July 24, 2018

Working on Wall Street, I was fortunate enough to spend many summers in the Hamptons. Eastern Long Island is renowned for its wallet-busting lifestyle and captivating mansions, but for me that wasn’t the appeal at all. The idyllic northeastern trees and those beaches offered a great escape from the ceaseless noise and bustle of the Big City. The Hamptons boast some of the most beautiful beaches in America.

Then there’s which Hampton to stay in? Each town has its own stigma and association. Unfortunately, it costs an arm and a leg to stay there. For many, it’s an infuriating game of keeping up with the Joneses. Houses can cost tens (or hundreds) of thousands of dollars per month to rent, or millions to buy.

I hadn’t been in the Hamptons in years, but recently my family had the opportunity to go out to the Hamptons for a few days. I had never been to Hampton Bays, a lesser-known town that doesn’t carry the same grandiose reputation as the other Hamptons, where the “A-listers” and celebrities summer.

On a quiet street lies The Drake Inn, a humble collection of guest cottages overlooking a canal which leads out to a huge bay. I sat on a lounge looking at the boats, breathing fresh air mixed with scents from woods and beach. The place was clean, modern, and lovely with a wonderful breakfast and friendly staff.

Originally, I wanted to be “where the scene is” in East Hampton, but as my stress melted away I realized how happy I was to be in this place, which I had never heard of before. There was much to explore; it was low key and just perfect for a summer break for my family.

The point to this story is taken from the lyrics of a Rolling Stones song: “You Can’t Always Get What You Want, But If You Try Sometimes You Just Might Find … You Get What You Need.”

I went to Hampton Bays wishing I were going further east. I was hoping to relive the days from my prior life, but once I was at The Drake Inn, I was very happy. I would definitely go back there. Sometimes we want one thing but end up getting something else that is better for us.

This is not unlike investing.

We all inherently want “the reason” for why stocks go up or down. When the market makes a material move, we invariably ask “why?” If a stock has been gathering steam and showing gains for weeks, investors want to know why? When at a cocktail party someone is bragging about a big stock win, there is always a story for why it went up. Cramer can’t get on TV and entertain millions of people with his analysis if he doesn’t have the answer to the burning question that is a natural human instinct: Why?

The funny thing about the answer to why is that once the reason is widely known, the move is usually over. It’s too late. Think about big success stories of the past like McDonalds (MCD), Home Depot (HD), or Microsoft (MSFT). They used to be wild and exciting, but they are now a bit boring. They don’t command attention the way Tesla (TSLA) does, but those stocks grew leaps and bounds over the years. Their quarterly dividend payments now eclipse their IPO share price – if a savvy investor purchased the IPO and reinvested their dividends. This happened through years of steady growth and capturing pole-position in their respective markets. Yet the “hot new stock” continues to animate cocktail conversations.

(Please note: Jason Bodner does currently hold a position in MSFT but not MCD, HD or TSLA Navellier & Associates does currently own a position in MSFT HD and MCD but does not own TSLA for client portfolios).

Smart money has the knack of knowing about great stocks before the big story breaks. It’s their business. Big hedge funds and institutions have multi-million-dollar budgets to research their investments before they are made. They quietly step into stocks, accumulating shares, trying not to tip their hand. When Jim Cramer is out there on TV, weeks or months later, that is usually when these smart investors can start monetizing their investment. They need someone to sell to. They need the public to buy into the story.

So how does the average investor win? They use cold-hard data and/or a manager who realizes how to find good stocks early. The first step to knowing the story before everyone else is sector performance.

Info-Tech and Consumer Discretionary Defy “Trade War” Warnings

Big institutions are the ones that start the snowball rolling. They start piling into stocks that lead the sectors. Those sectors then start to lead the markets. The move can stay protracted for a long time.

Case in point: Information Technology. The trade-war story started in late January and temporarily “broke” the markets. According to months of doomsday headlines, growth was over. Tech stocks would fare poorly because a tariff “tit-for-tat” would severely hamper global growth. This would supposedly also affect Consumer Discretionary stocks, since tariffs would drive consumer goods costs higher.

What have the sectors done since then?  If you look at the six-month table below, you can see that those two sectors clearly beat out all other sectors. The 12-month and three-month sectors are no different. Tech and Consumer Discretionary are the winners. These are the growth-heavy sectors! According to a prevailing theme in the media, they should have been the worst sectors, leading the market lower.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Stories are great for parties, but data is how investors find opportunity. Finding winners before they are on TV is how real money is made. To find those, begin by knowing which sectors to look in. From there, identify leadership by looking for the highest-quality stocks. Employing this method means there’s a good chance you’ll be in stocks before you hear about them on TV, when you may be contemplating selling.

My heart wanted to replicate family summers from years ago, but I let go and ended up having an idyllic experience that was a different view of the same thing. I didn’t get what I wanted, but I got what I needed.

About The Author

Jason Bodner

Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. *All content of “Sector Spotlight” represents the opinion of Jason Bodner*


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