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The Secret to Making the Biggest Gains in StocksBy
Tuesday, January 28, 2014
Last month, I told you about a letter I received from paid-up subscriber Pastor Mark...
In short, Mark did not want to buy my recommendations that had gone up – particularly the ones that have gone up a lot. Instead, he wanted to buy my recommendations in emerging markets that had gone down.
Pastor Mark was missing an important lesson in investing. It's simple in principle, but hard to commit to in practice...
In a bull market, you make the biggest money by finding the strongest uptrends and sticking with them as long as possible.
Said another way... Do more of what's working and less of what's not.
And over the past month, following that simple lesson was exactly right...
You see, from mid-December to mid-January, the five best-performing recommendations in my True Wealth portfolio rose an average of 9%. And these positions happen to be five of the six biggest winners in our portfolio.
We're up an average of 120% on all five. Yet, once again, they blew away the rest of our portfolio in the last month. My emerging-markets picks, on the other hand, were down over the same period.
Those five positions were working... and they continued working. Until that changes, this is where we'll find our biggest gains.
Let me show you an example...
The trade that's working the best is biotech stocks... the iShares Nasdaq Biotech Fund (IBB) was up 13% from mid-December to mid-January.
Of course, we want to play it smart. We don't know exactly how high biotech stocks can go... but it could get absolutely crazy. We would like to be onboard for as much of it as we can.
With that in mind, I have no interest in "taking profits" in biotech... but that doesn't mean I'm not keeping my eye on it. In fact, these stocks are making me a bit nervous today...
The benchmark Nasdaq Biotech Index soared 66% last year... more than double the S&P 500's huge 32% gain.
The chart of biotech stocks is starting to look "parabolic" – which is a term used to describe when a market is reaching "bubble" proportions. Take a look...
 Biotech stocks broke out to multiyear highs in 2010. And they've broken out to new all-time highs since we bought in early 2012. The chart above looks scary... at first.
But when you dig a little deeper, history shows that biotech stocks can soar MUCH higher than where they are now.
For example, today's bull market in biotech doesn't even compare with the parabolic move we saw in biotech stocks during the last bull market of the late 1990s. The chart below shows what I mean...
 The chart shows the Nasdaq Biotech Index's 1990s move in black. The gray line is today's move. I simply shifted the dates... moving mid-2008 to early 1994. As you can see, even though biotech is up triple-digits, history says we haven't even hit the real parabolic move yet, like we saw in 2000.
Biotech is clearly one of the strongest uptrends in the world today. And if you've made the trade, I don't recommend you sell. Selling early could mean missing a lot of gains.
Again, I plan to play it smart. We're not selling. But now is the time to watch your trailing stops closely. History shows that the boom could go on much longer... and we don't want to miss it.
This is the big secret to making the largest gains in a bull market. Find the strongest trends and stick with them. Do more of what's working... and less of what's not.
Watch your trailing stops closely in your big winners (like biotech). But don't sell. The biggest gains could be still to come.
Good investing,
Steve
Further Reading:
Biotech isn't the only trend Steve is urging readers to stick with... "The S&P 500 is up big over the last few years," he writes. "But I strongly believe stocks could soar another 63% in the next two years." Click here to find out why.
According to Steve, these booms will come to an end... eventually. But there's one investment that should remain safe no matter what happens to stocks. "And thanks to the Federal Reserve 'juicing up' the economy, your upside potential is excellent, too." Get the full story here... and Steve's latest update here.
Market NotesTHE GREAT 3-D PRINTING RUN HITS A ROUGH PATCH Has the great 3-D printing rally finally run its course? Today's chart says "perhaps"...
Over the past few years, 3-D printing has become one of the world's biggest tech stories. 3-D printing is the printing of solid objects... rather than conventional "on paper" printing. The industry uses computers and special materials to "print" things like tools, guns, and toys.
With all good stories come good stock rallies. One of the "biggies" of 3-D printing, printer maker 3D Systems (DDD), has soared from $10 a share in late 2011 to $97. It's one of the biggest stock market winners in recent memory.
Some investors expect this big run will be followed by a big fall. "Story" stocks like 3D often get very expensive and very popular... and then disappoint shareholders who arrive late to the party. That may be what's starting to happen. In just the past few weeks, 3D has fallen from $97 a share to $76 on huge trading volume. Given all the hype toward this stock, it's likely to fall further.
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