Perhaps one of the greatest clichés in team sports is the old saying
Perhaps one of the greatest clichés in team sports is the old saying "defence wins championships". Now whilst investing and team sports often don't have much in common when it comes to this saying we'd argue that this age old saw applies just as much to building a championship winning team as it does to building a successful investment portfolio. However before we break down exactly how this relationship works let's take a step back.
When you crunch the numbers on what drives the returns of broad based stock market indexes one thing becomes quite clear very early on - The majority of overall stock market returns are driven by a minority of stocks. In the case of the S&P500 for example the best 20% of stocks accounted for literally 100% of the indexes total return in the period from 1989 - 2015. This means if you were unlucky enough to have missed out on investing in the 20% of the indexes best performing stocks and only invested your money in the bottom 80% of your total return from 1989 - 2015 would have been 0. And that’s just speaking in nominal terms in real terms the purchasing power of your cash would have been inflated away by 26 years of inflationary pressure.
Now whilst much can be said about positioning your portfolio to capture the upside offered by those top 20% of stock market performers the purpose of this article is how you can defend yourself and your portfolio from that bottom 80% of stocks that will take your portfolio nowhere. To explain one of the ways we go about this here at HarbourSide Capital let's take a look at the Australian Growth Plus Strategy which employs a triple momentum strategy. This triple momentum strategy aims to identify stocks that exhibit three characteristics: Earnings momentum (Earnings are increasing), price momentum (Stock price is increasing) and relative market momentum (Stock price is increasing at a fast pace than the market). By screening stocks on this basis the strategy aims to filter out that bottom 80% of stocks that simply drag on returns and construct a portfolio solely of those best performing 20% of stocks.
For more information about the Australian Growth Plus Strategy and details about how to invest contact the team at firstname.lastname@example.org
Source - Longboard Funds (https://insights.longboardfunds.com/articles/defense-wins-championships)
Harbourside Capital Pty Ltd (ACN: 166 765 537) is a Corporate Authorised Representative (CAR No. 448907) of HLK Group Pty Ltd (ACN: 161 284 500) which holds an Australian Financial Services Licence (AFSL no. 435746). Any information or advice contained in this article is general in nature and has been prepared without taking into account your objectives, financial situation or needs. All securities and financial products or instruments transactions involve risks. Past performance is not an indication of future performance.