We’ve watched chocolate and peanut butter eaters trip over each other for more than 50 years. The first Reese’s Peanut Butter Cups commercial about someone getting “peanut butter on my chocolate” aired in 1972.
Those commercials make sense. Peanut butter cups (and the seasonal variants that come out during the year) combine two great things. For many of us, the flavor combination is better than either single component.
Investors can apply this principle to their own fairly easily.
For some reason, certain groups of investors believe they know the best way to invest. They focus on a single metric — often value. They insist that’s all they need.
What they really should do is consider a “peanut butter cup” approach to investing. Academic research shows that can generate better results.
Ph.D. candidates pursuing their thesis on investing can sometimes act like the peanut butter eater.
Testing shows individual metrics can help beat the market, so they focus on one thing, dipping their finger into the jar and believing they found the world’s greatest investing idea.
They pay attention to just one dataset … maybe it’s price-to-book value or return on equity.
That idea becomes a paper, and the candidate gets their Ph.D.
But investors need to do more than publish a paper to reach their goal. They need to be able to endure years of bull and bear markets to reach their goals.
That’s when the best investors realize they need to take a “peanut butter and chocolate” approach.
Combinations for Better Performance
Some Ph.D. candidates do look at multiple ideas in combination.
This is also an old idea. Robert Levy combined value with momentum five years before Reese’s started airing its commercials. His results showed that two factors could deliver better results than using just one.
This idea is now widely accepted, and it’s the cornerstone of Adam O’Dell’s Green Zone Power Ratings system.
Adam found that combining six factors — Momentum, Size, Volatility, Value, Quality and Growth — gives a better idea of a stock’s potential over the next year.
For example, stocks rated 81 or higher, aka “Strong Bullish” stocks, are expected to perform 3X better or more than the stock market, on average, over the next 12 months.
I’ve built on Adam’s work by adding seasonality to identify the ideal time to own a stock. This is part of my Apex Alert strategy, where we look for the right stock to trade at the right time by merging seasonality and Green Zone Power Ratings.
It’s a simple idea, like uniting chocolate and peanut butter.
Just like that combo, the result is more powerful than the individual pieces.
A decades’ worth of data in our research shows that Apex Alert has the power to deliver a 64% annualized return — which is more than 3X the size of Berkshire, Bridgewater and the Baupost Group’s annualized returns. And my historical analysis shows that this crash-proof approach never had a losing year.
Tomorrow, I’m releasing the next top stock recommendation in Apex Alert from a sector entering its peak profit season. To learn how you can access full details on the trade, click here.
Until next time,
Mike Carr
Chief Market Technician