I Beat 98.4% of Wall Street Investment Funds Last Year. Here’s How.
This might be the most important investment article you’ve read to build wealth with the stock market (and also crypto).
Last year, my stock portfolio returned 59%, which is more than double the S&P 500 index performance, which tracks the 500 biggest companies in the US. 😲
This beats 98.4% of professionally managed ETFs. How did I do it?
Today, I will share with you my real investment strategy for stock market investing to achieve this amazing result. The same applies to crypto — I’m 100% putting my money where my mouth is.
After 20 years of investing and reading countless investment books, this strategy is not a recent discovery — It requires fundamental analysis and money management.
If you have the discipline, you can follow this strategy. Although it’s very simple, most people won’t be able to follow it because they just don’t have the right mindset.
Let’s get into it! 🚀
Step 1: Pick underpriced stock winners
To start, you need to pick stocks of companies that give you the conviction that they are good businesses.
👉🏻 The definition of “underpriced stocks”:
As Benjamin Graham said,
“The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap)”.
We need to find those cheap stocks that will offer us a margin of safety — Stocks whose value is higher than price.
Screen the stock market for companies with strong growth but stagnant or declining stock prices.
For example:
In 2022, Meta price declined by 75% from the previous high. However, the revenue and earnings of the company didn’t decline at all —
This means that Meta price was very cheap.
I bought Meta back then, and applied my strategy, the stock returned almost 200% in one year! 🤯
👉🏻 Here‘s how to identify these underpriced winners:
You’ll need the data below to get started. You can get them using Google Finance or the TradingView stock screener.
If you are using a stock screener like TradingView, you can search for:
- Stock price dropped or stagnant
- EPS — Earning Per Share grew
- Revenue growth positive
- Net income growth is positive
You can analyse a company’s stock on Google Finance to check if it is underpriced. For this analysis, we are looking at Meta stock from late 2022 to early 2023:
Here’s the step-by-step process to analyze if a stock is underpriced:
- Check the stock price.
How did it perform? In this example, Meta’s price declined 75% in one year.
2. Check the income statement.
How did the revenue and income perform? In the example above, there was only a slight decline. Meta’s business continued to be stable.
3. Check the Balance sheet.
We typically want to see a lower liability ratio on the balance sheet. Meta’s liability is low.
Your analysation thought process should be:
If you see the stock price has declined while the revenue and income grew and the debt is not huge, then this stock is a good candidate!
This indicates the stock you picked is based on value but not hype, reinforcing your conviction for the next steps.
You should, of course, do additional research to see what else might be impacting the price negatively, but if there’s no apparent reason other than the negative market sentiment, then it might be a good opportunity to buy!
💁🏻♂️ Bonus Tips:
I like to pick stocks when the markets crash. Why? When there’s a stock market crash (for example, the March 2020 crash), people are often irrational and panic-selling. If you go against the crowd — This is actually the best time to buy those good businesses at a discount!
Step 2: Buy the stock
This is the most straightforward step of the process:
Allocate a percentage of your cash (say 5%) to placing your first buy order.
🗨️ For how long should you hold a stock?
You should plan to hold the stock for at least one year if not more; I will talk about selling in step 4.
Step 3: Double down (the MOST important step!)
Imagine this scenario:
You are looking at a stock like Meta. You have analyzed Meta. The stock price is at $200, and the business, growth, etc, is solid. You also believe in the management of the company.
You decide to buy $1000 worth of Meta at $200/share.
However, the market is hating Meta for some irrational reason, and the price keeps dropping after you bought.
You see Meta’s price dropping from $200/share to $90/share over the next 6 months, and you’re panicking. 😵
💁🏻♂️ If the price of your favourite stock drops…
Congratulations! It’s such AMAZING news for you — Who doesn’t like a huge bargain? It’s like entering a shop and seeing the sneakers you’ve dreamed about for a long time, now selling at a 70% discount!
If you believe that Meta is a good stock at $200, then you should absolutely love it at $90.
This is the time to double down your winners and prime your gain game.
👉🏻 This is what I do:
Every time the stock price drops by 5%, I increase my position by 5%.
Say I initially bought $1000, and if the price drops 5%, I will buy $50 more. If it drops 5% more, I will buy another $50, and so on.
This way, I will be averaging down the buying price.
This strategy is similar to DCA — Dollar Cost Averaging — but you only buy when the price declines.
Take a look at how I applied this strategy on Meta stock last year:
If you have high conviction in a stock, you should buy more of it when the price drops. This will pay in the future.
Step 4: When to sell a stock
I bought Apple stock 15 years ago but sold it once the stock gained 40%. Why did I sell it while Apple is still a good business?…
If I had held the stock until now, it would have returned 2000%! 🤦🏻♂️
If 2, 3, or 4 years later, the company is still a good business with good fundamentals and good management, then there’s no reason to sell it.
You can take profit, especially if you need the money. Here are some profit-taking strategies.
However, buy-and-hold is the best way to create magic compounding effects and the best path to wealth.
In a nutshell:
You should only sell a stock when the fundamentals that led you to buy it no longer exist.
🤔 What about Stop-Loss?
Think for a second. Using a stop-loss order would go against the strategy! Right? Instead, you should automate buy orders when the price goes down. Not sell orders.
Remember, you are buying a stock because you believe in the business, and if the price drops, it's better for you because now you can buy more at a discount!
I’m against stop-loss orders, and I think they are toxic trash for long-term investors:
😵 What if the stock never stops dropping?
If, at a certain point, you think that the stock fundamentals have changed, then you should stop buying even if the price drops further.
In 2020, I was buying Fiverr. The business was thriving because of the rise of the gig economy.
Then, in 2022 and early 2023, we had the AI wave, which threatened the gig economy and stocks like Fiverr.
In this case, market conditions and the fundamentals changed significantly, and I just stopped buying despite the price declines.
✨ Conclusion
The success of my stock investing strategy comes down to these few points:
- Stock Selection: Focused on undervalued stocks with robust business metrics.
- Buying Strategy: Committed to buying more shares of proven winners during market dips, with a long-term hold perspective.
- Selling Discipline: Stocks are sold only when the fundamental reasons for their initial purchase have changed.
Talking about investing discipline, did you know we could facilitate that by automating the buying strategy with a trading bot? I will write an article on how to do this. Stay tuned for that!
In the meantime, check out this article on how to create a trading bot with ChatGPT. Keep learning, and until next time! 😊
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- If you like this article, I’m sure you’ll enjoy these articles about successful investing that I’ve filed for you:
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