Bull Market Turns Two: 5 Stocks Turn $25,000 Into $212,787
This past weekend, the latest bull market celebrated its 2nd birthday, providing us with another good illustration to show how we can go about constructing a diversified portfolio of winning stocks.
One of the best ways to build wealth over time is to invest in high-quality businesses and allow the magic of compounding to drive the performance of our portfolio.
Contrary to popular belief, it doesn’t take a lot of money to get started and gains can really add up very quickly.
Building Out a Winning Portfolio
I’m a big fan of having a smaller and more concentrated portfolio. If we try to include 40-50 stocks, it’s nearly impossible to outperform because our big winners aren’t going to be a large enough percentage of our portfolio.
Why do we invest in individual stocks? We do it because we want to invest in the best companies and outperform the market.
In our example, we have 5 stocks in a relatively diversified portfolio. These include FTAI Aviation FTAI, Vistra Energy VST, Nvidia NVDA, Vertiv Holdings VRT, and Facebook-parent Meta Platforms META.
It’s a bit overweighted technology, which I think has been warranted in this environment given the bullish artificial intelligence theme. The returns listed below are from the previous bull market bottom in mid-October of 2022 to the 2-year mark from that date. We assume a $25,000 total investment or just $5,000 invested equally in this portfolio of stocks.
Image Source: Zacks Investment Research
And we can see that over that time period, this $25,000 investment grew to an incredible $212,787, widely outperforming the S&P 500 over the same timeframe. A $25,000 investment in the S&P 500 grew 62% to just over $40,500, which is still a great return over just two years. Keep in mind that these results shown are without the use of leverage or margin.
Constructing a well-diversified portfolio doesn't need to be overly complicated or include too many positions. There is such a thing as over-diversification. In my opinion, simple is better when it comes to investing and in life in general. This is a long-term game that requires a long-term mindset to succeed.
This example should serve as an important reminder that you don't need to trade overly speculative positions to achieve an incredible rate of return.
Identifying Stocks with the Best Profit Potential
At any given time, there could be hundreds or even thousands of stocks on a technical buy signal. One of the ways we further narrow down our list of stocks is through the Zacks Rank system.
Corporate earnings are one of the main drivers of stock market activity over time. That’s why earnings expectations and estimates are so important. And it’s the change in earnings estimates (called earnings estimate revisions) that our research has shown to be the most powerful force impacting stock prices.
Once we’ve identified and confirmed a stock’s trend, the Zacks Rank systems help us narrow down the investment universe to stocks that are experiencing positive earnings estimate revisions. We then use a combination of fundamental and technical analysis to identify stocks primed for explosive gains.
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NVIDIA Corporation (NVDA) : Free Stock Analysis Report
FTAI Aviation Ltd. (FTAI) : Free Stock Analysis Report
Vistra Corp. (VST) : Free Stock Analysis Report
Vertiv Holdings Co. (VRT) : Free Stock Analysis Report
Meta Platforms, Inc. (META) : Free Stock Analysis Report