable companies in the world.
Apple: Another well-known tech giant, Apple has consistently delivered impressive returns to its shareholders. Its growth and innovations have cemented its position as a leader in the industry.
These are just a few examples of the top performers in the S&P 500 universe that many of us are familiar with. However, there are several stocks on the list that may not be as recognizable to the average investor, such as NVR Inc., Pool Corporation, Exxon Enterprise, Biogen Inc., and Ross Stores, to name a few.
The key takeaway is that these lesser-known stocks have delivered outstanding results, even though they may not have received significant media coverage or widespread recognition. This highlights the importance of expanding our universe of stock selection and considering opportunities beyond the well-known names.
In the broader market, there are thousands of stocks available for investment. Even if we narrow our focus to the CNX 500, studying and analysing all these stocks becomes a monumental task. Consequently, using structured strategies that filter out the best-performing stocks and continuously weed out underperformers is crucial.
The goal is not to predict which stock will outperform over the next 30 years; rather, it is to consistently stay with the best-performing stocks each year. By doing so, we position ourselves to benefit from the collective performance of these winners. This strategy, known as momentum investing, has shown impressive long-term results.
To illustrate this approach further, let’s consider a horse race. In the beginning, 500 horses start running. After a few laps, some horses emerge as front-runners, while others fall behind. As spectators, we only need to focus on the horses in the top group, the ones that are consistently performing well. Similarly, in the stock market, we should concentrate on stocks that demonstrate strong performance indicators.
The concept of momentum investing may seem counterintuitive to many investors. However, by focusing on stocks that are already performing well and staying with the winners, we increase our chances of achieving above-average results. This strategy takes advantage of the tendency for stocks with positive momentum to continue performing well in the future.
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