BUY THE POPULAR OR THE UNPOPULAR STOCKS?

To be exact we are not trading any single stocks while in our methodology the volatility in single stocks is much higher and therefore too risky for us so we are only trading in our managed account programs indices http://bfmassets.com/managed-account.html

But the question is still accurate we should own popular stocks which are loved by the mass or ignore them and hold the most hated ones. Which class is the real overperformer in longer term? The reason for the popularity effect is that stocks are not like other goods. When they rise they have a tendency to increase, not decrease. A typical investor who hears that a friend or neighbour had made money out of that stock wants to jump on the bandwagon.

The popularity is comes from media, those stocks most likely are in the news, in TV and mostly recommended by analysts. This is called a Momentum-effect which helps the price get higher and continue to perform well in short term. But after a while this popularity push these stocks up to excessive valuations and they are going to lose the momentum for sure.

Since 1960 the statistics show the least popular stocks are outperforming the popular ones with around 7% per year. And, the popular ones have much higher volatilities if the market falling 5% they drop 10%.

The common mistake is owning popular stocks also between professional traders and brokers. They may want to show to their clients that they have been smart enough to buy the hottest stocks of the year. The money managers are likely to buy their favourite shares — by definition, those that have recently performed well. This is the momentum effect. This might explain why the average manager does not outperform the market.

All in all buy the pariah and lagging stocks and ignore and forget the trendy ones like facebook, google, apple, tesla…etc.

Start your investment with our profitable team of traders: http://www.bfmassets.com/managed-accounts

The BFM Assets Team.