An old University of Chicago study suggested that individual stock selection is the LEAST important factor to success in trading the market. (Something that’s a little hard to believe, but bear with me). The study says 60% of returns depend on the direction of the market; most stocks do follow the overall trend of the market, up or down. The next most important factor according to the study is sector strength or weakness- accounting for 30% of the result in an investor’s return. According to this study only 10% of the decision should be focused on the individual stock selection.
While I always want to focus on the “Top Ranked Magnet Stocks”, I also want to be aware of which sectors are strongest and leading the market, and what the long-term market trend is. One way to follow sector strength and weakness is a great chart in Investors Business Daily. Even better for me is to see the 100 Top Ranked Magnet stocks and see which sectors they fall into. For me there is nothing like Top Magnet Stocks in the leading sectors!
For more, watch my video on sector rotation below.
*DISCLOSURE: No relevant positions
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