From Grant Wasylik, chief analyst, The Palm Beach Letter: In investing, as in football, high scores may put fans in stadium seats, but “defense wins championships.”
The S&P 500 Index lost 5.6% in the first half of October 2014… only to roar back 8.4% in the month’s second half. That made for a net gain of 2.3% on the month.
It was a seesaw month for the market. In the first half of October, there were five trading days with losses of at least 1%. Then in the latter half of the month, the market had its best trading day of the year (+2%).
I ran the numbers on The Palm Beach Letter Performance Portfolio (average of all current holdings) for comparison:
Index/Portfolio | October’s First Half | October’s Second Half | October’s Full Month |
S&P 500 | -5.6% | +8.4% | 2.3% |
Performance Portfolio | -1.9% | +7.5% | 5.4% |
As you can see above, the Performance Portfolio lost only one-third as much as the S&P 500 in the first half of the month… but it still participated in 90% of the market’s gain in the second half.
Because of our defensiveness during the first half’s “mini” correction, Palm Beach Letter subscribers outperformed the market in October by a 135% margin—5.4% to just 2.3%. Let me explain how powerful this is…
Many investors believe if their stock portfolio declines by 50%, they need a 50% gain to break even. But that’s wrong. Say you have $10,000 invested in the market. It drops 50% (leaving you with $5,000). Now you have to gain another $5,000—100%—just to break even again. That’s why we want to select defensive stocks that never fall as far in the first place.
This “Offensive” Stock Takes a Beating
Where the average investor focuses on wins… we focus on losses (and how to prevent them). That’s why we’re relentless in providing safe, income-oriented picks every month. These stocks traditionally hold up better during market pullbacks. And of course, we add another layer of defense to the mix: the Palm Beach Three-Legged Stool of Safety. This risk-management combination includes position sizing, stop-loss discipline, and diverse asset allocation models. This keeps us further shielded from ever incurring a catastrophic loss.
The result is security, prosperity, and market-beating results… in any economic environment. Defense does win championships.