How We’ve Crushed The S&P This Year — And What We Can Learn…

As the holidays approach, we begin to enter that time of year when we become reflective. We think back to how far we’ve come, where we’ve fallen short, and look ahead to next year.

Not only is this worthwhile in our lives, but it’s also a good exercise to undertake with our portfolios.

Over at my premium Top Stock Advisor service, we did just that… Taking stock of our winners, our losers, how we stacked up against the broader indexes. We also looked at our current and asked ourselves an important question… Are they worth riding out? Or should we unceremoniously cut them and move on to greener pastures?

In the interest of transparency, I’d like to share a little bit of what we discussed with you today. And hopefully, by the time you’re done reading this, you’ll be motivated to do the same with your own portfolio.

We’re Crushing The S&P 500…

When I checked in with my premium subscribers a couple of weeks ago, the S&P 500 was up 19.5% on the year. The market has continued rallying, and we’re now looking at 22.7% as I write this.

Either way you slice it, that’s a remarkable return. And it comes on the heels of 18% and 31% in 2020 and 2019, respectively.

Our main Top Stock Advisor portfolio has been equally as impressive. It’s up 29.5% so far this year.

At the time, 13 of the 26 holdings were outperforming the market. Six holdings were just behind the S&P 500, while the remainder were just not pulling their weight. However, only two holdings were down year-to-date (or since we added it to the portfolio) – and one of those was just added a couple of months ago.

Now, before I go any further, I want to make something clear… We don’t expect to get every pick “right”. And yes, some will take longer than others to pan out. But as you’ll see in a moment, you don’t have to beat the market with all of your picks. All it takes is a few “solid” picks — and a handful of outstanding picks to beat the market like this.

[Related: Why Investors Should Stop Focusing So Much On Their ‘Batting Average’]

Case in point, one of our top performers happens to be an insurance pick — American Financial Group (NYSE: AFG). It has returned a stupendous 80% so far this year. In fact, since we added this stock back in August of last year, it has risen by an incredible 166%.

That sort of return is usually reserved for high-flying growth stocks, not “boring” insurance companies.

Meanwhile, two household names in our portfolio come in second and third, with returns of 63% and 48%, respectively. I normally don’t like to give away our picks, since our premium readers pay good money for them, but they’re not hard to figure out. (Hint: one is a search engine giant and the other is in the credit card business…)

You can see how our investments stack up to the broader market in the chart below (please note that these only include the stocks that we’ve held since before the year started):

The seven stocks that we’ve added to the main Top Stock Advisor portfolio this year have also done well.

Our play on the return of music festivals and concerts is up a staggering 40% since we added it in January, compared to the 19% return of the S&P 500.

Another pick is one that I told my readers could be a future ” trillion-dollar company”. That one has ripped off a nice 59% return in just over five months. For comparison, the S&P 500 has returned just under 8% over the same time period.

Here’s how this year’s additions stack up to the S&P 500 over their respective periods (they are ordered from when they were added to the portfolio):

The Takeaway

Again, so far this year we are outpacing the S&P 500 by 10 percentage points. I don’t bring any of this up to brag. There’s no doubt 2021 has been a great year for the market, and the same goes for our Top Stock Advisor portfolio. Hopefully, you can say the same for your own portfolio, too.

Instead, let’s think about some of the takeaways from this exercise.

While not every holding is topping the S&P 500, the outperformance by a handful of our stocks has helped our entire portfolio outperform.

This just reinforces some of the ideas I talk about regularly, like allocation. By keeping our portfolio to a manageable size, our top performers are able to do the heavy lifting. Also, by taking a critical look at our underperforming holdings, we can potentially cut them before things get out of hand.

Also, if you take a look inside our portfolio, you’ll see a combination of “no-brainer” blue-chip names as well as more than a few growth-oriented picks. By having these more “solid” picks in our portfolio, we’re not afraid to “swing for the fences” with our other picks, so to speak. (I talked more about this idea here.)

If your portfolio is up substantially, and you’re sitting on some big winners this year, great. But before you pat yourself on the back, ask yourself what’s up with the rest of your holdings? Should you throw in the towel?

It’s easy to get frustrated with holdings that don’t perform to your expectations and want to nix them from the portfolio immediately. First, go back and remind yourself why you invested in the first place. Ask whether the original investment thesis holds true. If it still holds up, then you just may need to be patient. But if you have a laggard that can no longer pass this test, then it’s worth cutting before it drags down the rest of your portfolio too much.

After you review your portfolio and see how you stack up, then consider checking out my latest research…

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