Summary
This email argues that the simplest way to build a winning portfolio is to never buy a stock trading below a key moving average, keeping investors on the right side of the trend. Phil Anderson cites the Bessembinder study — showing just 4% of listed US stocks since 1926 are responsible for all stock market wealth creation — to justify avoiding cheap, downtrending stocks. The principle is illustrated by contrasting the weak price action of Tesla (TSLA) against the strong trend in Nvidia (NVDA) during the current bull market.
Key Claims
- Never buy a stock if its price is below any moving average — this keeps you on the right side of the trend — confidence: high
- The Bessembinder study (Arizona State University) found that just 4% of listed US stocks account for all $35 trillion in wealth created by the US market since 1926; roughly 60% of stocks delivered negative lifetime wealth — confidence: high
- The 200-day MA indicates long-term trend, the 50-day MA intermediate-term, and the 20-day MA shorter-term; in strong uptrends shorter MAs stay above longer MAs — confidence: high
- Retail investors consistently underperform: stocks favoured by retail investors tend to underperform by approximately 1% per month; shares generally do better after retail investors sell than after they buy — confidence: medium
- The most active 20% of retail traders earn returns far lower than the least active 20% — confidence: medium
- Since 2000, only three years saw a majority of large-cap funds outperform; in the 2010s, 8 out of 10 mutual funds and 9 out of 10 institutional funds underperformed after fees in US markets — confidence: medium
- NVDA crossed above its 200-day MA in January 2023 and broke out of a triangle basing pattern at the start of 2024 with the 50-day MA above the 200-day MA throughout — confidence: high
- TSLA plunged below both the 200-day and 50-day MAs in late 2022, briefly recovered above the 200-day in mid-2023, then made another sharp move lower while broader market indices moved up — confidence: high
- Narrative or “story” around a stock should be ignored in favour of price action and moving averages — confidence: high
Mex Pete References
None.
Stock Picks / Signals
- NVDA (Nvidia) — implicitly bullish; cited as example of a stock in a strong uptrend, trading above both 50-day and 200-day MAs, with 50-day above 200-day; broke out of triangle basing pattern early January 2024. No explicit buy signal, stop loss, or price target given.
- TSLA (Tesla) — implicitly cautionary/avoid; cited as example of a stock in a weak trend, trading below key MAs while broader market rose. No explicit sell signal, stop loss, or price target given.
Predictions / Forecasts
None.
Notable Quotes
“Just 4% of listed stocks are responsible for all the wealth creation. Collectively, the other 96% added no value in their lifetimes while nearly 60% of stocks went on to deliver negative wealth for their shareholders.”
“Stocks favoured by retail investors tend to underperform by one per cent — per month. Shares generally do better after they sell than after they buy.”