What Is A Good Stock?
Updated March 2023
Defining what makes a good stock can be subjective, and opinions may differ depending on an individual’s investment strategy. Some may argue that a good stock has solid fundamentals, such as stable revenue and earnings growth, a strong balance sheet, and a competitive advantage in the market.
However, from a contrarian perspective, market players are more interested in quick and turbocharged results, often overlooking companies with solid fundamentals. For instance, McCormick & Company, Incorporated (MKC) is a company that is performing well with booming business and high demand, yet its stock is a laggard in the market.
This phenomenon is not new but is now more prevalent than ever. Greed and short-term thinking drive investment decisions, leading investors to overlook good companies for quick profits. This trend may continue until the inevitable market crash, a sobering wake-up call for many investors.
Despite the impending market crash, disciplined and astute investors can still make spectacular gains by investing in companies with solid Technical and fundamentals, even if they are not the hottest or most hyped stocks in the market. In the end, only when the paper multimillionaires lose everything will they realize the folly of their ways.
A good stock may be defined as one with solid fundamentals and stable growth potential. However, the current market trend suggests that quick profits and short-term gains are prioritized over sound investment decisions. This phenomenon may lead to a market crash that will teach investors the importance of discipline and astuteness in investing.
Here is a Pretty Decent Play, But it’s a laggard.
In investing, a good stock is generally thought to have solid fundamentals, such as strong financials, a well-established business model, and a competitive advantage. However, the current market seems to be driven by a different mentality. Investors want quick, turbocharged results, regardless of a company’s long-term prospects. McCormick & Company, Incorporated (MKC) is a prime example of this phenomenon. Despite the company’s booming business and inability to keep up with demand, its stock is considered a laggard.
Focusing on immediate gains at the expense of long-term growth is not new, but it has become increasingly prevalent in recent years. Investors are being led by greed, blindly following the companies that promise the highest returns in the shortest time. This short-term thinking has dangerous consequences, often leading to market bubbles and crashes. Ultimately, many investors who became paper multimillionaires will be reduced to dust.
DeSpirito’s research shows that quality stocks have underperformed since COVID-19 vaccine announcements came to the fore in November 2020, sending their valuations lower. https://cutt.ly/zn5qLF3
Good Stock Buying Strategy
Consider market volatility a bullish opportunity if the market trend remains upward. It is important to note that we are approaching a point where a 4500-point pullback in the Dow will be seen as a minor aberration. In the past, anyone claiming such a thing would have been considered a lunatic.
Furthermore, it is crucial to only invest in stocks that you like. Why is this important? Because you don’t want to be up all night asking yourself why you bought a particular stock the moment you experience some losses. In other words, don’t make investment decisions based on the hype created by people like Cathie Wood or anyone else promoting a stock that doesn’t meet the criteria of a good stock.
If you invest based solely on hype, don’t be surprised when you miss some fingers. Financing based on hype is akin to chasing a stock, which usually leads to an unfavourable outcome. At the Tactical Investor, we never chase stocks and don’t intend to break this rule. Unless, of course, someone creates an index that tracks stupidity. We might reconsider our views as stupidity has been in a perpetual bull market.
It is essential to understand that there will be times when some of your investments may decrease by 30% or more. However, since we do not invest all of our funds at once, if we experience a 30% loss, we see it as an opportunity to buy more shares. We have used this strategy successfully over the years. The most recent example was during the COVID crash.
The Psychology of Stock Investing
The market does not move upwards in a straight line, and most of today’s market players are mindless momentum traders. They use apps that turn the market into a game, which makes it seem fun and exciting. It can create many paper millionaires, but few will know when to cash out in time. Greed knows no bounds.
When people who don’t know what they’re doing think they know what they’re doing, they are in a world of hurt. In the meantime, these participants will drive volatility levels higher, which is why we are warning that 4500-point pullbacks should be viewed as a non-event. Many traders will mistake these pullbacks for crashes and short the markets, only to lose a fortune.
It is pretty interesting to see so many individuals sitting on the fence. With the market surging to new highs, bullish sentiment should be above 50%, and neutral readings should be below 25%. This illustrates how out of sync things are in today’s market. The only edge the average player has is Mass Psychology. One day, stories about the fools chasing meme stocks and the Reddit groups that thought they were changing the landscape will be written.
However, in the end, 90% of them will fail. For the record, one of the reasons why the SEC is not doing much about these Reddit Groups is because they are unintentionally accelerating the demise of the Hedge fund industry. We said a few years ago that the financial sector would be in for a rude awakening. Eventually, every industry that tries to exploit its customers will face a severe backlash.
We will remove stocks from our watchlists more quickly due to the abovementioned changing trends.
Overview of Stock Market Investing in Today’s Landscape
Investing in the stock market has always been a challenging endeavour. Today’s landscape is no exception. Market trends are not linear, and most participants are momentum players who gamify their experience using apps. This gamification factor creates a fun and relaxed experience, which leads many to become paper millionaires.
However, few will cash out in time because greed knows no limits. Individuals who do not know what they are doing will think they know what they are doing, leading to a world of pain. This phenomenon increases volatility, leading to misconceptions about pullbacks, which should be viewed as non-events.
McCormick & Company, Incorporated is a perfect example of how market players want turbocharged results, and when they do not get them, they abandon the company. The stock is a laggard, even though the business is booming. This behaviour shows how hype and chasing stocks lead to unpleasant outcomes. Investing in stocks based on solid fundamentals and avoiding basing purchases on silly experts or hype is essential.
In today’s market, many individuals are in the neutral camp, indicating how out of whack things are in the market today. The only edge that the average player has is mass psychology. Stories will be written about those chasing meme stocks and Reddit groups, but 90% of them will bite the dust in the end. The SEC is not doing much about these Reddit groups because they are inadvertently helping speed up the demise of the hedge fund industry. The financial sector will face a severe backlash eventually, just like every other industry that tries to squeeze its customers.
In this landscape, it is crucial to have astute and disciplined investors who view pullbacks as opportunities and cut stocks from their pending playlists faster due to trend changes. It is essential to understand that volatility is inevitable, but one can achieve spectacular gains by investing in companies with solid fundamentals and avoiding chasing stocks based on hype.
