Stop Predicting the Market, Invest in Valuable Companies
“The market’s doing pretty well… What’s your prediction?”
On a recent live video interview with Focus Today, the host wanted to know where I saw the stock market heading after the stimulus bill has been passed.
And my response made him nervously chuckle.
Here’s what I said: “I don’t have a crystal ball, and wasn’t blessed with the gift of prophecy.”
Basically, I told him that I really had no idea.
But I wasn’t trying to be a wise guy or avoid answering the question. There are just too many variables in a complicated world to make predictions and consistently be right…
That’s especially true when professional forecasters can get things like the 2016 presidential election victory of Donald Trump and the impacts of COVID-19 on the economy wrong.
Sure, you have the “broken clock” predictions out there. There are forecasters that say the same thing year after year…
“The stock market will suffer a bear market this year.”
Or: “The bull market should continue for the foreseeable future.”
But just like a broken clock — which is right twice a day — if you look at a long-term track record of their predictions, even the best forecasters are only right about 50% of the time.
So, when it comes to market predictions like that, count me out. I don’t bother listening to or making them because it’s a waste of time.
I can’t tell you where stocks are headed tomorrow or next week. But when it comes to the big picture, I’ve found one way to prepare for whatever the market does next…
Find the Big Picture by Looking at the Smaller Picture
The best way to be prepared for the macro — the big picture — is to focus on the micro: individual companies.
This is one thing I’ve learned from some of the greatest investors of all time. It’s much easier — and more profitable — to be a bottom-up investor.
That means finding companies that are in huge industries with strong tailwinds … that are run by rock-star CEOs … and that are trading at bargain prices.
That last point is especially important because I can tell the state of the economy by whether or not I can buy a stock at a bargain price.
It’s a very simple cycle…
When there are plenty of stocks trading at great prices to buy into, it means the economy isn’t overheated. But as it gets overheated, it becomes very hard to find bargains.
And right now, there are fewer bargains around than there were a year ago.
As I’m researching companies to find the best profit opportunities for my readers, it’s starting to get harder to find them. This tells me the market is starting to overheat.
Now, I’m not calling a top right now or saying that stocks or the economy will decline from here.
All I’m saying is that many stocks are fully priced or way overpriced at the moment. And this usually happens closer to market tops than market bottoms.
It’s something to keep in mind. And it’s also why it’s more important than ever to be a disciplined buyer.
Bargains Are Concentrated in These Industries Right Now
But if you truly want to make consistent profits, hype isn’t the way. Remember, you want to buy stocks in companies in huge industries with strong tailwinds that are run by rock-star CEOs.
And when it comes to bargain prices, there are still two sectors that are presenting opportunities for everyday investors: health care and technology.
Last year, they accounted for just a third of global equity market capitalization. Today, that figure has grown to 42%.
Now, if you want broad exposure to these industries, you can consider the Vanguard Health Care Index Fund ETF (NYSE: VHT) and the Vanguard Information Technology Index Fund ETF (NYSE: VGT).
These exchange-traded funds (ETFs) hold a basket of top health care and tech stocks, respectively.
But the best profits won’t come from these funds. They’ll come from specific industry leaders paving the way for new innovation. And during my research, I found one company that’s at the intersection of these two industries.
By applying technology to health care, it could help save millions of lives. Already, nearly 3 million health care professionals use its systems every day. And it has the No. 1 or No. 2 market share in 11 countries — including the U.S.
I recently put together a special report with all the details of my research on this company — including how you could make triple-digit profits on it in the years ahead.
If you’re not yet a member of my Alpha Investor service, you can find out how to access this special report by going right here. But don’t delay. You won’t want to miss out on the gains I’m expecting as its stock climbs higher.
And remember, if you focus on the micro — researching one company at a time — the macro will take care of itself.
Founder, Alpha Investor