Toolbox: Strategies For Consistent Investment Returns

Filed Under: Toolbox Articles, Finance

We are having a dot-com-like sell-off while the major indices are pushing forward. The pandemic fashion show stocks went to the moon but are on their way back to earth.

Chegg, Vimeo, Peloton, Sam Adams, Zillow, Redfin, Stitch Fix, Lordstown Motors, Zoom, Penn National Gaming, DraftKings, Roku, Pinterest, Teladoc, Beyond Meat and PayPal are a sampling of stocks that have had significant drawdowns in the last six months.

Here are some strategies that can lead to long-term performance.

  • Extend your investment horizon

Over one year, only 22 percent of stocks in the Russell 3000 with performance data on YCharts have negative returns compared to 43 percent of stocks over six months. Extending your investment horizon decreases your odds of having a negative returning stock by almost half.

  • Size appropriately

Despite certain stocks having large sell-offs in the last six months, the index continued to gain 12.8 percent during the period. That’s because the index is market-weighted where the larger stocks get a bigger weight, and the worst stocks fall out of the index. In your portfolio, you could similarly weigh the stocks by confidence, size, or perceived risk.

  • Fish where the fish are

When I look at the biggest winners in our discretionary portfolio for the last year, they typically have one of two traits in common. They are in sectors that were disliked a year ago or they have wide moats. When sectors are disliked, the underlying stocks can sometimes be significantly discounted in the relatively short term. In the last 12 months that was the case with energy, financials, retail and semiconductors because there was a pandemic concern, and these are perceived as cyclical sectors. Additionally, buying a superior company at or below a benchmark price should lead to continued and superior performance. 

  • Win bigger than you lose

A stock can lose 100 percent, but it can gain an unlimited amount. That is a nice tradeoff. You can also take steps to control your losses:

  • Identify a reasonable liquidation value by analyzing the balance sheet because it can help estimate a floor.
  • If you are buying a stock for the expected growth, ask yourself what would happen if growth slowed, stopped, or declined and the associated multiples changed with it.
  • Learn the fundamental advantage the company has that will make the cash flows, earnings, and intrinsic value more predictable. 

It’s difficult to beat an index. It’s worth trying if you’re young with little to lose, but also if you have means because the additional value add can have a significant change in absolute dollars. I hope these strategies help reevaluate especially if you are feeling the heat as your stocks re-enter the earth’s atmosphere.

Brian J. Regan, CFA®, MBA, is the Chief Investment Officer for Asset Management Resources, LLC in Hyannis. Visit for more information.