Clients like to see home runs in their portfolio... but singles and doubles help you win the ballgame.
Everyone wants to hit home runs. Finding the stock that explodes, doubling or tripling in value in your client’s portfolio certainly feels great. After all, its much easier to talk about your winners in mid-year client reviews than your losers, and having a stock that has quadrupled its benchmark is a winner by all versions of the word. Unfortunately, finding those tenbaggers is much easier said than done, and no one (even trend followers) would suggest building a business off them alone. With that in mind, it is perhaps more important to revisit a simple psychological bias- the idea that clients dislike losing more than they like winning. So called “loss aversion” states that the pain of loss is felt more than an equivalent gain- an important point to remember when it comes to how you handle your client’s portfolios. Sure, finding a stock that triples in a year would impress your clients… if you didn’t lose them all with a ton of little losers in the process. All this to say, finding ways to mitigate downside within weak sectors is paramount, particularly when it comes to the “business risk” of losing a client before you can show off your stock picking skills.
To demonstrate this idea, we created a completely hypothetical portfolio which equal weights the 11 sectors (10 pre-2019) since 2011. This baseline portfolio assumes that a prospective client showed no preference towards areas of strength/weakness across the back test. To demonstrate the importance of missing these losing sectors, we created a hypothetical portfolio which simply avoids the weakest sector and distributes the weight across the rest of the sectors for each respective calendar year. Point to point returns jump from 271% (baseline) to 479% (hypothetical) suggesting that is does in fact pay to avoid sectors that underperform. While this on its own is quite obvious, the point of this study is to demonstrate the substantial value gained by simply avoiding underperformers. Said otherwise, shedding underperformers isn’t quite as exciting as unveiling your “home run” pick to your clients, but certainly plays its own part in making sure you can manage their portfolio for the full nine innings.
Fortunately, the NDW platform has a wide variety of different tools available to you to ensure you are able to identify which areas of the market are worth avoiding. The DALI rankings are typically a good place to start, zooming in underneath the hood to gauge strength/weakness across different asset groups. Highlighting the new research hub below, you can click on any of the sectors to get up to date research content from the analysts. The featured buy lists are also a quick and easy way to source relevant ideas across different sectors. For those of looking to trailblaze your own screens, the security screener allows for complete customization, allowing you to focus on more in depth details (consecutive buy signals, trend distance, etc.) To build out an actionable list of ideas using the screener, we focused on those strong stocks in weak sectors (healthcare and energy), helping cut out those poor sectors we know can drag your portfolio lower. The exact criteria is detailed below, yielding a list of 11 names.
To wrap up today’s piece, we will offer a quick comment on one of the stocks found in the screen detailed above. Up over 30% so far in 2025, CAH has put together a string of three consecutive buy signals on its default chart, breaking to new all-time highs in May. Ranking second in its respective sector matrix, the stock remains a strong RS option for focused exposure within a weak healthcare group. Those a bit cautious around all-time highs could look to pullbacks towards the low $140’s. Regardless, finding opportunities to pick up exposure to high relative strength options within poor sectors is paramount when it comes to adding value across client portfolios.
