It’s 30 years later, and his voice still rings in my ears…
He was an old floor trader. He’d spent almost 50 years making split-second decisions about trading.
His perception of history was shaped by how the market responded. Trouble in the Middle East, for example, was frequent. He learned the market was pretty good at forecasting how big that trouble would be.
Small price changes indicated it was more about headlines than long-term changes in the region. Big price moves carried significance for the world even if the underlying story didn’t garner much attention.
I told him I’d seen the same thing while in the military. The price of oil told me more about what was going on than hours of military intelligence briefings.
We agreed that following the market was the best approach to making money. The reason was easy for him to explain: Profits are in the outliers.
He saw the markets from the trading floor. His job was to trade. If I or another fund manager wanted to buy, floor traders needed to sell the shares. Most days, this was a good business. They’d make a little money after doing thousands of trades.
Occasionally, they’d have a very big day. This was often related to short-term reversals. My friend didn’t care why he was making money. He only knew he was, and his entire year depended on maximizing those rare opportunities.
That’s why he liked to say the profits are in those rare statistical events called “outliers.” They are far from the average.
In trading, the outliers tend to deliver the profits in any account. There’s simple proof of this idea in the current market.
The 1% Driving Today’s Market
Right now, the Magnificent Seven are driving the returns of major market indexes. Just seven stocks — AMZN, AAPL, GOOGL, META, MSFT, NVDA and TSLA — account for most of the gains in the S&P 500 or Nasdaq 100 indexes.
This doesn’t surprise me. I’ve been tracking and talking about the importance of outliers in performance since the 1990s.
I’ve also known it’s important to focus on the top 1%. While seven stocks represent 1.4% of the S&P 500, their performance does highlight the importance of the top 1%. And 1.4% is pretty close to 1%.
The top 1% determines your investment results. That’s why it’s so important to focus on the very best potential investments.
While I’ve been tracking outliers for more than three decades now, technological advances have allowed me to develop a new strategy that isolates the very best opportunities and focus solely on those stocks. In the long run, this should result in large gains on individual trades that boost my performance for the entire year.
In 2023 alone, my backtest of this strategy identified multiple double- and triple-digit winners. And each of these trades was closed in less than a month.
I just opened the doors to my “Top 1%” event. Click here to check it out and see why it’s time to ignore the other 99%.
Until next time,
Chief Market Technician