Among the stocks that have shrugged off the economic crisis and have prospered though it, nothing compares to the power of online retailers right now, which are red hot.
There’s nothing like a recession to depress stock prices, at least normal recessions anyway. 2020’s version, a beast by any measure, has played out a little differently, in large part due to this one being mostly self-inflicted. Instead of this one causing a broad-based decline like we normally see, this bear has been more selective, punishing some sectors while seeing some others actually benefit.
The technology sector has held up very well, having led the pack for years now and really flexing their muscles in the face of 2020’s unique and unprecedented challenges. The SPDR technology sector has gained an impressive 23% thus far, during a time when the broader market has run pretty flat.
It has only been flat because outperformers, particularly the tech sector, have stepped up to pick up the slack over sectors that have not fared well this year. This has really been a tale of two cities, where our portfolios may have done quite well or quite poorly depending on how much of the good stuff versus the bad stuff that we have in it.
This should serve to have us question even more the strategy of broad sector exposure that so many investors insist on, especially with those who feel that holding substantial positions in underperforming sectors such as industrial, materials, and energy is a good plan, a strategy that has punished investors for quite a while but particularly hurt them this year as the gap between overperforming and underperforming sectors have widened so much.
Ironically, the goal of this is supposed to be risk management, where somehow holding underperforming stocks will reduce our market risk. So many people mistakenly think that there is more risk with overperformers, so they choose to water down their performance with laggards, which actually serves to not only bring down performance but add considerable risk as well.
The worst of this is that even when this becomes so painfully obvious as it has this year, investors on the whole still don’t recognize this as a problem, where they still insist on clinging to this view even when it involves the additional pain that they have experienced with it lately.
The view has changed enough though to cause more investors all the time to move over to what was once considered the dark side, riding performance and steering away from underperformance, seeing the actual darkness of this traditional view and seeing the light of a better way shine on them more.
While the tech sector has marched on throughout this, which shouldn’t really surprise anyone given how resilient that these stocks are to quarantines, where we are adding tech not subtracting it during this time, the growth in this sector has been mostly organic, left to grow as it has been growing without being fettered by the recession very much.
On the other end of the scale are the businesses that have been particularly hurt by COVID-19, the hospitality industry and the retail sector in particular. There’s nothing like having your businesses shut down or having your capacity strictly limited to rock your world, for a time at least.
The hospitality industry is expected to take quite a while to fully heal, but don’t look now, as retail stocks on the whole have already healed and then some. Sure, there are particular retail stocks that are still in the dungeon, but the sector ETF, the SPDR S&P Retail ETF (XRT), now up 9% over both where it started the year and where it was prior to the February crash.
XRT did famously get bashed during the crash, but has been anything but cold over the last 4 months, rising over 90% from its levels of early April. It’s nowhere near the 23% that the SPDR S&P Tech ETF is up year to date, but the XRT not only gained back everything it lost plus a 9% tip, it is also well ahead of the market at this point, even though without looking most people would have assumed that must still be well behind given the big hit it took earlier in the year.
XRT includes both traditional and online retailers, and while the traditional retailers have taken the brunt of the hit, like underperforming sectors in the broad index, the outperformers have served to make up for the losses that their considerably less well-off brick and mortar partners have weighed down the index with.
Just like we can do better by going with strong sectors and by weeding out the weaker ones, we can do the same thing within the retail sector, focusing on retailers who do most of their business online and being rid of the old fashioned ones that are struggling so much lately, a struggle which may continue as we move away more and more from this old way of buying things.
There are ETFs that allow us to hone in on sectors within sectors, and there is one out there where we can invest in online retailers only, the Amplify Online Retail ETF (IBUY). Online retailing is hot, face to face retailing is cold, and if you buy them both, you will end up with warm, but things get a whole lot warmer when you turn off the cold water and turn up the hot water.
Choosing Good over Bad Should Be Way More Intuitive Than It Is
IBUY serves up the hottest water out there right now, making even the tech sector look pretty lukewarm. Forget about the XLK’s 23% year to date gains, as IBUY has gained over three times as much this year, boasting a phenomenal 76% year to date gain so far in 2020.
IBUY isn’t just the star of the show this year, they are way ahead of these other indexes. This is an equally weighted index, where they haven’t just ridden Amazon’s huge rise to get to where they are. Amazon is just one stock in it and the index has actually performed even better than Amazon has, meaning that Amazon isn’t just not the leading stock, it is a below average performer in this index.
Top stocks like Amazon simply blow away stock indexes since the indexes are so watered down, but IBUY sure isn’t, and contains some stocks like Overstock.com, Shopify, and others that easily eclipse what Amazon has done this year.
None of this should come as much of a surprise, as if we travel back in time to 4 months ago, and ask ourselves what sort of stock should prosper the most over the next while, online retailers should have won in your mind hands down. The strength of this sector should have been obvious to us at the time, and it has delivered on these expectations and then some.
In a time where the broader market has struggled so much and with some sectors not only immune to the struggle but see their fortunes significantly improve as a result, this in itself increases the polarization between the two, as more and more investors flee these struggles for much greener pastures, particularly with one that just had super fertilizer poured upon it, the online retail sector.
You had to be aware of this ETF though and it’s not one that a lot of people trade, like the SPDR sector ETFs do, the ones that cover the major sectors. Some of the better stocks in it have made some headlines but this is one case where using a broader approach like with IBUY makes sense over looking to pick particular stocks within it, where you can miss a whopper like Overstock.com which has dwarfed both Amazon and IBUY, being up by a mind-boggling 3,619% since just mid-March.
This doesn’t mean that you can’t do better by drilling down, but this does require some skill and we’re out to recommend an approach here that doesn’t require a whole lot. All you needed for this is to know that online retailers are where it’s at when the market started turning around in March and then just pull the lever and get your bucket ready to collect all the money that pours out of the thing.
The lesson here isn’t that you should have been in on this if you weren’t, as there’s a bigger lesson involved, as there always is. While a lot of people own Amazon, they usually don’t shift their money around like they should, and this was a time where it made perfect sense to go all in with Amazon, or even better, IBUY, or even put together your own little online basket of these goodies if you know enough about how to do such a thing.
To do this right isn’t all that hard but it does require us to exorcise all the investment demons that live in the heads of just about all investors, some more than others. If we asked a typical investor why they wouldn’t want to put every red cent into IBUY in March, that would be a great test question as whatever demons that ruled their brains would come out and scream their protests.
Whatever reasons come out of their mouths need to be written down and then they can go off and look to get beyond them, and if they can, they will be ready to succeed. This isn’t to say that it would be a bad idea to throw in some goodies in other sectors as well, to spread things around, but the operative word here is goodies and not sticking to the goodies and having such a strong desire to mix in a lot of foul-smelling stocks in there like a kid might cry for a smelly old blanket is where their real problem lies. It smells bad, but it’s a comfortable bad.
If We Want More Gold, We Need to Be Willing to Seek It
Investors generally are still back in the hunter gatherer days, with no sense or desire to qualify their investments, where somehow variety is seen to be so important that we’re willing to stifle our progress in a hideous way for its sake. We not only throw in every kind of rock and piece of garbage we can find, we even do these things on purpose, and this even is the prime objective with a lot of people, taking up their whole field of vision where what we are supposed to be doing with these things, making money, gets forgotten completely.
We instead need to be miners and smelters, where we look for mineral rich ore and then smelt it to extract a higher grade, like they do with gold. Gold in its natural state is only sprinkled into ore, and you have to isolate the gold by melting down the rock to have something of true value.
What we do instead is collect a lot of worthless rocks along with our gold ore, and try to melt them all together to get a big rock that has even less of a gold content than ore in its natural state. They tell us that this is what they are told to do although neither the people telling them this nor them has thought about how silly this approach to mining is, or could even come up with a good rationalization supporting it.
We can invest in the entire stock market with an ETF like VTI, the Vanguard Total Stock Market Index Fund, the maximum amount of undifferentiation we can get. People who would find this appealing need to ask themselves why they would ever want to invest in the total stock market, and whatever answer they come up with isn’t going to be a good one because there simply isn’t a good reason to do such a mindless thing. If you are mindless though, your capacity and this approach will align perfectly.
An index like the Dow or the S&P 500 uses basically the same strategy, where any differentiation with the overall market will be achieved by accident, and the goal is to do the opposite in fact. There’s a little smelting going on as this at least keeps you in the big caps which tend to be more rich than other types of stocks, and this is particularly better than what a lot of active fund managers want to do, choosing poorer ore content on purpose like those who like smaller cap stocks, what are called value stocks, various types of bonds, or any sort of overweighting of junk which makes the investments perform poorer than even the average stock.
We can take something like the S&P 500 and melt it down, and we’re looking to remove the impurities and richen up our ore. We won’t be able to refine this into fine gold like they use with bullion, as it’s impossible to know which of the richer deposits will yield a higher-grade ore, but we at least should be shooting for the maximum purity we can achieve.
There was nothing shinier looking at the bottom of the 2020 crash than online retail stocks, but in order for investors to muster enough courage to actually want to go for a higher amount of gold than just settling for very low grade deposits, they need to better understand whatever is keeping them from doing such a thing, what is causing them to be so afraid to succeed. If you are supposed to be a gold miner but are afraid of gold, you won’t do very well at it.
IBUY is starting to hit the radar of a few commentators after it has come so far, and they are both in awe and in fear, wondering about how such a sweet ride would have felt like but being too afraid to jump on now. The truth is, they would have been too afraid to jump on this at any point in its rise, and at most may have thrown a little change at this and perhaps even be delighted that they made a few bucks off of this and the fact that they could have made so much more escapes them, because being that bold is unthinkable.
This is why they miss all the good moves, as good moves scare the heck out of them somehow, while crappy ones do not. There are plenty of people who would put all of their money into the S&P 500 without any reservations but would be horrified at doing this with IBUY or any index that doesn’t have a load of rocks weighing it down like the S&P 500 does, and don’t get now silly this is because they are too afraid to even think about it.
IBUY has been on a strong trendline up for months now, and what scares people is the idea that they may jump on and the train ride will end, and they fear that they will then be dumbstruck and tumble down the other side of the mountain right after it like Jack and Jill holding hands while their crowns get broken. There is no such thing as a stock doing too well as far as that being a negative though, and the better they are doing, the more we should want to be in them, at least while they continue to do well., and we cannot forget that we can just jump off later if need be.
For all we know, the move might be over on Monday, and after giving back a tiny piece it could see a lot of profit taking and roll right back down the hill like rolling a ball up a hill and seeing gravity bring it down after its momentum and gravity equalize. These things can keep going for a long time and longer-term investors may even be well served to go with this index and take whatever bumps in the road that come along like we see with everything, with a goal of ending up higher than other choices in the end.
IBUY hasn’t been that bad of a longer-term investment in the few years that it has been around, first trading at $25.09 in April of 2016 and gaining 261% since. The S&P 500 has only risen by 61% over this time, but IBUY is a much richer ore not just this year but overall, beating it by a full 200% in a little over 4 years, which means about 50% more gold per year. It’s not even that IBUY is all that ore rich, it’s that it is a happening index while the S&P 500 is so full of has been stocks.
Online shopping is not a fad and it is the future of retailing, and the future is unfolding right before our eyes and will continue to unfold. This is about the most promising kind of stock you could be in at the present time, and promise does matter, as we can see.
Success favors the bold as well as the bright, where those whose intelligence is not so held back by irrational fear can see it flourish. We get to decide where on the bold/timid continuum we want to be, but we need to get rid of the timidness first before our courage can be build up to play a bigger role in getting us greater rewards. The investment world is our oyster if we want it to be, but we can’t be afraid to open it and collect the goodies inside.