Hello, Reader.
Imagine watching NBA basketball, and LeBron James is having a terrific game.
He’s just made six shots in a row. The game is close. And James is lining up to take another jump shot.
What are the odds that he is going to make it?
In basketball, players and coaches will often talk about the “hot hand.” This refers to the phenomenon that someone who has made several baskets in a row has a greater chance of making the next one.
But that’s a fallacy. The odds that James will make his next shot remains the same, regardless of how many baskets he has made previously.
The belief in the “hot hand” is a well-studied example of “recency bias.”
If you’re unfamiliar with this term, you will certainly understand it if you’ve ever had an annual performance review at your job. Odds are that your supervisor remembers a lot of what you’ve done in the last month… but can’t remember work completed nine months ago. As a result, you’re more likely to be judged more for the last month rather than the last year.
This same bias could be affecting your portfolio, too.
In investing, “recency bias” occurs when a stock has momentum, either up or down. If a stock has been going up for the last six months, folks naturally believe it is likely to keep going up.
The inverse also happens: If a stock hasn’t gone up in six months, it seems likely it will not go up any time soon.
On a wider level, if it has been 10 years since the last bear market, investors are more likely to believe one is not coming soon.
However, you don’t need to rely on momentum to know which stocks to buy or sell. And you don’t have to let your future be governed by recency bias. All you need is the right tools.
That is why my InvestorPlace colleague Louis Navellier revealed his powerful quantitative tool at his “Day-After Summit” last week.
The trades that the system has flagged have beaten the S&P 500 by 6-to-1 in back-tests going back to 1990. And of the 19 open trades in the core portfolio where this system is now in use, 18 are winners.
Folks who take advantage of this system will have the chance to get ahead of unpredictable market moves during political, economic, and financial shocks… like tomorrow’s presidential election is expected to bring. It will also give you the shot at rare short-term gains.
Now, let’s look at what we covered here at Smart Money this past week…
Smart Money Roundup
Chaos Chronicles: How to Survive on This Runaway Train
InvestorPlace CEO Brian Hunt often says that we have entered an “Age of Chaos.” And, he says, it’s all thanks to several colossal megatrends slamming into the world simultaneously. In this guest issue, Hunt shares more about these“Chaos Agents” and how to play them right amid the turbulent election.
The Chaos in the Days After the Day After the Election Could Be Worse
The postelection havoc we’re all expecting could last long past inauguration day. While there’s a positive short-term outcome to both candidates’ spending and tax-cut promises, they come with consequences in the long-term. Thomas Yeung explains stock market trends following past elections and the implications for the next 6 to 12 months.
The Magnificent Seven’s Fate After Election Day
The Mag 7 have trailed the market this year. Admittedly, they haven’t trailed the market by much, and they have continued to produce nice double-digit returns. But as they ramp their spending on AI data centers and other projects, they will struggle to maintain their growth trajectories in 2025 and beyond. Read on to look at the Mag 7’s recent earnings reports… and at how the upcoming election could throw a wrench into their machinery going forward.
87% Chance of a Kamala Win? Here’s How to Prepare…
The real story that Louis Navellier is preparing for is not what happens on Election Day; it’s what could be coming the day after. That’s when unprecedented social strife could be unleashed – including a bout of massive stock market volatility. Fortunately, there’s a way you can not only avoid big potential losses… but also profit… as the most chaotic chapter of the election plays out. Click here to learn more.
Regards,
Eric Fry, Smart Money
