‘Tis the season to be jolly, thankful — and disciplined. And where better to get some timely tips on investing in stocks than the holiday classics “Rudolph the Red-Nosed Reindeer,” “Frosty the Snowman” and “A Christmas Carol” featuring the reformed curmudgeon Scrooge.
Using examples from Nvidia (NVDA), Facebook (FB) and Netflix (NFLX), we’ll reveal a few of the secrets to stock market success hidden within these beloved holiday specials.
From lessons on market timing and the seven traits of winning stocks, you’ll see how these stocks and these Christmas characters provide timeless insight into how the stock market really works.
We all know it’s Rudolph’s unique red nose that makes him the “most famous reindeer of all.”
It’s the same for the best stocks to watch: They have a product or service that is unique, innovative and in demand. That’s the “N” in CAN SLIM Investment System — something “new” and game-changing. And that’s what ultimately drives the big earnings and sales growth that attracts the buying power of institutional investors.
Think about what drove the powerful moves of Nvidia, Netflix and Facebook over the years. Each company has been a game-changing innovator.
Nvidia’s chip technology has been at the cutting edge of artificial intelligence (AI) and the self-driving car revolution.
Netflix has gone through multiple industry-changing innovations since being founded in 1997. From delivering DVDs with no late-fees to pioneering online streaming to becoming a major creator of original content, Netflix has continued to develop new businesses.
Facebook, of course, has been at the forefront of the social media revolution, disrupting the earlier pioneers. And as the world moved from desktop to mobile in the early 2010s, Mark Zuckerberg and the Facebook team found its mobile mojo to avoid being left behind.
Frosty The Snowman On Investing In Stocks
Frosty teaches us how the market and individual stocks move in cycles.
America’s favorite snowman melts each year, but he always returns the following winter. It’s the same with the market: After every market “meltdown,” a new bullish uptrend emerges. That’s an important point to remember as we go through the current market downtrend.
But keep these two important facts in mind.
Most leading stocks in the prior bull market do not come back to lead in the next one. In fact, only about one in eight past leaders return to lead again. So when a new bull market begins, be on the lookout for a new crop of leading stocks.
When a bear market hits, former leading stocks decline 72% on average. So understand the dangers of a “buy and hold” strategy, and be sure to lock in your profits and cut short any losses when the market rolls over.
Frosty also teaches us about the importance of institutional sponsorship — the “I” in CAN SLIM.
In the classic TV show, it’s the magic black hat that brings Frosty to life. In the stock market, the magic hat is the buying power of fund managers and other large institutional investors. They provide the fuel that pushes a stock higher. Without that support from the institutions, a stock is unlikely to make a big, sustained upward move.
In recent years, Nvidia has revealed the power of strong institutional sponsorship. Mutual funds and other large investors bought heavily into the stock as it broke out and flew higher from a March 2016 breakout. The stock eventually rose 750% in 29 months, posting multiple weeks of heavy institutional buying.
Since making that big run, Nvidia has entered a Frosty-style meltdown. Will it manage to find that “magic hat” again and return to lead again in the next uptrend? Or will it be like the vast majority of former leading stocks and fail to regain its market leadership? Only time will tell.
- When to Get Into — and Out of — the Market
- Make Sure Top Fund Managers Are Backing Your Stock Picks
- Which Stocks Have The Best Mutual Funds Been Buying?
Scrooge On Investing In Stocks
The famously stingy and grumpy Scrooge teaches us about the importance of reflection — and that we all deserve a second chance.
By the end of “The Christmas Carol,” Scrooge has transformed from “Bah humbug” to “Merry Christmas! God bless us, every one!” How did he make that transformation? By doing a post-analysis of his life.
All investors make mistakes, but not all investors learn from them. That’s the difference. To make sure you learn from your mistakes (and your successes), do a regular post-analysis of your trades. It’s a profitable use of your time, and much more pleasant than being visited by ghosts in the middle of the night.