Author: Ivanhoff

What Do The Best-Performing Stocks in 2018 Have In Common?

20 stocks have more than doubled year-to-date.

Many are biotech, but this is a cyclical, not a structural reason. A structural reason is one that persist; one that shows over and over again.

All of them had a market cap of under $1 Billion on January 1st.

All of them have a float of under 100 million shares. Most have a float of under 50 million shares.

Float is the difference between Outstanding Shares and Restricted Shares.

Restricted shares cannot be traded until certain conditions are met. They are usually employees compensation stocks that have not been vested yet. Founders’ stock that is locked up (the founders and private investors in new public companies are usually not allowed to sell their shares in the first 6 to 12 months after the IPO).

A small float can cause a major supply/demand disbalance and a substantial price appreciation or depreciation in a short period of time.

A small float is a double-edged sword. It can lead to fast moves but also liquidity can disappear suddenly and leave you hanging if you own a large number of shares.

Most of the best performers YTD were neglected. They did not have strong momentum going into 2018. Most were/are not profitable. None of them are fastest growing companies.

Most started their move with a huge-volume price expansion. Then, they consolidated and gave a decent secondary entry.

Keep in mind that this analysis is made on a really short time frame. Year-to-date means less than three months as of today. If you study the performing stocks for the past 3 years, you might find out entirely different reasons behind their moves.

Know your time frame and the catalysts that matter the most for it.

The Three Best Performing Stocks for the Past 15 Years Will Surprise You

Netflix recently hit new all-time highs and it ended up on the first page of many newspapers. 10,000 invested in Netflix’s IPO in 2002 is worth about $2.3 Million today. This amounts to about a 40% average annual appreciation.

As impressive as NFLX’s return is, it is not even the best-performing stock for the past fifteen years. Here are the top three. They are all consumer stocks – a Chinese video game maker, a U.S. energy drinks producer, and a U.S. video content creator and distributor.

NTES +11,706%

MNST +77,230%

NFLX +23,467%

I know that I should be telling you who the next Netflix, Monster, and Netease are but even if I knew the future, the odds are that you would not be able to hold through all the pullbacks and volatility associated with huge long-term returns.

Just because NFLX has appreciated at 40% per year for 16 years, it doesn’t mean that it was up 40% every single year. Its price history has been a lot more volatile. It had one 50%, two 80% drawdowns in its history (one of them happened in just five months), and multiple 20% pullbacks.

NTES had three 50% drawdowns.

MNST had two 50% and one 80% drawdowns.

No human can stomach such drawdowns. No machine is programmed to do it either.

What is a lot more achievable from a psychological and emotional perspective, is finding stocks that have the potential to go up 50% or 100% in a year, ride them until their trends are over and then jump on the next ones, compounding your gains along the way.

Holding stocks that double in a year also comes at a price of significant drawdowns – not 50% or 80%, but 15% to 20% pullbacks are normal along the way. Such types of corrections are a lot easier to stomach. There are many more stocks that go up 100% in a year than there are stocks that go up 2000% in a decade.

We can go even one step further in our analysis and find out that there are many more stocks that go up 20% in a month than stocks that double in a year. And holding a stock for a 20% gain in a few weeks doesn’t really require to go through significant drawdowns. Small 10% to 20% short-term gains can compound quickly.

In other words, you can have your cake and eat it at the same time. You can achieve a significant return without having to go through significant drawdowns. As usual, there is no free lunch. As Henry David Thoreau said once “the price of everything is the amount of life (time) you exchange for it.”

 

The Most Shorted Stocks Currently In the Market Might Be Ready To Break Out

59 stocks priced above $5 currently have over 30% of their float short. Four of them are setting up for a potential breakout.

A breakout in highly shorted names often leads to a squeeze as short sellers are forced to cover their positions. It is not unusual to see a 20-30%, even 50% one-week move in a highly shorted name, especially when its float is relatively small (under 25 million shares).

Here’s a weekly and a daily perspective of the four stocks.